ABC warehouse contractor also settled multimillion-dollar federal fraud case

A company cited for questionable contract dealings in a recent state audit of the N.C. Alcoholic Beverage Control Commission in 2015 paid a civil settlement of $7.8 million under federal allegations of fraud.

The U.S. Department of Justice alleged the company fraudulently obtained financial assistance through the Small Business Administration.

The Business Development Program for Small Disadvantaged Businesses, housed under the SBA, offers support to small companies in financial distress. LB&B sought certification under the program, falsely claiming hardship under one of its principal owners, Lily Brandon. Brandon qualified as a socially and economically disadvantaged person — but allegedly didn’t, as the company claimed, control operations of LB&B.

Brandon’s lack of involvement disqualified the company from collecting contracts under the program.

LB&B, a North Carolina corporation headquartered in Maryland, has also come under state scrutiny in an audit revealing $13.5 million in bloated spending since 2007.

Released Aug. 9, the audit found poor contract administration cost North Carolina taxpayers at least $11.3 million over 13 years. Unused warehouse space potentially cost the state $2.1 million over seven years, and a lack of monitoring left the state underpaid by at least $297,537 over two years.

The ABC erred in its responsibility to follow state policies and state practices, the Office of State Auditor Beth Wood says in the news release. The ABC, the audit concludes, failed to administer the warehouse contract in the best interest of the state.

LB&B was an instrument of the ABC’s negligence, Wood said. The company for years collected extra compensation from ABC without documentation or proof.

The company specializes in facilities management, logistics, and training operations. Since 2004 it has contracted with the state to provide warehouse and distribution services.

“Whatever they asked for, they got. Without any question, without any verification, without any consultation or proof or justification,” Wood said.  

“And in some cases what they said was their reasoning was not true. In 2008 they asked for an increase the next year, and said it was due to price increases for their fuel. When we examined their fuel cost, it actually went down. Same thing in 2016. When we examined it, it had gone down.”

LB&B, in a response to the audit, said it was “disappointed” by the report, which, it said, failed to recognize the correct statutory authority as mandated to the ABC by the General Assembly “and improperly attributed excessive costs and underpayments to the contract.”

Carolina Journal phoned and emailed ABC officials, asking if the commission was aware of the 2015 fraud allegations against LB&B — or of the company’s $7.8 million settlement. No one at ABC knew of the situation, said spokeswoman Agnes Stevens. 

“The other business relationships that the vendor has are not matters that we would have any reason to know details about,” Stevens said.

LB&B “expressly denies all allegations in the lawsuit that it, its affiliates, or its officers or employees violated the False Claims Act or otherwise acted improperly with respect to any government contracts,” the company stated in a July 6, 2015, press release.

Another reason for the settlement was the poor health of the company’s founders, said LB&B spokesman Edward Green.

Though the claims resolved by the settlement were allegations only, and no determination of liability was made, LB&B’s actions undermined legitimate small and disadvantaged businesses, said acting U.S. Attorney Vincent Cohen Jr. in a July 6, 2015, press release from the U.S. Department of Justice.

Two former LB&B employees, Steven Sansbury and James Buechler, blew the whistle and in 2004 filed a lawsuit on behalf of the government.

“This $7.8 million settlement demonstrates our commitment to protecting the integrity of this important program,” Cohen said. “We will do all that we can to act against those who illegitimately bill the American taxpayers.”

N.C. ABC chairman A.D. Zander Guy, in his response to the audit, said plans are under way to place the warehouse contract up for bid in 2020 and become effective when the current contract expires in 2021.

But, Guy says, he was appointed only last year and “the majority, if not all of your review period, was before my tenure as chair.”

Yet Guy has a history with the state ABC during the period LB&B was reportedly overcharging state taxpayers. In 2009, he was first appointed to the commission and served until 2013. He was chairman from February 2012 to February 2013.  

Gov. Roy Cooper last year named Guy to replace Jim Gardner, who was appointed by former Republican Gov. Pat McCrory.

Guy was most recently the mayor of Surf City, which straddles Pender and Onslow counties. In 1990 he served three months in prison on charges of fraudulently billing clients of his insurance agency for nearly $16,000, the News & Observer reported. Gov. Jim Martin commuted his three-year and later pardoned him.

Guy’s father, A.D. Guy, was a former state senator, the Raleigh paper reported. In 2009, Zander Guy told the N&O, “‘I’m ashamed of that [crime] and I can’t change it.’”

 Guy will make $113,456 as commission chair, the Star News of Wilmington reported.

Guy accepted the finding and says he takes the audit seriously and will implement changes accordingly. He says the commission has already implemented additional controls, including random spot checks of the warehouses, inspections of the inventory and operation, and ride-alongs with select deliveries to ABC boards across the state.