State ABC cutting options on shelves as it praises controversial warehouse operator

An email to suppliers last week from the N.C. Alcoholic Beverage Commission, in addition to announcing that it’s trimming the number of products it lists, cited the state’s alcohol warehouse operator for its good work.

It’s the same operator, LB&B, which was named in an audit released this past summer that 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.

“As 2018 comes to a close,” the email says, “we once again are breaking records in numbers of cases shipped and in dollars returned to the state and the communities where your products are sold. Teamwork and collaboration has been the key to this success. I want to particularly call out the cooperation of our warehouse operator LB&B who has provided responsive solutions to both the brokers and the boards throughout the year.”

If the state does have unused space, which the audit found, what then, is the problem?

“The state uses warehouse space in two primary ways,” ABC spokeswoman Kat Haney told Carolina Journal in an email.

“One warehouse is used for bulk storage of products that have a tremendous demand from the boards (and the public) and that the state needs to have a large volume of cases available on hand at all times,” Haney said.

“The bulk storage warehouse also is used as a staging area for holiday items. [H]oliday orders occupy all of the non-bulk product space for approximately one quarter of the year. The remainder of the year, that holiday staging space at the rear of the warehouse is available to hold items that are available for a limited time only for the ABC Boards to purchase. The other warehouse is used to deploy truckloads of product out to the 170 ABC Boards. This warehouse is kept fully stocked from the bulk warehouse and from direct shipments from suppliers.”

In the email to suppliers, sent Wednesday, Nov. 14, on behalf of ABC administrator Agnes Stevens, the goal is providing “the optimum selection of products and sizes to meet customer expectation (both individual and mixed beverage customers).”

ABC’s strategy, according to the email, would, in December, “delist products that do not meet 2017/18 profit thresholds for NC ABC boards — $15,000 for vodkas, $10,000 for other, $5,000 for N.C. products, $1,000 for boutique … and use additional filters including trends and numbers of similar products to trim list to a maximum of 2,300 listed products.”

The ABC Commission website showed 2,695 items, as of Nov. 1, the ABC says.

“The number of listed products fluctuates during the year,” Haney says. “It’s important to note that there are different categories of listings such as: year-round listings, 90-day listings (these are called 20-codes because of the location on the warehouse floor), special orders, etc. The 2,300 listing number is a target and includes both year-round and 20-codes. We are attempting to optimize the finite space to meet the demand of the public for new products and use the warehouse space most efficiently.”

But the state audit released Aug. 9 says otherwise.

Auditors found 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.

“My staff said, ‘When we looked at the ABC commission, there’s something not right there,” Wood told CJ. “They’ve got a contract that’s not been put out for bid since 2004, they can’t answer questions about how the contract’s being administered, this is not tied to a financial statement audit, but it’s info they’ve gleaned about that division of DPS.”

Maryland-based LB&B, which, its website says, specializes in facilities management, logistics, and training operations, since 2004 has contracted with the state to provide warehouse and distribution services.

“In state fiscal year 2017, the contract cost for warehousing and distributing spirituous liquor was $8.3 million. The total contract cost from July 2004 through June 2017 was $77.7 million.” Auditors found the commission failed to “procure, administer, and monitor the LB&B contract for the warehousing and distribution of spirituous liquor in accordance with state policies and best practices.”

In his response to the audit report, ABC Chairman A.D. Zander 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.