DABC commission chairman: 'Everybody knew except the commission' about problems uncovered in audit

Published: Friday, Nov. 4 2011 11:50 p.m. MDT

SALT LAKE CITY — State liquor commissioners were told Friday there's more to be uncovered after a legislative audit that found the Department of Alcoholic Beverage Control has been "incompetently managed" for years.

"I believe an audit team could survive in this agency for a quite a while," Legislative Auditor General John Schaff said during his office's presentation of the controversial audit to the commission. "There's a lot of work here."

The latest audit is one of some dozen examinations of the agency by legislative or state auditors since 2002 that have dealt with everything from purchasing issues to how budget reductions have been handled.

"It looks to me like everybody knew except the commission," DABC Commission Chairman Richard Sperry said after auditors referred to those past reviews.

Sperry said the first time he realized the commission may be being misled by management was in May, when auditors revealed that a now-closed package liquor agency had lost $300,000. He was named chairman this past summer.

"We were absolutely determined as a commission that we were going to do our job to make sure that did not happen again," Sperry said. "We're all fairly wet behind the ears and green in our jobs."

That loss turned out to be only the start of problems for the agency that controls the sales of liquor, wine and high-alcohol content beer in the state.

An audit released in mid-October cited "years of bid rigging, falsifying financial documentation and artificially splitting invoices in violation of state statute," and said the former executive director, Dennis Kellen, may have committed a felony in business dealings between the DABC and Flexpak, a company owned by his son.

The attorney general's office investigation is ongoing.

Kellen was pressured to resign in August amid allegations of what Gov. Gary Herbert called "serious violations" of procurement law. Herbert named state Department of Commerce Executive Director Francine Giani to serve as the agency's temporary head.

Two other top DABC managers, former deputy director John Freeman and former finance director Leonard Langford, are also out. A memo was released Friday that Langford wrote to Sperry at the time of Kellen's forced resignation, taking responsibility for the department's failure to comply with state purchasing policies in dealing with Flexpak.

Langford's memo stated that Kellen "has always said that any purchases from Flexpax (sic) must comply with state policies. Despite this, I did not properly monitor Flexpax's (sic) purchases as Dennis had expected."

He said that Kellen "was willing to take the blame for what occurred. He hoped that his resignation would remove some of the intense media and political pressure that has focused on DABC. I hope this memo will set the record straight regarding responsibility for this current investigation."

Schaff said at Friday's meeting that when the package agency issue arose last spring, he met with Kellen. "I told him point blank that his finance director had exhibited incompetence," Schaff said, noting no action was taken by Kellen. 

The legislative auditor general said Langford's memo meant little given the situation and called DABC management "dysfunctional."

Giani agreed more than Langford knew what was going on. "It was not one person. There was a team of three or so or more who met every morning," she said. "To say all were not involved or knew is not correct."

She said she has replaced Langford with Benjamin Buys, a former legislative auditor. Buys will start Nov. 14. "We're getting some whispering of things going on, and I want to get facts," Giani said.

There has been friction between Giani and the commissioners, who have said she should be sharing information about the DABC with them, not the governor.

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