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Scott G Winterton, Deseret News archives
The Utah State Capitol on Jan. 23, 2012. According to a new legislative audit, a former Utah Department of Alcoholic Beverage Control licensing and compliance director, should be criminally investigated for accepting gifts.

SALT LAKE CITY — A former Utah Department of Alcoholic Beverage Control licensing and compliance director should be criminally investigated for accepting gifts, according to a new legislative audit.

Earl Dorius, an attorney, took free meals and gift cards, including one valued at $250, from an "old friend" who owns eight establishments that hold liquor licenses, according to the legislative auditor general's report issued Tuesday.

"Even though these gifts were described as gifts from a friend, they still violated state laws," the audit said.

Auditors referred the matter to the Utah Attorney General's Office.

In addition to employee improprieties, legislative auditors said they found problems with DABC operations, including inventory discrepancies, poor oversight of warehouse maintenance contracts and lax warehouse security.

In a written response to the audit, new DABC director Salvador Petilos said that since the agency reached an "inexcusable and scandalous low point" last summer, it has been moving at a "sprint pace" to change its culture, specifically policies, personnel and internal enforcement.

"Much has been accomplished, but there is still more to do," Petilos wrote.

Senate President Michael Waddoups said he was pleased to see a change in the agency's direction. But he also cautioned Petilos that the "criminal element in the alcohol business nationally is huge."

"We're counting on you and your department to keep a good reputation and good control of the alcohol in our state," the Taylorsville Republican said during a Legislative Audit Subcommitee meeting Tuesday.

House Speaker Becky Lockhart, R-Provo, said the changes at DABC demonstrate the power of good audits and the effectiveness of auditors "really getting in there and finding some problems and exposing those problems."

Audits last year found DABC rife with mismanagement and accused former executive director Dennis Kellen of a felony for doing business with a company his son owns. Kellen resigned in August 2011. Gov. Gary Herbert appointed state Department of Commerce head Francine Giani to run the agency last fall, which she did until June.

State lawmakers also restructured DABC to make it more accountable to the governor.

Attorney general's office spokesman Paul Murphy said criminal investigations are ongoing but said investigators don't want to say who or what they're looking at.

Auditors said Dorius told them he couldn't remember how many gifts he received but estimated at least half a dozen or more over the years, including some that were not meals or gift cards.

The value of the gifts led auditors to conclude Dorius may have committed a second- or third-degree felony, according to the report.

Dorius, who worked at DABC for more than 20 years, resigned in March. His resignation letter stated, "I am hereby submitting this letter of resignation from the department for the reason that I received gifts from a licensee."

Dorius could not be reached for comment.

Past audits and other employee problems illustrate the need for more employee ethics training, according to the new audit. 

The report also found that a liquor store assistant manager received free meals from restaurants that hold liquor licenses in exchange for restaurant and wine reviews. Another store employee asked for and received apparel from a liquor vendor, the audit said.

Poorly managed service contracts totaling $2 million resulted in DABC being overcharged for parts and labor going back to 2003. For example, one warehouse maintenance contract charged the agency for new parts when it was installing used parts bought at a discount, according to the audit.

Since 2007, DABC has sold $834 million in alcohol and adjusted physical inventory by more than $1.6 million. Auditors say they did not find any evidence of missing products, but they are concerned about the difference between recorded and observed inventory.

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"Because DABC cannot accurately report or explain inventory variances, the agency cannot sufficiently track how much pilferage is occurring," the audit said.

Auditors also tested how accurately liquor stores are in receiving inventory by manipulating warehouse shipments of certain products. Only 63 percent of stores passed the test, according to the audit. Also, most of the state's 44 liquor stores did not conduct a physical inventory in 2011.

The audit also identified security breaches at the DABC warehouse. An auditor who was not known to warehouse workers walked in an open door and left with $200 worth of alcohol without being questioned.

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