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AG Audit Finds Rampant PLCB Waste and Mismanagement
CF renews call to end government liquor sales
HARRISBURG, PA (08.01.11)—The Commonwealth Foundation strongly condemned the Pennsylvania Liquor Control Board today for systematic waste and abuse of taxpayer money and assets following a scathing Pa. Auditor General audit report that found rampant agency mismanagement of inventory and finances.
Among the findings in the most recently released 48-page 2009-2010 audit, now quietly buried within the AG Web site without public comment or recommendations, AG investigators found:
• The agency spent more than $66 million taxpayer dollars on the Enterprise Resource Planning system (ERP), a computerized inventory management tool that caused widespread shortages at PLCB distribution centers and cost two-and-a-half times the original plans. According to the report, "retail store managers began hoarding some merchandise items, leaving other retail stores without that merchandise. This exacerbated the existing inventory shortages at stores; items were out of stock and unavailable to customers."
• Compounding the problem, PLCB management then demanded purchasers order excessive inventory due to the shortages. The report found, "In addition to acknowledging that it tried to buy itself out of the out-of-stock and hoarding situations, management also indicated that it could not change the volume of inventory coming into the distribution centers even though they were overflowing with excess product because vendors had already processed these orders".
• These decisions resulted in more inventory than space, a situation made worse by the fact that, despite already having excess, the PLCB couldn’t stop the ERP system from ordering more. Due to the mismanaged inventories, the PLCB then spent approximately $500,000 for trailer rentals and additional security guards. According to investigators, "The trailers containing the merchandise were located off site and were in use for at least six weeks when our auditors uncovered the PLCB’S use of these non-temperature controlled trailers."
o Scranton: Inventory more than doubled to 606,383 cases in 2010, causing additional warehouse space to be acquired.
o Pittsburgh: Inventory jumped from 300,000 cases to 575,000 cases in 2010, exceeding storage capacity. PLCB management decided to put 72,277 cases of excess merchandise in 57 non-temperature controlled trailers.
o Philadelphia: Inventory reached 763,470 cases. 20,240 cases were moved to non-temperature controlled trailers.
• Moreover, investigators found PLCB management claimed storing excess inventory in non-temperature-controlled trailers, despite heat exceeding 100, did not put inventory at risk of spoilage. Auditors found this to be false, observing, "merchandise stockpiled in the non-temperature controlled trailers such as wine and champagne actually was more susceptible to high heat."
Contrary to the finding, the PLCB continues to deny widespread spoilage and an accurate account of money lost due to overheating remains unreported.
Of the systemic problems, the audit went on to conclude, in part, that auditors, "received little response from management to demonstrate its follow up and resolution to ensure that store inventories are properly accounted for."
"This fiasco is just the latest in a series of failures by the PLCB to be good stewards of taxpayer money, and clearly illustrates why legislators should be shouting ‘last call’ for government in the booze business," said Matthew J. Brouillette, Commonwealth Foundation president and CEO. "It’s unconscionable that Pennsylvania government continues to protect and promote a Prohibition-era monopoly so antiquated and inept that it has taken basic freedoms from consumers and robbed taxpayers and businesses of free-market benefits."
The report comes just weeks after PLCB Chairman P.J. Stapleton III publically boasted about record-setting sales, but neglected to cite the AG audit that found that while overall sales have increased, net revenues from store operations have declined nearly 47 percent, from FY June 30, 2008 to FY June 30, 2010. The PLCB release also failed to cite salaries, benefits and pension costs of more than $215 million last year or the millions spent each year to advertise and promote liquor sales.
"In order to keep themselves in business, the PLCB is only giving taxpayers and consumers a glass-half-full spin, when in reality the glass is nearly empty," said Brouillette. "This proves once again that monopolies, whether public or private, fail to meet consumer and taxpayer needs."
CF is calling for an immediate end to the PLCB’s role as seller and distributor of wine and spirits, a system of full government control that now sees Pennsylvania as one of only two remaining states in the nation (the other is Utah) with such draconian measures.
"The people of Pennsylvania know this issue isn’t about just about liquor and money, it’s about freedom and ridding ourselves of government monopolies, manipulation and mediocrity," said Brouillette. "It’s time our leaders listen to the demands of their constituents who want government to butt out of the booze business."
In a June Quinnipiac Poll, Pennsylvanians overwhelmingly called for the sale of 644 state-run stores, with broad-based bipartisan support reaching more than 69 percent.
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The Commonwealth Foundation (CommonwealthFoundation.org) is an independent, non-profit public policy research and educational institute based in Harrisburg, PA.