The Virginia Mercury - BY: MEGHAN MCINTYRE - JUNE 27, 2023 12:04 AM
After discovering at least seven cases of embezzlement at stores around Virginia, the Virginia Alcoholic Beverage Control Authority issued a press release early this month stating inventory losses incurred by the authority “compare favorably to the overall retail market.” However, the authority’s numbers and explanations for its losses have fluctuated dramatically, causing some ABC insiders to wonder whether the authority is accurately reporting how much liquor is going missing from its books. In response to questions from the Virginia Mercury, ABC officials claimed they cannot provide a detailed breakdown separating inventory losses at ABC retail stores from inventory losses at the authority’s distribution centers – despite a presentation recently given to ABC’s Board of Directors and authority documents that indicate the authority tracks that data. That distinction is important, according to business experts, because addressing inventory problems can be difficult if the source of those problems is unknown. Despite ABC’s claims, authority emails obtained by the Mercury through a Freedom of Information Act request indicate the distribution centers may have been the primary source of inventory losses, and warehouse losses in fiscal year 2022 may have been greater than the authority recently reported. A shrink in distribution center inventory Jim Bradley, a professor of operations management and information technology at William & Mary, said all businesses experience losses due to “shrink,” an industry term used to describe when a company has less inventory — or liquor, in ABC’s case — than previously recorded. Shrink results in a loss of profits because missing products cannot be sold. In its June 6 press release, Virginia ABC said it had conducted inventories of its distribution center and 394 stores this March and found approximately $1.5 million worth of shrink from the two combined in fiscal year 2022. A June 6 press release from Virginia ABC describing shrink over the past few years. This was the same number authority officials presented to the Board of Directors June 8 while detailing the transfer of inventory from the authority’s old Richmond distribution center – the warehouse where the majority of inventory was kept before being shipped to stores – to its new distribution center in Mechanicsville throughout 2021 and 2022. But an internal ABC report dated June 29, 2022, which was obtained by the Mercury through a FOIA request, pinpointed over $2.7 million in shrink for the same year tied to the authority’s distribution centers alone. The same report also identified $540,000 worth of “swell” — the opposite of shrink, describing a situation in which products previously recorded as missing are found — occurred in stores that year. An internal ABC report dated June 29, 2022, which was obtained by the Mercury through a Freedom of Information Act request. Taken together, the figures put ABC’s overall shrink for 2022 at over $2.2 million, all of which stemmed from its distribution centers. Even with this higher number, Virginia ABC still falls well below the 2021 national average of shrink as a percentage of gross sales, according to data collected in a 2022 National Retail Federation survey. Asked about the discrepancy between the $2.7 million and $2.2 million drawn from the internal emails and the $1.5 million noted in the press release, ABC spokesman Pat Kane said the larger figures obtained through the FOIA request “are working documents, and do not reflect the final numbers.” Where losses come from Pinpointing the source of the authority’s losses is complicated because ABC has not provided a breakdown of its $1.5 million figure into shrink from stores and shrink from the distribution centers. Megan Hess, associate professor of accounting at Washington and Lee University, said from a managerial perspective, knowing where shrink is coming from is important for figuring out what controls need to be in place to mitigate losses. “If you’re trying to solve that problem, you need to know why it is happening. Where is it happening? How much is it happening?” Hess said. Kane told the Mercury the authority is “not able to provide separated numbers.” ABC Director of Communications Nick Schimick also told the Mercury that “historically separate adjustment categories have not been broken out between the stores and distribution center.” However, comments at a Board of Directors meeting and internal ABC documents obtained by the Mercury indicate the authority has at different times tracked how much shrink is occurring in stores and distribution centers individually. At the June 8 meeting, ABC Automation Control and Inventory Supervisor Kate Sheehan told the board the distribution centers’ 2023 “year-to-date shrink is $340,000.” Schimick said that figure “was and is an internal working number, and as our systems stand today, it is not integrated into our financial systems and not reported out as its own bucket.” Additionally, a March 30 screenshot of the authority’s new centralized dashboard, which the June press release noted will be used to track shrink, shows annual shrink and sales numbers for stores dating back to 2020. A March 30, 2023 screenshot of ABC’s new centralized dashboard. The screenshot was shared with the Mercury by sources with knowledge of the authority who requested anonymity due to concerns over retaliation. When the Mercury asked why ABC couldn’t provide separate shrink numbers when the dashboard indicates otherwise, Schimick told the Mercury that “the data referenced in the dashboard does not reflect final adjustments.” The March dashboard screenshot records the total shrink in 2023 for stores only as $1,127,449 – the same number ABC presented in its press release as the total shrink that year for the authority’s stores and distribution centers combined. In response to questions about the inclusion of distribution center shrink in ABC shrink data, Schimick told the Mercury in an email, “store shrink is what we reported $1,127,449. The numbers reported for the distribution center represents the net adjustment from the full physical count in March 2023.” Knowing only total shrink “doesn’t permit a company to manage it,” said Bradley, the William & Mary operations management and information technology professor. “You need to know which items are being lost, where in the supply chain you’re losing it and why you’re losing it and then come up with a strategy to fix it.” 6/7/2023 Questions swirl at ABC over store thefts and high-ranking officials being put on leaveRead Now The Virginia Mercury - BY: MEGHAN MCINTYRE, GRAHAM MOOMAW AND SARAH VOGELSONG - JUNE 7, 2023
Embezzlement occurred at seven stores operated by the Virginia Alcoholic Beverage Control Authority over the last year, according to ABC officials, after employees exploited a vulnerability in the cash register system that was flagged by an internal audit report in September 2022. The liquor authority’s leadership insists that audit report went undetected by senior officials for six months and was only rediscovered in February of this year, a claim ABC Board Chairman Tim Hugo recently said he found “perplexing.” “It’s got people interested — how this thing has been floating around for six months from September to February and nobody knew,” Hugo, a former Republican delegate appointed to the ABC role by Gov. Glenn Youngkin, said at a board meeting last week. Questions about that timeline have taken on added significance due to four high-ranking ABC officials who worked in retail and logistics recently being placed on administrative leave, a move that has sparked concern among some in the agency that those employees are potentially being scapegoated for cash register vulnerabilities known to at least some ABC officials in audit and law enforcement roles. Hugo seemed to draw a connection between the disciplinary actions and the internal thefts in the board’s public meeting before he and others in the room agreed further discussion of personnel matters should only occur in a closed session. “From the process point of view, everybody should be treated the same,” Hugo said. ABC spokesperson Pat Kane said the authority “does not comment on personnel matters in order to protect the individuals involved.” According to the report, which was produced by ABC’s internal audit division and dated Sept. 13, 2022, the authority became aware of the vulnerability in the system after employees at one of its liquor stores in Roanoke figured out how to steal thousands of dollars from its cash registers. ABC denied the Mercury access to the report, citing exemptions in the Virginia Freedom of Information Act. However, sources at ABC who spoke with the Mercury on the condition of anonymity out of concern about retaliation shared the report. The report details a scheme by three employees at Store 289 to exploit the “suspend” and “item void” commands in ABC’s point-of-sale system to pocket more than $8,000 from the cash register without the losses being detected in daily store reports. Investigators said they were able to document the fraudulent activity beginning in February 2022, although they suspected it could have begun “as early as September of 2021.” The embezzlement was only detected, the report notes, when the store manager “had a ‘feeling’ about one of the 3 participants and began to investigate.” “There was no internal control in place that facilitated the discovery,” the audit report notes. On April 11, 2022, a regional manager contacted ABC’s enforcement division and other authority officials about the thefts. Kane said “his report described how the vulnerability was exploited and provided evidence of the activity.” An enforcement agent then began investigating the situation. On May 5, ABC enforcement contacted the internal audit division about the investigation, according to Kane. The audit division then “confirmed it would initiate its own investigation to examine any controls that either failed or were non-existent that allowed for the exploitation to occur.” The three employees of the Roanoke store were ultimately prosecuted and, according to court documents, convicted of embezzlement in Roanoke Circuit Court. The four officials placed on administrative leave are not mentioned in the report, despite the incident ostensibly being a primary reason for their leave. While the audit division completed its report Sept. 13, 2022, ABC officials have insisted they did not see the document until Feb. 14, 2023. “The first we became aware of it was February of this year when the second instance of the suspend transaction we became aware of,” said Chief Administrative Officer David Alfano at the May 30 meeting. ABC Chief Retail Operations Officer Mark Dunham agreed during the meeting the report had not been issued to the appropriate people and “sat around,” but said the authority has made “extensive efforts to make sure that it doesn’t happen again.” However, Hugo responded that he was still “perplexed that you’ve got not a single email for the five page report that sat out there and nobody saw it.” Kane told the Mercury ABC leadership didn’t see the report until February 2023 “due to a failure in the process to issue the report.” “The former Director of Internal Audit departed the organization on September 1, 2022, prior to the date on the report,” he wrote in an email. “The action of issuing the report did not occur during the transition between the director and acting director. The individual serving in the acting director role left the organization as of January 5, 2023. … It was not until misuse of the vulnerability was reported at a different store in February 2023 that the existence of the report came to light.” Kane said that “to avoid a similar process failure in the future, issuance of reports will now be tracked in Internal Audit’s auditing software, Audit Board.” After the February 2023 thefts were detected, ABC’s enforcement and internal audit divisions launched an effort to find vulnerabilities in the authority’s systems, including reviewing video from a nine-day period at 34 stores. The investigation found “a total of seven stores experienced theft through the identified system and process vulnerability over the last 12 months,” said Kane. ABC said six of those stores are currently under investigation. At last week’s ABC board meeting, other board members suggested Hugo was dredging up old business that had been settled. “I’m trying to figure out why we’re rehashing this again at this point,” said board member Mark Rubin. “Is there something that you know that we ought to be looking at differently?” Board Vice Chair Maria Everett said, in her experience, the authority acknowledges problems “and our goal is to fix them and move forward.” “And I think that’s been done over and over on this issue,” she said. Hugo indicated he was unconvinced only a few people within ABC knew about the September report and said he had been hearing lots of concern about it. “I think it’s bubbling up,” he said. The Virginia Mercury sent ABC a list of questions this week following up on several public records requests submitted to the authority, giving officials until Tuesday evening to respond. Less than half an hour after sending its response, ABC issued a press release saying it was taking a “proactive” and “multipronged” approach to prevent theft and other inventory losses. The Washington Post - By Fredrick Kunkle; May 22, 2023
A state-run lottery to give Virginians first dibs on pricey whiskeys suffered from what was likely a human-induced flaw that wildly skewed the results, allowing several lucky participants to win multiple times. Virginia Alcoholic Beverage Control Authority Board officials, in an interview and a statement on Monday, acknowledged the “statistically abnormal” results, after several bourbon aficionados had flagged the irregularities following last month’s drawing. How could it be, these bourbon drinkers wondered, that two entrants had won all four bottles in a single drawing of bottles of George T. Stagg Bourbon and other choice whiskeys, and 50 entrants had won three apiece? Something seemed awry as the winners posted about their good fortune online or discussed it in online chats, said Gus Guimond, 30, a Chantilly resident who belongs to the “DMV Bourbon Drinkers” club on Facebook. “We started to notice people saying, ‘Hey, I won two bottles,’” Guimond, who works in finance, said in an interview. “At first, we’re like, ‘Oh, that’s awesome. You’re so lucky.’ ” But then it happened again. And again. “Now this is starting to get really, really unlikely,” Guimond said. “And so that was the biggest red flag.” Guimond said the “Twilight Zone” odds against not just one but several people winning the lottery to buy multiple bottles almost broke his calculator. He figured it to be about 1 in a tredecillion. That’s 42 zeros. “To put that into perspective, the chances of this happening is equivalent to finding a single atom in our entire solar system,” Guimond wrote in an email last week to the ABC. In the interview, Guimond said records obtained under Virginia’s freedom of information law detailing its methods suggest that something had inadvertently gone wrong in the agency’s process of assigning each entrant a number in a spreadsheet and manually helping to randomize the entries — a supposition supported by the ABC’s review, too, a spokesman said. “Virginia ABC has found no evidence of inappropriate administration of the lottery drawing, or intentional manipulation by staff or customers,” the ABC said in a statement. “Drawings were witnessed by a member of the authority’s internal audit division. A subsequent review by Internal Audit identified an issue in the sorting of the lottery entry data in our software. The manner in which the entries were sorted contributed to the statistically abnormal results.” The ABC’s liquor lottery is intended to give Virginia residents a shot at buying liquors for a reasonable price that, on the open market, sometimes go for exorbitant sums. A fifth of George T. Stagg bourbon, which has been aged 15 years and retails in Virginia ABC stores for $99.99, can sell for as much as $1,482 elsewhere. In addition to the Stagg bourbon, the ABC’s April lottery gave people a chance to buy Thomas H. Handy Sazerac Rye; William Larue Weller Bourbon; and Sazerac Rye, which is aged 18 years. All retail at the Virginia ABC for $99.99 per bottle. Previous lotteries included liquors such as the Buffalo Trace Antique Collection. The ABC broke down the entries and the apparent odds as follows:
The electronic system already is in use for a parallel lottery among Virginia ABC licensees, such as bars and restaurants, that is intended to distribute prized liquors fairly, Kane said. 4/5/2023 Enrollment open for year-long peer leadership program to prevent youth substance abuseRead Now Augusta Free Press, Rebecca Barnabi
Enrollment is open for a peer leadership opportunity that fosters healthy communities and the prevention of substance abuse. The Virginia Alcoholic Beverage Control Authority’s (ABC) Youth Alcohol and Drug Abuse Prevention Project is an annual program that begins with a kick-off conference July 17 to 21 at Longwood University in Farmville. Registration of a team of four high school student participants and one adult sponsor is required. “Peer-led substance use prevention is a proven effective path for young leaders to take a stand to create positive change and promote healthy behaviors among youth in the Commonwealth,” Virginia ABC Director of Education and Prevention Katie Crumble said. “Given the upheaval of the past few years and its impact on our youth, the program offers timely tools created specifically to help students navigate pressures and enable them to make smart choices.” Students attend topical workshops facilitated by peer leaders, hear from well-known motivational speakers, learn peer leadership and prevention best practices and develop a Strategies To Act Now (STAN) Plan to address substance abuse among peers. Teams compete for $250 mini-grants to use seed money toward their STAN Plan and the $500 Wheeler Award to sustain continued prevention efforts. The discounted enrollment rate of $500 per team is good through April 30, afterward the price increases to $600 per team until the June 1 enrollment deadline. The fee includes conference materials, lodging, meals and year-long coaching and support for adult sponsors as they aid their team in implementing its STAN Plan throughout the school year. In the opening conference, adult sponsors participate in their own track, receive resources and training on topics that will help them support their team, and are eligible for continuing education units and professional development hours. Law enforcement officers are eligible for partial in-service credits through the Department of Criminal Justice Services. While working on their prevention plans, students can expand their experience as peer leaders by applying for YADAPP youth staff positions and progressing through four levels of leadership with increasing responsibilities. Each level starts with the youth leader role acting as a guide for conference participants, and build to the top level of serving as conference interns. YADAPP interns are college students who spend 10 months planning aspects of the program including curriculum development and youth staff training. The program began in 1984, and approximately 450 different high schools and community organizations and more than 12,000 students have participated in YADAPP. 3/24/2023 GOVERNMENT + POLITICSInternal ABC emails show counter-service store conversions may be less certain than indicatedRead Now The Virginia Mercury
BY: MEGHAN MCINTYRE - MARCH 24, 2023 12:04 AM The Virginia Alcoholic Beverage Control Authority told the Mercury last December it has plans to modernize all of its stores, including converting its three remaining counter-service locations – stores where all products are kept behind a counter shielded with a protective barrier – to standard self-service ones. But internal emails from the authority recently obtained by the Mercury through a Freedom of Information Act request paint a more uncertain future for the counter stores, with one high-level official saying there is no conversion plan. The day the story ran on Dec. 19, Susan Johnson, ABC director of real estate and facilities management, emailed Chief Retail Operations Officer Mark Dunham and Chief Executive Officer Travis Hill, saying she was “very confused” with the story on the modernization plan. “I don’t have a plan for converting counter stores to self-service,” she wrote. Two weeks later, on Jan. 2, ABC public relations specialist Valerie Hubbard emailed Johnson to ask: “If we get calls from media on plans to change our counter service stores to self-service, should we say that we are in the planning process to make that happen?” Johnson replies: “No, I wouldn’t say that, as I don’t know that we will be changing those stores to self-service.” Dunham and Hill, Johnson’s superiors, denied the Mercury’s requests to speak with her for this story. Asked about the discrepancy between its earlier communications with the Mercury and internal emails, ABC Chief Digital and Branding Officer Vida Williams reiterated that the counter stores will be converted regardless of what Johnson said. The authority’s new executive leadership team, she emphasized, is still “working on alignment” with the full organization and “any type of internal plan comes with discourse.” “Guess who’s director of communications and chief of communications? Me. She’s the chief of retail, so her message does not trump my message,” Williams said. “Susan saying yes or no is immaterial to the fact that it is happening.” In the same interview, Dunham said: “Was her answer incorrect? It was, ‘We haven’t built the plan yet.’ The plan is in development, it’s not fully stated.” Williams said the decision to transition the counter stores and modernize the authority’s locations happened “way before” the Mercury asked about it in December. However, despite requests, the authority has not provided the Mercury with any documentation – including a budget, timeline or planning documents – related to its modernization plan. “I don’t have anything in my hands that says, ‘This is the modernization plan,’” Hill said this week. “I know that there are continuing conversations within the organization to say what it will consist of, what we are going to focus on, what are the aspects of each store that we’re going to focus on.” Dunham said the modernization of 399 ABC stores across Virginia can’t be done “overnight and has been in the planning stages since [ABC] built the distribution center.” ABC’s most recent 315,000 square foot distribution center in Mechanicsville opened in February 2021, along with the authority’s new headquarters, which Williams said houses a “store of tomorrow”’ where new concepts can be tested for modernizing stores. ‘The simple truth’On Dec. 2, Pat Kane, an ABC public relations specialist, emailed the Mercury’s initial inquiry about how the authority determines which locations are served by counter stores to Dunham, Johnson and Jennifer Burke, director of retail operations. Dawn Eischen, a former ABC public relations specialist, and Cortley West, the authority’s director of diversity, equity and inclusion, were copied on the email. Kane prefaced his forward with the comment: “I think the reporter is looking into the equity angle of who gets ‘nice’ stores in their neighborhood.” The same day, Johnson replied: “The three that are still ‘conventional’ or ‘counter’ stores have not been converted to self service because of higher crime in those areas and the safety of our employees.” Located in Petersburg and Richmond, the three counter stores — 118, 187 and 251 — were opened prior to 1995 and reside in primarily Black neighborhoods, according to U.S. Census data. Later that day, Kane circulated to colleagues a draft response that included the lines: “Virginia ABC has a responsibility to our employees and our customers to provide a safe environment in and around every one of our stores. (open to suggestions to tweak this).” Following Kane’s reply, Burke wrote: “This is perfect to me, it is the simple truth.” Johnson wrote “Agreed” next to Burke’s response. On Dec. 5, Williams sent these statements to Dunham and Elizabeth Chu, ABC chief transformation officer, adding, “Are we okay with the implication of this simple truth? Do we have crime statistics to provide context to unsafe?” Chu replied: “I’m uncomfortable with this statement. It implies that the counter stores are in place because of higher crime. … Can we instead respond by giving a history of these counter stores (installed prior to 1995) and we are looking at an overall strategy to convert them while we look at what the ‘store of the future’ is.” Dunham replied: “I was in the process of typing a similar response, concern the response opens up to inquiry. I would not focus on the store of the future as much as we look at renovations/ modernizing stores.” In a Dec. 7 interview with Williams and Kane, Williams did not mention anything to the Mercury about the authority’s responsibility “to provide a safe environment” in relation to why some locations have counter stores. When later asked about the “simple truth” explanation put forward in internal communications, Williams said the agency’s response to the Mercury that focused on modernization “had to do with how it loops through.” “It goes to [media relations specialist] Pat [Kane], Pat brings it to the people, ‘Hey we have this inquiry, you have subject matter expertise on this,’” Williams said. “Once that is done, it is brought to those who set strategic direction. When that came to strategic direction, we were like, ‘Absolutely not, that is not what we’re doing.’” On Dec. 15, in a thread about agency communications with the Mercury, Burke emailed Kane, Williams, Eischen and ABC regional manager Ramon Santiago, saying, “Let’s stay as close to the vest as possible while assuring we promote our position as public servants and the benefits we provide to the commonwealth.” “Be careful not to walk into any conversations regarding why counter stores may exist in some areas and not others as we simply have not done renovations at this time and in some instances the communities have requested the counter store layouts as well. (for our internal knowledge),” she continued. When asked why the initial response from ABC on Dec. 2 didn’t include mentions of converting the counter stores if the modernization plans were made “way before” that date, Hill said the email exchanges show, “people sharing their perspective, and the course of developing a response and a modernization plan is around incorporating those perspectives and saying, ‘What is it that the organization is going to be focused on going forward?’” Asked twice to confirm whether the counter stores will be converted to self-service, Hill responded, “That will be part of our modernization effort” and, “Again, we’re going to modernize the fleet.” Hill, Williams and Dunham all reiterated that every ABC store will be modernized in the future, but the plan won’t come to fruition immediately because it’s in the beginning stages. “Give it time. Either your story will age well or my story will age well because it all has to be acted upon,” said Williams. “It’s not like we’re talking conceptually, we’re saying the stores are going to synergize.” |
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