The auditors hired by Montgomery County to examine the Department of Liquor Control told the County Council yesterday that the department has a long history of mismanagement but said they were unable to determine if there has been favoritism in purchasing practices as a previous consultant had alleged.
The study by Touch-Ross and Co. repeats many of the charges that have been made against the department since its management became an issue in the county last summer. The firm was commissioned by the council in September and was paid $125,000 to check the conclusions of the previous consultant hired to study the department, Leonard I. Colodny.
Colodny was fired by County Executive Charles W. Gilchrist in August after he charged that Gilchrist aides asked him to "rethink" figures showing that the Department of Liquor Control gave a disproportionately large amount of business to Schenley Industries Inc., a New Tork-based liquor company with ties to the Gilchrist administration. Colodny's study cost the county $5,000.
The Touche-Ross study found that Colodny's conclusions of favoritism in purchasing practices were "premature" since his study was never completed. "While the data are accurate," auditor Les Greenberg told the council, "they do not always portray a complete picture. more information would have been needed to draw a conclusion."
When asked why the auditors did not determine whether favoritism existed, Greenberg said, "Our job was to conclude whether the assumptions he [Colodny] made were valid, not to do his study." When asked the question of whether favoritism exists was still unanswered, Greenberg said, "Yes."
Council members jumped on Greenberg's remarks to support the conclusions they had reached before the auditors undertook their study.Council member Neal Potter, who said in August that he disagreed with Colodny's findings about favoritism in purchasing practices, said yesterday, that the Touch-Ross study showed "that Colodny's conclusions were incorrect. The question was whether Schenley was being 'pushed up' in any way and the answer was no."
Council member Rose Crenca, who has supported Colodny's findings, suggested that Colodny be rehired to complete his study.
One auditor, Bill Beach, did not like Crenca's suggestion. "If I had to invest my money, I could think of several other places to put it." His remark brought guffaws from the audience, which consisted mostly of employes of the Department of Liquor Control.
County Executive Charles W. Gelchrist said he thought the consultants had given the county a "helpful, useful and professional study."
For five hours a succession of auditors took turns addressing the council in the language of business management -- of wholesale markups, pricing methodology and gross margins.At the end of their presentation they gave reporters their two volume, several-hundred-page report.
The auditors spent the morning explaining how the department was mismanaged, and the afternoon explainig why ColodynS conclusions were incomplete.
To do the study, the auditors examined the liquor department's financial documents, interviewed the department's staff and managers, and observed employes at work in the department's warehouse and retail stores. The auditors also interviewed Colondy for six hours and spoke to those who buy liquor and wine from the department in great quantities -- restaurant owners and owners of wine and cheese shops.
Many of their findings about the mismanagement by the department has been stated previously by Colodny. These were some of the auditing firm's findings:
The department maintains excessive inventory in its warehouse and retail stores with the result that 80 percent of the department's sales result from only 20 percent of its products. The auditors recommended that the department stop carrying items that do not sell well, and order them only when requested by stores or restaurants. Such a reduction in inventory would save the department $2.2 million immediately, and $200,000 every year afterwards, the auditors said.
The prices of liquor in Montgomery's county-owned retail stores are "always cheaper" than in Virginia's state-owned stores, cheaper than in Prince George's County 80 percent of the time and the same or cheaper than in D.C. half the time. As a result, the county probably is not making as much of a profit as it could on liquor.
When Montgomery has "weekend specials" or sales on certain brands of liquor the prices are much too low, costing the county four cents on every dollar of liquor sold. The county could save between $500,000 and $1.1 million a year it would raise the prices of its "weekend specials."
The department's management should be structured so that one person has complete authority over the department's retail business, and another over the wholesale business. In addition, managers should be given individual authority over the marketing of liquor, wine and beer. "As it is now, there's fragmented responsibility, with no one person accountable for any one function," one auditor said.
The liquor department has no understanding of what its costs are, and consequently it does not charge consumers appropriate prices. The auditors recommended that the department develop a cost accounting system, complete with computers, to keep track of costs such as shipping, ordering and dispensing, and then added those costs onto the price of the product.