12-20047-06

Purpose of the Report

In accordance with Titles 24 and 44 of the Alaska Statutes (sunset legislation), we have reviewed the activities of the Alcoholic Beverage Control Board (ABC Board or the board) to determine if there is a demonstrated public need for its continued existence and if it has been operating in an efficient and effective manner. As required by AS 44.66.050(a), this report shall be considered by the committee of reference during the legislative oversight process in determining whether the ABC Board should be reestablished. Currently, under AS 44.66.010(a)(1), the board will terminate on June 30, 2007 and will have one year from that date to conclude its administrative operations. Our report objectives were as follows:

1. To determine whether there is a public need for the board and if its existence should be extended.
2. To review the board’s major functions of licensing, inspections, and investigations for effectiveness in meeting public need and for efficiency of operation

Report Conclusions

In our opinion, the termination date of the ABC Board should be extended. The board should continue to regulate the manufacture, sale, barter, and possession of alcoholic beverages within the State of Alaska in order to protect the public’s health, safety, and welfare. The board has demonstrated a need for its continued existence by providing protection to the general public through the issuance, renewal, revocation, and suspension of liquor licenses. Protection has also been provided through active investigation of suspected licensing violations and enforcement of the state’s alcoholic beverage control laws and regulations.

As indicated in the Analysis of Public Need section of this report, the ABC Board has met the various statutory sunset criteria. With the exceptions noted in the Findings and Recommendations section of this report, the board is effectively and efficiently meeting its statutory responsibilities and is operating in the public interest. Beginning FY 04, the board was reorganized under the Department of Public Safety and improvements have been made in the regulatory aspect of the board’s operations. However, the board lacks an overall strategy for accomplishing its enforcement goals. In addition, certain operational improvements are needed to allow for greater public participation and to improve the overall efficiency with which the board performs its administrative functions.

We recommend that Alaska Statute 44.66.010(a)(1) be amended to extend the termination date of the Alcoholic Beverage Control Board to June 30, 2013.

Findings and Recommendations

1. The ABC Board and director should strengthen the control environment over alcohol regulatory functions. Internal controls at the ABC offices are weak in a number of areas including the licensing and permitting functions, revenue sharing payments, licensee fee collection activities (including wholesaler fee collections), and the licensing database. Weaknesses are due to the lack of well-designed controls and/or the circumvention and neglect of established controls.
2. The ABC Board and director should develop and implement an overall plan for enforcement activities to ensure the effective allocation of their resources. The ABC Board lacks a systematic strategy for scheduling inspections and compliance checks to ensure effective enforcement. Increase in the number of regulatory inspections has not resulted in a significantly greater percentage of licensees being inspected.
3. The ABC Board director should ensure compliance with public notice requirements and establish procedures to ensure board meeting records are complete and accurate. Board meetings were not consistently advertised, affected parties were not promptly notified of statutory and regulatory changes, and the board minutes were inadequately documented.
4. The legislature should consider amending Title IV to remove the voting ability of the board’s director. To ensure an appropriate balance of government, the legislature should amend AS 04.06.060 to remove the director’s voting ability.

Auditor Comments

The legislature may want to reevaluate the general wholesales license fee structure. The ABC Board could assist by proposing new volume fee brackets that take into consideration the current and projected future sales. The statutory structure for general wholesale license fees is based on a progressive tax rate; however, because of the increase in the sales volumes of the wholesalers, the licensee fee structure is actually regressive. Wholesale volume fees have not changed since 1980. Alcohol sales are increasing at a much faster rate than the volume fees collected. The current structure has a regressive effect and puts low-volume wholesalers at a competitive disadvantage.