SALT LAKE CITY -- Years of bid-rigging, manipulated contracts and unethical behavior by senior officials at Utah's liquor agency have resulted in incompetent management and hundreds of thousands of dollars in wasted money, according to a state audit released Tuesday.
Legislative auditors said that contracts for shrink wrap, tape and other maintenance supplies with Flexpak, a company owned by the son of former executive director Dennis Kellen, should be screened by the Utah Attorney General's Office for possible felony charges.
Kellen resigned from his post with the Department of Alcoholic Beverage Control in August after it was discovered that Flexpak had been paid more than $270,000. He disclosed the conflict during his time as director and has said he wasn't involved in any discussions or decisions about the contracts.
His son, Brian Kellen, said in a statement the contracts were legal, state procurement rules were followed and the prices were the lowest possible.
"Flexpak's business relationship with the DABC has been proper, legal and a matter of public record, with all transactions open to public scrutiny," Brian Kellen said.
Auditors said the majority of the payments were under $1,000, which is the threshold for seeking competitive bids under state law. Some contracts were split to stay under $1,000 even if the products were not. Those included paying about $800 for 20 rolls of shrink wrap even though the delivery was actually one pallet of 40 rolls.
The possibly illegal contracts with Flexpak began in 2003, auditors said, when Dennis Kellen was the deputy director and was responsible for purchasing supplies, which he bought from his son's company. Auditors discovered other problems with bid manipulation, primarily with employees finding higher bids to justify existing contracts. One longtime employee told auditors the practice had been common for more than two decades.
The audit said employee oversight was lacking, and the same employee often was responsible for ordering, receiving and stocking a product. Although auditors didn't find any evidence of wrongdoing, they cautioned that the practice could lead to theft.
The failed management led to the loss of hundreds of thousands of dollars, primarily due to a privately owned store that sold liquor but failed to pay the state for the booze. There was also about $30,000 in liquor that was not paid for by the organizer of a private party during the Sundance Film Festival.
Finally, auditors said executive perks were excessive. They included the purchase of a new Jeep Cherokee that could only be used by the executive or deputy director.
Overall, auditors said the agency has been "incompetently managed" and the state should consider revising the department's oversight.
They did not make specific recommendations about the best way to fix the problems, but suggested that the agency could be held directly accountable to the governor instead of an appointed part-time commission or having full-time commissioners running the department.
Interim Executive Director Francine Giani, who replaced Kellen and also runs the state's Commerce Department, said in a response to auditors that "it did not take long to recognize the inappropriate culture that exists among some within DABC."
She agreed to the auditor's findings and recommendations, some of which she said she had already implemented.
"The misconduct uncovered by this audit was appalling," Giani said.
Giani told auditors she has found more than $700,000 in potential savings, nearly two-thirds of a shortfall that agency officials previously said could only be covered by closing profitable liquor stores.