ABC Commissioner resigns, blasts state audit

"We were left hung out to dry," longtime ABC administrator Michael Herring says, claiming a state audit alleging millions in waste got it wrong.

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Travis Fain
, WRAL statehouse reporter
RALEIGH, N.C. — A longtime Alcoholic Beverage Control Commission administrator, who until Wednesday was also on the commission itself, resigned this week over an audit that criticized the commission's handling of a multimillion-dollar liquor warehousing and distribution contract.

Michael Herring, who had been with the agency since 1981, said State Auditor Beth Wood's audit missed the mark, and he complained that Gov. Roy Cooper's administration hung him and others who have worked for the ABC Commission in recent years out to dry by not fighting her "fictitious findings."

The audit said the commission wasted some $14 million by allowing its distribution contract with a private vendor to balloon over 13 years. Wood's office said the commission failed to monitor the contract and repeatedly allowed price increases above what the contract itself allowed. The audit also questioned the need for a 200,000-square-foot warehouse in Clayton that auditors found largely empty last November and December.

Herring, in a phone interview Thursday, acknowledged some management issues with the contract, the bones of which date to the 1970s. But he said it wasn't wasteful.

"It was working well for what we needed done," he said. "Could it have been better? Yes. Could our oversight have been better? Yes. But there's not $14 [million], $12 million in misspent money."

The vendor on that contract, LB&B Associates, has also criticized the audit, saying North Carolina's government liquor monopoly has some of the lowest costs in the country for liquor transport and storage.

Herring managed day-to-day operations at the ABC from 1995 to 2014 as the commission's chief administrator. Then-Gov. Pat McCrory appointed him to the commission itself in 2016.

Wood's audit covered 2004 to 2017.

Herring said the commission's reasons for increasing contract payments are well documented in recordings of the body's open meetings and that he could have told Wood that if asked.

Wood said via email that auditors met with members of the commission's legal, IT and administrative staffs, as well as LB&B employees. The audit quotes Herring's successor in the chief administrator's job, Robert Hamilton, who acknowledged that the commission put little effort into monitoring the contract and said the state didn't need to because local ABC boards would have noticed any problems with LB&B's service.

"It does not matter what anyone 'says,'" Wood said via email Thursday. "As auditors, we sought documentation that the Commission verified the reasons given by the contractor for price increases and the doubling of warehouse space capacity. As is evidenced by the audit and current conversations, none exists."

Hamilton left the ABC abruptly in July, and an effort to reach him Thursday wasn't immediately successful. Commission Chairman Zander Guy accepted the auditor's findings in a letter on behalf of the commission, noting that the contract's last extension pre-dated his 2017 appointment as chairman.

Herring said the ABC Commission initially prepared a response defending the contract, but he believes the Governor's Office told Guy to tone things down. He provided a draft audit response covering many of the same concerns he and LB&B have expressed since the audit was released, but said it was changed before the audit was final.

"We were left hung out to dry," Herring said of the decision not to push back on audit.

The Governor's Office would only say Thursday that it "respects the auditor’s findings" and that Cooper "has directed the ABC Commission to take steps to be better stewards of taxpayer dollars." It also issued a brief statement confirming Herring's resignation, which was first reported by the Triangle Business Journal.

"We received Michael Herring’s resignation letter yesterday and appreciate his public service," spokesman Ford Porter said in an email Thursday.

Herring said LB&B got the contract in 2004 after the previous vendor entered bankruptcy. He said the company determined that it needed to increase prices to provide the desired services, and other increases followed as the state's liquor business grew by millions of cases. Herring said the large warehouse in Clayton was mostly empty when auditors visited because they came just before the holidays, after large amounts had been shipped to stores.

He also said the commission built in room to grow when it approved the warehouse and that, by 2021, "both warehouses will be busting at the seams."

Most of the questionable spending laid out in the audit hinges on a failure to abide by contract language that forbade price increases beyond thresholds set by the Employment Cost Index and the Consumer Price Index for Motor Fuels, which are tracking measurements calculated by the federal government. That language was outdated after the commission started amending the contract, Herring said.

"She tied us to that Consumer Price Index, which that didn't apply after we amended it the first time," Herring said.

Herring acknowledged that repeatedly amending a contract from the 1970s isn't ideal. The audit says that the contract exceeded its own three-year term limit four times "without proper review and approval which denied the state the opportunity to reduce costs through negotiation and competitive bidding."

Guy's letter accepting the audit findings promised to rebid the contract in 2020, ahead of the current version's expiration in 2021.


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