Questions swirl at ABC over store thefts and high-ranking officials being put on leave
A liquor store in downtown Richmond. (Ned Oliver/Virginia Mercury)
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.
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