State's ABC audit looks at cost of rent, salaries

Published 12:00 am Friday, April 6, 2012

By Karissa Minn
SALISBURY — State ABC Commission officials say the Rowan-Kannapolis ABC Board needs to lower expenses, and it’s spending more than other boards on salaries and rent.
Board Auditor Moniqua McLean visited the local board in January for a performance audit — the first of the commission’s new regular evaluations.
McLean and fellow board auditor Laurie Lee presented a draft report to the Rowan-Kannapolis ABC Board this week.
The state commission has set several benchmark goals for local boards, depending on their size and sales figures. The goals deal with everything from profit margins to policy and procedures.
The auditors said Rowan-Kannapolis did well overall in fiscal year 2011, but they are making some recommendations for the goals it didn’t meet.
“Nothing in there is a major issue, by any means,” Lee said.
The final report will include a response from the board and analysis from commission staff.
One of the board’s biggest gaps is its ratio of operating expenses to gross profit from sales. Rowan-Kannapolis has a cost ratio of .89, compared to the commission’s goal of .67 or less.
“Total operating expenses continue to increase at a faster rate than other boards,” the report says. “Overhead expenses are higher compared to other boards due to rent and building expenses.”
To meet the goal, the report says, the board must either boost its $9.34 million in revenue by another $3.15 million or lower its $2 million in expenses by about $530,000.
The report includes a graph comparing the board’s expense history to “similar size boards” — Johnston County, Wilson and Gastonia. Rowan-Kannapolis has outspent the other three by about $400,000 to $600,000 for the past six years.
Another graph compares where money is being spent. Rowan-Kannapolis spends more than $1.1 million on salaries, which is lower than Gastonia’s nearly $1.4 million but higher than the $600,000 spent in Johnston County and Wilson.
“We have recognized that salaries are high, and we have had no pay increases for the last three or four years,” said board member Ken Argo.
The auditors recommend that the board work on scheduling its personnel efficiently and try to negotiate better rates on its rental agreements and other contracts.
“Credit card fees, professional fees, maintenance contracts — anything you can bid out, I would … see if you can get a lower rate,” McLean said.
At Wednesday’s meeting, McLean and Lee also suggested the board look into opening on more holidays, like Easter Monday or Martin Luther King Jr. Day.
“The majority of boards only close on the five days they have to close,” Lee said.
Board members said they’re concerned that would only drive up their operating costs, not total sales, and customers might assume they’re not open anyway.
“If the store is closed, people are either going to buy the day before or the following business day,” said board member David McCoy.
The board could try it in one or two stores at first and advertise in advance, Lee said, especially if competing stores in a nearby system are open those days.
Another performance gap was found in the board’s profit, which is 1.67 percent of its sales. The commission says it should be aiming for 6.5 percent.
Two of its seven stores did not turn a profit in fiscal year 2011.
The auditors recommend that the board look into new marketing techniques and consider buying property instead of renting.
The board owns three stores and pays $178,000 annually to rent four other locations.
Board Chairwoman Linda Lowman said the system is already trying to renegotiate its lease at the Gateway Center store in Kannapolis, and it’s considering owning a store instead.
“They have finally come down a little, but I think it might be too little, too late,” Lowman said.
She said the lease term at the other struggling Kannapolis store at Oak Avenue Mall won’t be up for a while.
The board does meet the commission’s goal for its working capital, which is the amount of money the system has on hand.
For fiscal year 2011, the board was allowed to hold a maximum of three months of gross sales income. It only kept less than two months’ worth, or about $717,000.
Rowan-Kannapolis not only meets but exceeds the commission’s goal for inventory turnover, the report said.
“Whatever your staff is doing, keep doing it,” McLean said.
The report also praises the board for its store appearance, customer service, personnel and training and administration.
Contact reporter Karissa Minn at 704-797-4222.
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