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Citing potentially "serious violations" of state procurement law, Gov. Gary Herbert on Wednesday forced the resignation of the Department of Alcoholic Beverage Control executive director and called for an audit of the agency he has overseen.
"I have lost confidence in DABC leadership," Herbert wrote in a statement announcing Dennis Kellen's departure. "There is no latitude for ethical indiscrimination in public officers. Not only do I expect, but more importantly, the public expects, that those in public service will be held to the highest standard of accountability, especially when it comes to the use of taxpayer dollars."
State and legislative auditors have been scouring financial records of the DABC, which has an annual budget of about $30 million, for several days. Their investigation is focusing on hundreds of payments made by DABC to Flexpak Inc., a Woods Cross-based company run by Brian Kellen, Dennis Kellen's son, sources aware of the allegations told The Tribune on condition of anonymity.
Under Utah law, state directors have discretion to make purchases under $1,000 without getting other quotes or bids.
According to state records, Flexpak has received more than $272,000 in payments from the state since July 2008. That includes more than 250 purchases from Flexpak since July 2009 for just under $1,000, including, in some instances, three or four payments a day which could be a violation of state purchasing law.
"By law, they can't chop up an invoice and submit payments under $1,000 at a time to come in under this provision," said Kent Beers, the director of state purchasing.
There were 61 payments under $1,000 made to Flexpak by DABC in the 2010 fiscal year. In the 2011 fiscal year there were 177 payments under $1,000, totalling more than $115,000. In the first two months of the current fiscal year, there were 11 payments made, all of them under $1,000, including four on July 21 and four on Aug. 3.
The inquiry may not end with Kellen. One knowledgeable source said there were others at the agency who knew, or should have known, and their involvement will be the subject of scrutiny, as well.
Herbert spokeswoman Ally Isom said an initial review of DABC's procurement practices has revealed possible "manipulation" over the course of years of the state's purchasing rules.
"What appears to be the case," Isom said, is the agency "circumvented appropriate protocols to achieve the outcome they wanted."
She would not comment directly about the specific payments or companies.
Flexpak was awarded a contract worth more than $60,000 last year for six shrink-wrap machines, used to wrap large cases of alcohol products stacked on pallets at the state's liquor warehouse. Beers said that Flexpak was the lowest of four bidders on the contract, which was handled by state purchasing, and there are not concerns about that project.
Kellen's resignation comes just weeks after he was blistered by a legislative committee about how his agency lost $300,000 in its mishandling of a bankrupt liquor store in Eden, and announced he would soon step down.
But Kellen, a department veteran of 36 years, has vacillated for months about retiring.
Sam Granato, the former chairman of the Utah Liquor Commission, recalled Kellen telling the commission that he planned to resign June 30. That didn't happen. When Kellen's management was criticized by a legislative committee one month later, he issued a statement saying he would stay in his position "until the commission has the opportunity to select a replacement for me."
On Wednesday, at the urging of the governor, Kellen abruptly stepped down. He cleaned out his desk of personal items and was escorted out of agency headquarters by a staff member.
Kellen, 68, had spoken several times with the governor earlier in the week before submitting his resignation.
He had been the department's deputy director for 32 years before being appointed director in 2007. He had retired from the department in 2005, worked part time for the department for six months, before returning full time as a so-called "double dipper," drawing a pension and salary.
Legislative auditors later said in a report that department staffers manipulated hiring policies by holding open slots to allow retired colleagues to reclaim their old jobs. Kellen was among 12 of 18 retirees who returned to the same job immediately after their six-month waiting period had expired.
Granato, no longer part of the commission, said the chatter among "disgruntled employees" about potential improprieties has grown louder in recent weeks. However, he didn't know the nature of complaints.
"I've known Dennis for 40 years and Dennis has always been a friend," he said. "I've heard the rumblings that things might not be what it should have been with some of the procurement."
Granato, who has been recommended by some as a candidate to replace Kellen, said he has told Herbert he approves of his decision regarding Kellen and offered to help get to the bottom of the situation.
"I think the audit has blown the doors off some of the things that were being kept out of sight of the commission," Granato said.
The governor has named Francine Giani, executive director of the Department of Commerce, to fill Kellen's post. She will retain her duties at Commerce during what Herbert described as a "temporary" assignment.
"We have reached a point where it is clear the best judgment and leadership were not exercised in this agency," Herbert said. "The audit will reveal whether further action will be warranted."
Twitter: Stettler_Trib
Dawn House contributed to this report.
Payments from the DABC to Flexpak Inc.
2012 fiscal year • $6,519 (11 payments under $1,000 totalling $6,519)
2011 fiscal year • $172,313 (177 payments under $1,000 totalling $115,307)
2010 fiscal year • $75,631 (61 payments under $1,000 totalling $30,629)
2009 fiscal year • $18,883 (five payments under $1,000 totalling $2,032)
Source: Utah Public Finance Web Site
Governor Herbert requests audit
Dear Mr. [Auston] Johnson,
As Governor of the State of Utah, I respectfully request that you conduct a full and complete audit of the procurement and financial protocol within the Utah Department of Alcoholic Beverage Control.
I have directed DABC that it is to cooperate fully with you and your audit team in this review. In the interest of maintaining public trust and confidence in Utah State government, I ask that the audit be completed as expeditiously as possible.
Sincerely,
Gary R. Herbert