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:: Retail Industry Audit Technique Guide (ATG) - Chapter 4:
Examination Techniques for the Food and Beverages Industries (Retail
Liquor Stores)
Chapter
4 -
Examination
Techniques
for the
Food and
Beverages
Industries
(Retail
Liquor
Stores)
Introduction
The
basic
merchandise
carried
by
liquor
stores
is wine,
liquor,
and
beer.
The
stores
usually
carry
some, if
not all,
of the
following:
cigarettes,
soda,
chips,
drink
mixes,
cheeses,
and
spring
water.
Many
upscale
stores
have
extensive
wine
departments
with a
wine
expert
on hand.
Some
small
liquor
stores
are more
of a
grocery
store
than a
traditional
package
store.
Income
The
following
are some
sources
of
receipts
commonly
seen in
liquor
stores:
-
Other grocery sales – lottery, cigarettes, snacks, food & candy items
These sales are taxable to the state taxing agency for sales tax purposes. The examiner can compare the reported gross receipts to those reported to the appropriate state sales tax returns. In many instances the states examine liquor stores more frequently than the Internal Revenue Service can, so it is prudent to ask for all recent audit reports, and if necessary, contact the state agency for further information.
Stores with cash registers are required to maintain the daily cash register tapes and present them for examination. If the examiner questions whether all sales are reported, or if the tapes are missing, an indirect method should be considered.
-
Lottery- scratch-off and machine sales
Income from lottery sales will be rung on the business cash register and included in total daily receipts. Income from scratch-off tickets is the sole income of the retailer, so the examiner can verify the amount purchased from the third party and calculate appropriate sales. Income from machine tickets can be determined from the monthly reports made by the state that administers the program.
-
Check cashing and customers payment on account
Retail stores do not cash checks as a courtesy; they are in business to earn a profit. Checks written for more than the amount of purchase may be accepted for regular customers and a fee may or may not be assessed in this situation. However, when checks such as government welfare benefits or local company payroll checks are cashed, the retailer customarily charges between 3-5% of the check amount, even when a purchase is made. Some state laws dictate a maximum percent/amount that can be charged.
The
industry
has a
three-tiered
system
for the
distribution
of its
products.
The
first
tier is
the
manufacturer,
the
second
tier is
the
distributor
or
wholesaler,
and the
third
tier is
the
retailer.
The
manufacturer
sells or
grants
licenses
based on
different
criteria.
The
manufacturer
may or
may not
be
located
in the
state.
Each
state
controls
what
products
may be
brought
inside
its
borders.
The
distributor
or
wholesaler
sells
and
distributes
the
products
to the
retailers.
Responsibility
for
licensing
the sale
and
distribution
of
alcoholic
beverages
is
shared
jointly,
although
not
equally,
between
municipal,
state,
and
federal
authorities.
Administration
of the
Federal
Alcohol
Act is
vested
in the
Treasury
Department
in the
Division
of the
Federal
Alcohol
Administration.
In some
rare
instances,
a
license
is
required
from
only one
of these
authorities.
In most
cases,
there
are dual
license
requirements.
Cost of
Goods
Sold
In most
states
liquor
stores
may
purchase
goods
for
resale
only
from
authorized
distributors,
and not
from
discount
or
warehouse
stores.
The
examiner
should
consider
using a
percentage
markup
on cost
method,
but the
examiner
should
contact
third-party
suppliers
directly
to
ensure
cost of
goods
sold is
not
underreported.
Statistics
Current
Bizstats.com
shows
that 68%
of food
and
drinking
sole
proprietorships
report a
net
profit.
For more
detail
see the
Biz
Stats.com
Industry
Profitability
- Sole
Proprietorships webpage.
Bizstats.com
shows
averages
for this
industry:
Total Expenses as a % of Income:
|
89.1%
|
Net income as % of Income:
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10.9%
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Cost of Goods Sold:
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42.5%
|
Salaries and Wages:
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15.4%
|
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