How Michigan Lost $1 Million of Liquor

Sadly, not by drinking it—the government just lost a fifth of the state’s inventory.

It's been a rough couple of years for government-controlled liquor systems. In 2022, news broke of an inside job at the Virginia Alcoholic Beverage Control Authority (ABC), in which a former state employee tipped off private collectors about which state-run liquor stores were expecting deliveries of rare and sought-after bourbons. Last year, Oregon Liquor and Cannabis Commission officials were busted for siphoning off hard-to-obtain bourbons for their personal use.

Now, Michigan is writing the latest chapter in the government's century-long saga of alcohol control embarrassments. According to a just-released audit of the Michigan Liquor Control Commission (MLCC), the state's complete inability to properly track its spirits inventory resulted in nearly a million dollars of liquor disappearing without a trace.

Michigan is one of 17 states that still operates as a control state. MLCC is the sole wholesaler of distilled spirits, meaning all liquor sold and distributed in the state must be originally purchased by the agency. Michigan law requires MLCC to exercise "complete control over alcoholic beverage traffic," but it turns out that the agency lacks control over pretty much everything.

Since the 1990s, MLCC has outsourced the actual storage and warehousing of liquor to three "authorized distribution agents" (ADAs), who in turn use 11 warehouses to house the booze. The ADAs, which essentially act as a government-sanctioned oligopoly, are supposed to be operating as agents of the state. But the state code is silent about what the actual responsibilities of the ADAs entail, which results in a situation where everyone and no one is in charge at the same time.

Perhaps the most significant finding of the audit is that $961,000 of MLCC's liquor inventory—totaling 62,294 bottles, housed in ADA warehouses—mysteriously vanished between January and February 2022. To put this in context, the missing liquor constituted 20 percent of the state's entire inventory. While the state is supposed to conduct physical inventory counts at the ADA warehouses, zero inventory checks took place from October 2019 to July 2022 (which, naturally, MLCC blamed on COVID-19, despite the pandemic not starting in earnest until the spring of 2020 and Michigan lifting its lockdown orders by June 2021).

"MLCC was unable to provide documentation regarding the whereabouts of the missing inventory," the audit dryly remarks. Although one should never ascribe to malice what can be explained by incompetence, it's worth noting that the state's inventory includes spirits ranging as high as $45,000 per bottle, which creates enormous opportunities for malfeasance given MLCC's slipshod  tracking protocols.

Were this Agatha Christie-meets-Ayn Rand mystery not enough, the audit goes on to spell out how MLCC is also wholly incapable of ordering rational amounts of each booze type it stocks. The report recounts the agency purchasing 12,204 bottles of a particular spirit in a week in which a mere 1,104 bottles of that spirit were sold. The agency then kept over 11,000 bottles of the spirit on hand for the next 48 weeks—the last 19 of which saw zero sales for it. MLCC also purchased 780 bottles of another spirit over the course of 77 weeks, with zero corresponding sales in any of the weeks those purchases were made.

The MLCC's problems extended beyond inventory ineptitude as well, with the agency also somehow issuing numerous liquor licenses to establishments located in dry jurisdictions, which it now will be forced to revoke. These establishments were selling alcohol in dry locales since 2018 without anyone noticing, until the auditor stepped in.

In perhaps the understatement of the century—and in language only a government lawyer or accountant could appreciate—the audit rates MLCC's overall performance as "not sufficient." The agency's preliminary response is that it "agrees" with all of the audit's findings, as the report's mountain of evidence is apparently too much even for a bureaucracy to ignore.

Lost amid the report's 65 pages of boozy bean-counting—and the scandal of a million dollars of liquor aspirating into thin air—lies a deeper question: Why, in 2024, is the Michigan government still trying to operate as the wholesaler for distilled spirits? It doesn't do so for beer and wine, and it already goes so far as to outsource the actual warehousing and logistics to its distribution agents.

Sadly, the most predictable answer is also likely the most accurate: MLCC has generated some $2 billion for the state's general fund over the past decade. Perhaps a million dollars in missing liquor is a small price to pay after all.