Some Common Mistakes that Can Come to a Head for Brewers
Some Stout Challenges
By Tom Dowling, CPA, CFE, MST
You did it! You finally opened your brewery and can brew beer all day, every day! All of that paperwork you did to open your brewery is a thing of the past. No more worries about organizational documents, bank agreements, lease agreements or federal, state, and local licensing.
If only these sentiments were accurate. Reporting and licensing requirements never truly go away. Further, add in the nuances of small business ownership, staff management, and (if you’re a young business) cash-flow issues, and managing your brewery can be an extremely complicated endeavor lined with many hidden pitfalls. My hope, however, is to provide some information to make one of those areas, at least, a bit more manageable.
As you likely already know, the Alcohol and Tobacco Tax and Trade Bureau (TTB) has a number of requirements that you must meet on a daily, monthly, quarterly, and annual basis. Often these requirements can be cumbersome and sometimes (worst-case scenario) left forgotten. Recently however, the TTB issued a report that detailed the most common brewery compliance and tax issues that have been encountered. What follows is a breakdown of those issues, the most common mistakes made and some ideas for addressing them at your brewery and with your staff.
• Daily Records of Operations. Brewers must complete and maintain daily records and reports that capture information about brewery operations. This list of items required to be recorded is quite lengthy and includes items such as materials received and used in the production of beer, amount of beer produced, packaging of beer, beer consumed at the brewery, and beer that is destroyed (oh no!) or lost due to theft or breakage.
The most common mistakes found on these reports include the failure to report the amount of beer returned to the brewery, beer destroyed, beer removed for lab samples, and the maintenance of supporting documents for losses and shortages. Now you may be asking yourself, what’s the worst that could happen if I fail to record this information? Well, if brewers fail or refuse to keep proper records or do not allow TTB officers to inspect these records, the brewer may be fined up to $1,000 and/or could potentially be imprisoned for up to one year for each offense.
• Inventory counts. Brewers must take a physical inventory of beer at least once per month. This inventory must be recorded and available for inspection when requested. Inventory records must include the date the inventory was taken, quantity of beer on hand, losses and shortages, and most importantly, the signature — under penalties of perjury — of the person taking the inventory. The most common errors found include lack of signature, failure to take inventory each month, inadequate documentation of losses and shortages and the inventory records not agreeing to the Brewer’s Report of Operations (BROP).
• BROP. Brewers are required to submit BROPs by the 15th day after the end of the reporting period. The BROPs are filed either monthly or quarterly, the frequency is dependent upon the quantity of barrels produced by the brewer each year. The BROPs are extremely important because they support the brewer’s excise tax returns. Guess what supports the BROPs? You got it, the daily records and inventory records (time to re-read items 1 and 2).
• General record-keeping mistakes. Most other record-keeping falls into the ‘general’ category. This category includes items that support your daily record keeping, inventory counts, and BROPs. The most common mistakes made with the general record keeping include failure to maintain supporting documentation, summary records, book inventory records, and inaccurate explanations for beer shortages or inventory sheets that do not reflect operations accurately.
• Record Retention. You may not have any problem with the first four items, but this next one may surprise you. Brewers are required to maintain TTB required records for a period of “not less than three years” and in addition to that, these records must be maintained at the brewery and can only be stored off brewery premises upon approval by the TTB. So instead of finding space for one more pallet of cans, you may want to consider ensuring you have the space for some filing cabinets — because you’re going to need them.
Now you are probably asking yourself, with all this record keeping, when will I find time to actually brew the beer? Let’s face it, this stuff doesn’t sound like fun, and is most likely put off to the very last minute, creating a higher probability of errors. As a brewery, you should first educate and train all staff on these requirements, implement a system of review to ensure a second set of eyes are present to catch common mistakes, and schedule and assign these reporting duties to staff.
These simple steps may help you avoid penalties and TTB compliance findings.
Tom Dowling, CPA, CFE, MST is a manager with the Holyoke based public accounting firm, Meyers Brothers Kalicka, P.C.; (413) 322-3494; [email protected]