Are You Prepared? Guidance For a Friendly TTB Audit.
Picture the scene, as the owner of a small winery you’re going through the last two weeks of mail. Casually flipping through the envelopes, you find the usual assortment of items; bills, junk mail, and ‘special offers.” Then, suddenly, you spot an unfamiliar letter with an ominous return address: ‘Department of the Treasury, Alcohol & Tobacco Tax and Trade Bureau.”
Just reading these words gets your heart beating faster. You quickly open the envelope. The letter informs you that your winery has been selected for an on site audit. The TTB will be coming in two weeks. Now your heart is really beating fast and an uneasy feeling is growing in your stomach. An audit?! You have no idea whether or not you’re anywhere near ready for a TTB audit!
If this scene has played out in your mind, you’re not alone. As a winery compliance consultant, I talk with many winery owners who say they know ‘just enough to be dangerous” when it comes to TTB compliance.
60% of the wineries in the US are classified as small, which means they produce less than 5,000 cases of wine a year. Being a small winery owner also means you’re a small business owner. The tasks necessary to keep your business going- from winemaking to marketing, plus accounting and sales- rest on your shoulders.
Being the TTB compliance manager is also on that list, but compliance is usually an unpopular chore that gets put off until the last minute. From my experience, compliance is dreaded because it is a complicated task and little to no effective guidance is provided. Nobody starts a winery for the fun of managing compliance!
Common TTB audit issues.
You may not be surprised to hear, that according to the TTB’s website (www.ttb.gov/wine) there are certain topics that come up most frequently during the course of audits. Two worth mentioning here are:
- Missing or incomplete records
- Reports not being filed or filed incorrectly
Simple steps can be taken now to assess your current compliance files. By performing your own friendly audit, any lingering doubts over your about ‘audit readiness” can be removed.
Compliance can be a complicated process. But it does not have to be that way. There are specific parts that every wine making compliance system has, and a specific flow that they follow. Once you are familiar with how the process works, then setting up and maintaining TTB compliance becomes predictable and worlds easier.
Below, I’ll share with you on a basic level what the pieces of a wine making compliance system are and what processes are related to each part. If you follow along with your own TTB compliance files through each step, you’ll essentially be performing your own friendly audit.
Steps for assessing your compliance files.
1. Locate each piece of your wine making compliance system. These include:
- TTB basic permit files including original application and most current permit copy with trade name list
- Current TTB bond
- Wine making records to include work order log, weigh tags and bills of lading
- Copies of reports filed: 5120.17, excise tax (5000.24) and COLAs
2. If you draw a blank recognizing any of the items above, there’s your first clue that you may already have audit issues.(!) You may be in need of what I call compliance triage and forensics.
On the other hand, if you just find ‘holes” during your assessment, they need to filled because each item here is a required piece of your overall compliance system.
3. After locating all of the pieces of your compliance system, the next step is to verify that all statuses or required filings are up to date. For the first two items on the list (basic permit files & bond) you’ll want to check that they still match your current business structure (ownership & physical site details) and production volume.
For the other two items on the list, your winemaking records and reports, are all of those items easily located? Do you have all of your winemaking records (the weigh tags, work orders and bills of lading) located together in one place with all the required information recorded on them?
In relation to the reporting task, if your production size is smaller, you will likely qualify to file your TTB reports on an annual basis.
Can you locate the copies of all filed reports in date order saved in your records? Are you currently using the TTB’s two available electronic filing systems to manage the three reports? (Pay.gov for your 5120.17 & excise tax and COLAs online for your label approvals)
Finally, to really test your recordkeeping, choose one of your wines that has already been bottled. Next, locate all the records for that wine during the entire course of its life, from receiving the grapes through bottling. These records may come from a hand written journal, some version of a computer spreadsheet or from a more advanced tracking software. These records should line up easily and verify that the wine qualifies for any of the TTB regulated items you used on its label such as vintage date, varietal, appellation and alcohol content. You should also have a label approval (COLA) in your files for this wine.
Ann Reynolds is the owner of Wine Compliance Alliance in Napa and has worked directly in winery production tracking and compliance since 1998. Her business assists wineries develop comprehensive A to Z compliance systems that bring them efficiency in their business and peace of mind in their compliance. Her website is www.winecompliancealliance.com