6 Common TTB Compliance Issues (And How to Avoid Them)

6 Common TTB Compliance Issues (And How to Avoid Them)

Running a successful craft distillery requires the mastery of two things: recipes and record keeping. Not only are distillers concerned with creating mouth-watering products that consumers will love, but they also need to essentially track the lifespan of every bottle produced — from its time in the still to the moment it’s placed in a buyer’s hands. A lot goes into making sure a distillery is in compliance with Alcohol and Tobacco Tax and Trade Bureau (TTB) regulations, and not keeping the right records can be costly in the event of an audit.

Fortunately, the TTB wants distilleries to succeed, and makes a number of helpful resources available on its website — including a list of the most common compliance issues. Here’s a look at some of the most frequently occurring record-keeping mistakes, and how to avoid them.

1. Inadequate Physical Inventory Records

The TTB cites the failure to keep adequate physical inventory records as one of the most common compliance issues among distilleries. “Adequate” doesn’t just have to do with the amount of records — signatures and sufficient information are often missing. Signatures on inventory summaries and penalties of perjury statements are often missed, and inventory summaries also frequently don’t include information required by 27 CFR 19.623 (type of spirits, identification of containers, date, etc.).

2. Differences in Reports

The daily records required by 27 CFR 19.571 can be helpful, especially when it comes to preparing monthly reports. However, if things are recorded inaccurately on or omitted from daily reports, they can be less than helpful when creating monthly reports of production, storage, processing, and processing (denaturing) operations. The TTB notes that common omissions and inaccuracies occur:

     Between monthly summary reports and monthly production, storage, and processing reports.

     Between daily distillation logs and monthly production logs.

     With mathematical calculations (adding across rows, incorrect subtraction, etc.).

     Entry errors, such as beginning inventory for one month not matching the ending inventory for the previous month.

3. Tricky Transfers

When spirits change hands between qualified DSPs, it’s important that all necessary information appears on transfer reports. Transfers require that very specific information be included on the part of the consigner (entity sending spirits) and consignee (entity receiving spirits). These requirements are outlined in detail on the TTB’s website, in 27 CFR 19.620 for the consignor and 27 CFR 19.621 for the consignee. Paperwork with bond-to-bond transfers is frequently missing things like the signature of the consignee, notes about gains or losses, registry numbers, and the amount of proof gallons transferred. 

4. Forgetting Finished Products

A daily record of finished products must be kept and used to support monthly reports. With so much going on around the distillery, it’s easy to forget about some of your product. For example, spirits disposed of by sampling or dumping for further processing may be overlooked, as may product that’s kept in an area for single bottles/partial cases, or the area where leaking product is stored. The TTB notes that records of losses or destruction are frequently incomplete, or not mentioned separately on the Monthly Report of Processing Operations.

5. Tax Rate

Shipping documents and bills of lading frequently suffer from two missing bits of information: signatures and enough information for TTB officials to calculate the appropriate tax rate. Showing the proof gallons and effective tax rate on shipping forms is the best practice, but at the least, the proof of each product and volume of each bottle should be noted so that proof gallons can be calculated.

6. Destruction

No matter how careful distillers and their employees are, sometimes product will need to be destroyed. Whether it’s broken bottles or contamination issues, the information required for voluntary destruction is the same. According to the TTB, destruction records must include:

     The kind, quantity, elements of gauge, name, and permit number of the producer, warehouseman, or processor, and identification and type of container.

     The date, time, place, and manner of the destruction.

     A statement of whether or not the spirits were previously withdrawn and returned to bond.

     The name and title of the proprietor's representative who accomplished or supervised the destruction.

Documenting destroyed product with the proper information helps when distillers create the Monthly Report of Storage Operations. Not having documentation to support reported destruction of your product can result in excise taxes coming due on destroyed spirits.

How to Keep TTB Records on Track

Sure, there are a lot of forms and a seemingly endless amount of information needed to be in complete compliance with TTB regulations. The good news is that staying on track doesn’t need to be difficult. Take a few precautions, make some adjustments, and you’ll be all set should you end up being audited.

Train Your Staff

You can’t be everywhere at once, which is why it’s important to have a properly trained staff. Walking employees through procedures and forms can prevent mistakes and omissions later. The TTB recommends providing employees sample forms — such as loss, destruction, and leaker reporting forms — to help them learn what information is required on each. The TTB notes that “even when controls are in place, they may not be effective due to employee turnover, sickness, vacations, or lack of adequate training.” Making sure all of your staff members have the training they need can prevent headaches later.

Think of the Entire Picture

When filling out daily logs, finished product records, and the like, think about your spirits’ possible lifecycles. Some may go to other DSPs, making transfer records a necessity. Others could end up in broken bottles or need to be voluntarily destroyed for other reasons, causing the need for destruction records. Take a look at the entire picture, and you’ll be less likely to miss important information on source documents, making monthly reports easier.

Use Technology

It’s time to ditch the stacks of binders and confusing Excel spreadsheets. Busy days can quickly lead to missing information and hastily scrawled daily logs, making the creation of monthly reports an absolute nightmare. The right distillery management software makes keeping track of every barrel simple, and you’ll never have to guess which reports you need to generate for TTB compliance.

Revisit Regulations and Ask for Help

Revisiting TTB regulations annually can serve as a sort of refresher course on what information needs to be recorded and when different reports need to be generated. The TTB also recommends having a compliance officer review records for form and completeness periodically, and routinely gauging your spirits.