IMPROVEMENTS NEEDED IN THE

BUREAU OF ALCOHOL, TOBACCO AND

FIREARMS’ ADMINISTRATION OF THE 

CERTIFICATE OF LABEL APPROVAL

PROGRAM

OIG-01-066 April 25, 2001

Office of Inspector General

*******

United States Department of the Treasury
April 25, 2001

MEMORANDUM FOR BRADLEY A. BUCKLES, DIRECTOR

BUREAU OF ALCOHOL, TOBACCO AND FIREARMS

FROM: Marla A. Freedman /s/

Assistant Inspector General for Audit

SUBJECT: Final Audit Report – Improvements Needed in 

the Bureau of Alcohol, Tobacco and Firearms’ 

Administration of the Certificate of Label

Approval Program

This memorandum transmits the final report on our audit of 

the Bureau of Alcohol, Tobacco and Firearms’ (ATF) 

Certificate of Label Approval (COLA) program. The COLA 

program was established to protect the public from false or 

misleading alcoholic beverage labels. Our objective was to 

assess the effectiveness of the program. Our audit 

generally covered Fiscal Years (FY) 1997 through 1998.

While we believe, for the most part, the COLA program was 

adequately ensuring manufacturer compliance with labeling 

requirements, we identified several weaknesses that could 

collectively impact the effectiveness of the program. 

Specifically, we found:

• ATF was not always consistent in its handling of 

applications, at times rejecting label applications 

because of mandatory label violations, while at other 

times conditionally approving applications with similar 

violations.

• ATF did not require applicants whose pre-import samples 

failed to meet Federal requirements to submit additional 

samples for analysis, allowing the imported beverages 

from which the failed samples were taken to reach the 

marketplace without further testing.

• The COLA/Formula Modernization (CFM) System, which tracks 

COLA applications for ATF, did not provide reliable data 

on the program.

• ATF often did not process COLA applications timely.

• ATF did not always maintain sufficient documentation 

supporting COLA determinations.
Page 2

We recommended that ATF finalize and issue a planned label 

approval manual with detailed COLA operating procedures, 

develop procedures for processing pre-import samples, ensure 

information in the CFM System is updated timely and 

accurately, and maintain COLA documentation in accordance 

with ATF guidelines.

In response, ATF agreed that consistency has been a problem 

and has taken steps to address it. These steps include 

publishing a labeling manual, providing comprehensive 

training, establishing a quality assurance team, and 

reorganizing the entire COLA process. ATF also modified its 

CFM database to better track applications and improve the 

reliability of its reports. ATF plans to request funds in 

its FY 2002 budget to build a new database to address CFM’s 

shortcomings. Moreover, ATF has begun retaining copies of 

rejected COLAs in a central file. We believe completion of 

these corrective actions will strengthen the COLA program.

In our draft report, we recommended that ATF consider 

adopting a user fee to help pay for the changes needed in 

the COLA program. ATF indicated in its response that it had 

previously considered adoption of user fees for COLA and 

formulas based on past Administration and Office of 

Management and Budget requests, but concluded that the fees 

were not a viable option at this time. ATF plans to 

continue to apply resources internally to improve the COLA 

process. Based on ATF’s response, we are not including this 

recommendation in our final report.

The complete texts of ATF’s response are provided in 

Appendixes 2 and 3.

We appreciate the courtesies and cooperation provided to our 

audit staff during the review. Should you have any 

questions or require further assistance, please contact me 

at (202) 927-5400, or a member of your staff may contact 

Donald P. Benson, Regional Inspector General for Audit 

(Boston), at (617) 223-8640.

Attachment

cc: Richard Hankinson

Assistant Director, Office of Inspection
EXECUTIVE DIGEST

OIG-01-066 IMPROVEMENTS NEEDED IN ATF’S 

ADMINISTRATION OF THE COLA PROGRAM

Page i

Overview

The Federal Alcohol Administration (FAA) Act of 1935 prohibits the sale or 

distribution of alcoholic products unless they are properly packaged and labeled 

in accordance with Federal regulations. The Bureau of Alcohol, Tobacco and 

Firearms (ATF), under its Certificate of Label Approval (COLA) program, 

enforces Federally mandated label requirements by reviewing and approving all 

proposed alcoholic beverage labels before they are allowed in the marketplace. 

 With limited exception, ATF issues a COLA for every alcoholic beverage 

product offered for sale in the United States. ATF receives more than 60,000 

COLA applications each year. 

Objectives, Scope and Methodology

The objective of our audit was to determine whether ATF’s COLA program 

adequately protected the public from false or misleading alcoholic beverage 

labels. To accomplish this objective, we obtained and reviewed Federal 

labeling requirements, and assessed pre-import analysis, formula, and COLA 

application processing procedures. We also interviewed ATF personnel 

responsible for managing the COLA program, alcoholic beverage industry 

representatives concerning their satisfaction with the program, and state officials 

to identify state alcoholic beverage labeling requirements and user registration 

fee policies.

We performed our audit between October 1998 and August 1999 at ATF’s 

Washington, D.C., and Rockville, MD, facilities, and reviewed labeling data 

from Fiscal Years 1997 through 1999. We conducted our audit in accordance 

with Government Auditing Standards issued by the Comptroller General of 

the United States and included such audit tests as we determined necessary.

Audit Results

For the most part, we found the COLA program adequately ensured 

manufacturer compliance with labeling requirements. However, we found some 

weaknesses in ATF’s implementation of the program that we believe need 

correction to better ensure that COLA continues to be effective. Specifically, 

we found inconsistencies in approving and rejecting labels, a lack of follow-up 

on imported beverage samples that failed laboratory analysis, an unreliable 

tracking system, insufficient documentation supporting COLA determinations, 

and a lack of timeliness in processing many applications.
EXECUTIVE DIGEST

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ADMINISTRATION OF THE COLA PROGRAM

Page ii

Recommendations

We recommended ATF finalize and issue a planned label approval manual. We 

also recommended ATF update its tracking system to better manage COLA 

program data, and maintain documentation in accordance with ATF guidelines.

Management Response and OIG Comment

ATF management agreed that consistency has been a problem in the 

COLA program and has taken several steps during the past 2 years to 

address this concern. These steps included publication of a labeling manual, 

providing comprehensive training, establishing a quality assurance team, and 

reorganizing the entire COLA process. ATF also plans to develop and 

publish detailed pre-import process operating procedures.

ATF modified its COLA/Formula Modernization (CFM) database to better 

track applications and improve the reliability of its reports. Additionally, by 

October 2003 ATF must begin offering electronic filing of COLAs and 

formulas. While ATF is in the early planning stages, it appears ATF may 

need to create a new database to receive, process, and store data on 

COLA and formula applications. ATF plans to request funds in its 

Fiscal Year 2002 budget to build a new database with CFM’s 

shortcomings in mind.

ATF also began retaining copies of rejected COLAs in a central file.

We believe the completion of these corrective actions will strengthen ATF’s 

COLA program. The complete texts of ATF’s response are provided in 

Appendixes 2 and 3.
TABLE OF CONTENTS

OIG-01-066 IMPROVEMENTS NEEDED IN ATF’S 

ADMINISTRATION OF THE COLA PROGRAM

Page iii

EXECUTIVE DIGEST ........................................................................................................ i

BACKGROUND................................................................................................................. 1

OBJECTIVES, SCOPE AND METHODOLOGY............................................................... 3

AUDIT RESULTS

Finding 1 ATF Inconsistent in Handling of Label Applications.................................. 4

Finding 2 Follow-Up Samples Not Requested on Imported Products

that Failed Initial Laboratory Testing........................................................ 9

Finding 3 ATF’s COLA Tracking System Contained Inaccurate 

and Incomplete Program Documentation.................................................. 14

Finding 4 COLA Program Documentation Not Maintained. .................................... 19

APPENDICES

Appendix 1 Abbreviations.......................................................................................... 23

Appendix 2 Management Response ........................................................................... 24

Appendix 3 Addendum to Management Response...................................................... 34

Appendix 4 Major Contributors to this Report............................................................ 36

Appendix 5 Report Distribution.................................................................................. 37
BACKGROUND

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ADMINISTRATION OF THE COLA PROGRAM

Page 1

In 1935, Congress enacted the FAA Act to regulate interstate and foreign 

commerce in distilled spirits, wine, and malt beverages. The FAA Act prohibits 

members of the alcoholic beverage industry from selling, shipping, delivering for 

sale or shipment, or otherwise introducing into interstate or foreign commerce 

any distilled spirits, wine, or malt beverages unless such products have been 

packaged and labeled in accordance with Federal regulations.

ATF has been charged with protecting consumers by preventing false or 

misleading claims on alcoholic beverage labels. ATF: (1) enforces the 

Government Health Warning Statement requirements; (2) prohibits unbalanced 

and unsubstantiated health claims, or misleading and deceptive claims; 

(3) monitors industry advertising; and (4) conducts investigations of suspected 

label fraud. 

Certificate of Label Approval Program

Each alcoholic beverage product distributed for sale in the United States 

requires a label containing certain mandatory information about the product, its 

contents, and country of origin. With limited exception, ATF issues a COLA

for each alcoholic beverage product. The Labeling Section within ATF’s 

Product Compliance Branch (PCB)1 is responsible for reviewing and approving 

COLAs. The COLAs help ensure consumers receive products that are safe, 

legal, and properly described. COLAs also help ensure that all alcoholic 

beverages are taxed at the proper rate.

The COLA program consists of three specific phases: pre-import analysis, 

formula approval, and label approval.

Pre-Import Analysis Process

ATF requires various types of imported alcoholic beverages to undergo 

laboratory analysis by ATF’s Alcohol and Tobacco Laboratory (ATL) before 

importers can apply for label approval. Alcoholic beverages required to 

undergo pre-import laboratory analysis include liqueurs, distilled spirit 

specialties, malt beverage specialties, and wine specialties. ATF requires 

importers to submit a complete list of ingredients and a statement detailing the 

method of manufacture along with pre-import samples. A product may fail 

laboratory analysis if it contains prohibited ingredients, an excess amount of 

limited ingredients, or if it is over/under proof or over/under filled. During Fiscal 

Years (FY) 1997 and 1998, the ATL processed 988 pre-import samples.

 

1 On March 27, 2000, ATF reorganized the Product Compliance Branch and changed the name to the Alcohol 

Labeling and Formulation Branch. For the purpose of this report, we will still refer to this Branch as the Product 

Compliance Branch, or PCB. 
BACKGROUND

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ADMINISTRATION OF THE COLA PROGRAM

Page 2

Upon completion of the laboratory analysis, the ATL sends test results to the 

PCB’s Formula Section. The Formula Section then issues a pre-import letter to 

notify applicants about their test results. Pre-import letters provide importers 

with the proper class and type designation for their products and indicate 

whether their samples passed pre-import analysis or whether they must submit 

another sample for additional laboratory analysis. Applicants must include a 

copy of their pre-import letters with all correspondence they send to the PCB 

(including COLA applications) for any products tested by the ATL.

Formula Process 

ATF requires alcoholic beverage producers who manufacture certain products, 

such as domestically produced distilled spirits, flavored wines, and malt 

beverages, to submit their products’ formula for approval before they can 

submit a COLA application. When completing a formula application, an 

applicant must list all ingredients used to produce its alcoholic beverage, and 

describe its method of manufacture. Formula Section personnel review formula 

applications to verify all ingredients have been approved for human consumption 

by the U.S. Food and Drug Administration (FDA). They also verify all flavors 

used to produce alcoholic beverages have been certified by ATL. Between 

FYs 1997 and 1998, the Formula Section processed 1,313 formula 

applications. 

Label Approval Process

After undergoing any required pre-import analysis and/or formula approval, the 

alcoholic beverage labels, with limited exceptions, must be approved by ATF. 

Applicants submit their labels to ATF using ATF Form 5100.31, Application 

for and Certification/Exemption of Label/Bottle Approval. This form 

requires applicants to disclose information about their alcoholic beverage 

products, and requires them to attach an actual copy of the label which will 

appear on the alcoholic beverage container. Labeling Section personnel review 

applications to ensure alcoholic beverage labels contain all required information 

and adhere to regulatory requirements.
OBJECTIVES, SCOPE AND METHODOLOGY

OIG-01-066 IMPROVEMENTS NEEDED IN ATF’S 

ADMINISTRATION OF THE COLA PROGRAM

Page 3

The objective of our audit was to determine whether ATF’s COLA program 

adequately protected the public from false or misleading alcoholic beverage 

labels. To accomplish this objective, we obtained and reviewed laws and 

regulations under the FAA Act and documented Federal labeling requirements. 

 We obtained and reviewed copies of ATF’s Compliance Matters, alcohol 

and tobacco newsletters, and industry circulars. We documented pre-import 

analysis, formula, and COLA application processing procedures. We 

interviewed personnel with ATF’s Alcohol and Tobacco Programs Division, 

Office of Chief Counsel, and Office of Training and Professional Development 

to determine their role in the COLA program.

We visited ATF’s Alcohol and Tobacco Laboratory in Rockville, MD, to 

assess the pre-import analysis process. We visited ATF’s Technical Services 

Office in Philadelphia, PA, to determine its role in the COLA approval process. 

 We interviewed personnel at the U.S. Customs Service’s Port of Philadelphia, 

PA, to determine how shipments containing imported alcoholic beverage 

products are processed. We also interviewed 18 alcoholic beverage industry 

representatives about their level of satisfaction with ATF’s COLA program. 

Additionally, we interviewed officials in 10 states to identify state alcoholic 

beverage labeling requirements, determine whether the states have adopted a 

user charge for labeling, and to identify fee amounts. In addition, we compared 

state alcoholic beverage labeling requirements with Federal requirements.

We performed our audit fieldwork between October 1998 and August 1999. 

The period generally covered by our audit was FYs 1997 and 1998. However, 

we also reviewed a sample of COLA applications processed during FY 1999 

because ATF personnel did not maintain documentation on all "expedited" and 

rejected COLA applications processed during FYs 1997 and 1998.

We conducted our audit in accordance with Government Auditing Standards

issued by the Comptroller General of the United States and included such audit 

tests as we determined necessary.
AUDIT RESULTS

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ADMINISTRATION OF THE COLA PROGRAM

Page 4

Finding 1. ATF Inconsistent in Handling of Label Applications

ATF did not always treat label applications that had similar label violations in the 

same way. For example, in 17 of 100 approved labels we reviewed from FY 

1998, ATF found violations of mandatory label information, but "conditionally" 

approved the labels. At the same time, 12 of 49 rejected label applications we 

reviewed contained similar violations. These inconsistencies could give the 

appearance of preferential treatment. Additionally, labels may be allowed in the 

marketplace that do not meet Federal labeling requirements.

Recommendation

1. The ATF Director should ensure that the planned label approval manual 

is finalized and issued. The manual should provide for appropriate 

controls to ensure consistent determinations are made on COLA 

applications, such as supervisory reviews of the work of label 

specialists. Furthermore, personnel involved in the label approval 

process should receive appropriate training in the manual requirements.

Management Response and OIG Comment

ATF management agreed consistency has been a problem in the COLA 

program, but added that some inconsistency was inherent due to the nature 

of the laws and regulations regarding mandatory label information. 

Furthermore, ATF acknowledged that inconsistent application of labeling 

regulations is a significant concern of industry members. In the past 2 years, 

ATF has taken steps to address this concern, including publication of a 

labeling manual. In August 1999, a 9-day comprehensive training class was 

held for all COLA specialists. The class included detailed instructions on 

label requirements found in applicable laws, regulations, rulings, and ATF 

policies.

During March 2000, ATF implemented the reorganization of the entire 

COLA process as recommended by the Beverage Alcohol Streamlining 

Team (BAST).2 The new business processes were partly designed to 

address inconsistencies. As inconsistencies have been noticed, written 

policies have been created, taught to all COLA specialists, and maintained 

in manuals by all COLA specialists.

 

2

The BAST was established by ATF to conduct a through review of PCB’s business processes.
AUDIT RESULTS

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ADMINISTRATION OF THE COLA PROGRAM

Page 5

ATF also established a Quality Assurance/Output team that is responsible 

for conducting quality checks on work items and identifying inconsistencies. 

 Furthermore, ATF published the final three sections of the Beverage 

Alcohol Manual. The manual is a comprehensive “plain language” guide for 

industry members and ATF employees on the labeling laws and regulations 

for distilled spirits wine and malt beverages.

In the future, ATF plans call for implementation of monthly “roll call” training 

on label and formula issues, increased second review of COLAs, and 

creation of a formal formula specialist training class.

We believe that no further actions are needed to address this 

recommendation. ATF’s publication of a labeling manual, establishment of 

a Quality Assurance/Output team, and increased training should improve the 

consistency of its label determinations.

Details

Mandatory Label Requirements

Mandatory label requirements are included in Title 27 Code of Federal 

Regulations (CFR), Section 4.32 (wine), Section 5.32 (distilled spirits), and 

Section 7.22 (malt beverages). Although the label requirements vary slightly 

among the three types of beverages, certain information must be on each label. 

This information includes the brand name, class and type designation, alcohol 

content, name and address of the importer or producer, presence of any 

“FD&C Yellow No. 5” coloring material, and the presence of sulfites. In 

addition, label appearance must meet certain standards related to the size of the 

print and the contrast of the print background.

Approved COLAs Missing Mandatory Label Information

We reviewed 100 COLA applications that ATF approved during FY 1998 to 

assess whether COLA specialists approved the labels in accordance with 

Federal labeling regulations. We determined whether each label contained the 

following mandatory label information: brand name, class and type designation, 

name and address of producer or importer, alcohol content, net contents, 

country of origin, sulfite declaration (if applicable), and Government Health 

Warning Statement. 

Furthermore, if a wine label was vintage dated, we determined whether the label 

indicated a designation of origin. We also reviewed label applications to 

determine whether they were legible (clear and suitable for microfilming), signed 

by the applicant or authorized agent, and contained serial number information.
AUDIT RESULTS

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ADMINISTRATION OF THE COLA PROGRAM

Page 6

We found ATF appropriately determined that 80 of the 100 approved COLAs 

(80 percent) contained the required mandatory labeling information and 

approved them for the marketplace. However, ATF approved or 

"conditionally" approved the remaining 20 COLA applications despite violations 

of label requirements. 

For 3 of these 20 COLA applications, the applications were approved even 

though applicants had either omitted or provided incorrect information regarding 

importer name and address, or country of origin. For example, one label listed 

two countries of origin. The remaining 17 labels, which ATF conditionally 

approved, had one or more violations in the following areas:

• Alcoholic content statement (2 labels).

• Name of the importer/bottler (6 labels).

• Address (3 labels).

• Print legibility (5 labels).

• Print size (3 labels).

• Country of origin statement (1 label). 

In each of these instances, COLA specialists approved the COLAs but 

annotated on the applications that applicants must get their labels revised the 

next time they had new ones printed.

Similar Violations in Approved and Rejected COLAs

We compared the violations ATF found in a sample of 49 rejected 

COLAs3 with the violations COLA specialists identified on the above 

17 conditionally approved COLA applications. Our comparison noted that 

12 of the 49 rejected labels contained violations that were similar to the 

violations on the conditionally approved COLA applications. For example, 

we found print size, legibility, and importer/bottler information violations on 

both the conditionally approved and rejected labels. The following table 

presents a comparison of the extent to which several label violation 

categories appeared in both the approved and rejected label application 

files:

 

3

 While 48 of the 49 applications appeared to be properly rejected, one COLA application was rejected because 

a picture of a man’s face on the label was unclear. The label specialist’s supervisor said the label should not 

have been rejected for this reason.
AUDIT RESULTS

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ADMINISTRATION OF THE COLA PROGRAM

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Table 1: Similar Label Violations for Conditionally Approved and 

Rejected Labels

Label Violation

Conditionally 

Approved COLAs

Rejected

COLAs

ÿ Print Size – Script, type, or printing 

of mandatory information on label 

was not sized in accordance with 

Federal labeling regulations.

3 8

ÿ Legibility – Label was not designed 

so all statements were readily legible 

and on a contrasting background.

5 6

ÿ Importer/Bottler Information –

Importer/Bottler information on label 

did not agree with information on 

applicant’s basic permit.

6 1

Furthermore, we noted that for 2 of the rejected applications, ATF did not 

provide the applicants with sufficient information about why their applications 

were rejected. Applicants need this information to make appropriate label 

corrections.

Customers Cited Inconsistencies as a Problem

We interviewed 18 alcoholic beverage industry representatives to determine 

current customer satisfaction with ATF’s COLA program. While industry 

representatives were often satisfied with services provided by ATF, several 

indicated areas in which they were dissatisfied. Dissatisfied respondents 

believed ATF labeling specialists:

• continued to interpret the law inconsistently when processing COLA 

applications (6 respondents),

• took too long to process COLA applications (5 respondents),

• did not provide sufficient information on Correction Sheets to indicate

why applications had been rejected (1 respondent),

• maintained work schedules which made them unavailable to answer 

questions (1 respondent), and

• did not return telephone calls timely (1 respondent).

In addition to our limited survey, ATF received customer feedback in a selfinitiated 1996 survey of 1,382 industry members. Inconsistent interpretation of 

the law was indicated as a problem by nearly one third of the respondents. The 

complaints included the following:
AUDIT RESULTS

OIG-01-066 IMPROVEMENTS NEEDED IN ATF’S 

ADMINISTRATION OF THE COLA PROGRAM

Page 8

• language in the regulations was not clear (31 percent),

• ATF did not apply its labeling regulations consistently throughout the 

alcohol beverage industry (31 percent),

• ATF personnel did not return phone calls within 24 hours (27 percent),

• ATF employees did not explain things clearly (20 percent),

• information provided by ATF was not accurate (16 percent), and

• information received on label correction sheets could not be understood 

(14 percent).

In 1995, we also reported several industry members felt ATF specialists 

interpreted the law inconsistently.4 In following up on a Hotline complaint 

received by the Office of Inspector General concerning the ATF COLA 

program, the auditors found that 8 of 12 COLA applicants interviewed 

complained that ATF specialists interpreted the law inconsistently. The auditors 

concluded that ATF’s label approval process lacked adequate guidelines to 

ensure consistency in label approval. ATF responded that it would issue a 

formal label approval manual to replace the guidance that existed in separate 

memoranda, counsel opinions, circulars, and other publications. However, 

when we began our fieldwork in October 1998, ATF still had not completed 

the manual.

 

4

 Bureau of Alcohol, Tobacco, and Firearms: Alleged Preferential Treatment in Label Processing (OIG-95-065; 

April 18, 1995). 
AUDIT RESULTS

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ADMINISTRATION OF THE COLA PROGRAM

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Finding 2. Follow-up Samples Not Requested on Imported Products

that Failed Initial Laboratory Testing

ATF requires certain imported alcoholic beverages—rum, vodka, gin, brandy, 

non-grape wine, and specialty products—to undergo pre-import laboratory 

testing. The products are tested for proof, fill, labeling, limited and prohibited 

ingredients, contaminants, and other requirements. ATF tests these products for 

classification and tax purposes, and to ensure the ingredients are safe for human 

consumption.

We reviewed test results on 23 distilled spirits products submitted for preimport laboratory analysis. We found that, while 16 of the products did not 

meet ATF’s acceptable proof levels, ATF formula specialists did not request 

additional samples. The formula specialists merely cautioned the importers in 

letters to 14 of the 16 cases, and did not even mention the violations in the 

remaining 2 cases. Five of the 16 distilled spirit products had more alcohol than 

their labels indicated, while 11 contained less alcohol.

Recommendation

1. The ATF Director should ensure that detailed operating procedures are 

developed to ensure pre-import samples are processed in accordance 

with ATF policies and regulations. The procedures should identify 

when applicants are required to submit a second alcoholic beverage 

sample for laboratory analysis. The procedures should also provide for 

supervisory review of formula specialists’ work to ensure they properly 

analyze and convey pre-import laboratory tests results to applicants.

Management Response and OIG Comment

ATF management acknowledged that the pre-import sample deficiencies in 

alcohol content and fill were not always noted in ATF’s correspondence 

with the importers. Furthermore, ATF agreed that these discrepancies 

should always be noted in the correspondence to the importers. However, 

it is ATF’s position that while samples that fail to comply with the 

established tolerances for alcohol and fill are regulated by ATF, they are not 

essential to their primary purpose for conducting chemical analysis, 

i.e. classification and consumer safety. ATF felt that noting these 

deficiencies in a written response to industry members was sufficient.

ATF commented that the major beverage importers trade association has 

criticized ATF for what the importers believe is disparity in ATF’s treatment 
AUDIT RESULTS

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of imported and domestic products. Although the major beverage 

importers trade association does not question ATF’s need to test various 

imported products, the association felt some of ATF’s policies placed 

undue hardship and time constraints on importers that are not placed on 

domestic producers at the critical time in product marketing. Each 

pre-import lab analysis can take up to 30 days and the analysis must be 

completed before the product can be brought to market. Partly in 

deference to this concern, ATF limits re-testing of imported products to 

situations where classification or safety is involved and simply cautions 

importers on less severe problems, such as alcohol content and fill. Also, 

ATF’s Beverage Alcohol Sampling Program, which tests samples obtained 

from the marketplace, is designed, in part, to follow up on imported 

products that have deficiencies found during the pre-import process.

As part of the March 2000 BAST reorganization, ATF’s Quality Assurance 

Output team now conducts second reviews of all formula work before it is 

returned to the industry. This includes letters sent in response to pre-import 

and laboratory analysis applications. The second reviews help to ensure 

consistency in ATF’s responses and that pre-import laboratory test results 

are properly analyzed and conveyed to the applicants.

ATF management also reported that, despite multiple recruitment efforts, 

the Formula Section Chief position has remained vacant. Furthermore, due 

to the recent reorganization, this position no longer exists. However, the 

duties (along with those of the Label Section Chief) have been assumed by 

two new positions. These positions have been recently filled, but one 

person will not report until June 3, 2001. Once these positions are 

permanently filled, there will be more supervisory oversight over the work 

of the formula specialists.

On February 28, 2001, the Assistant Director, Office of Alcohol and 

Tobacco, issued an addendum to the Director’s response to clarify ATF’s 

position on operating procedures. ATF will develop and publish 

procedures that identify when applicants must submit a second sample for 

laboratory analysis and a process to ensure that pre-import laboratory test 

results are properly communicated to applicants. ATF plans to publish 

these procedures by February 2002. The complete text of 

ATF’s Addendum is provided in Appendix 3.

We believe completion of these planned corrective actions will strengthen 

ATF’s pre-import process.

Details

Types of Pre-Import Violations

We reviewed test results for products submitted for pre-import analysis during 

FYs 1997 and 1998, and found that ATF identified 649 violations. The 
AUDIT RESULTS

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violations largely involved proof and fill levels. Of the violations identified during 

that 2-year period, 242 violations (37 percent) were for “overproof ” (too much 

alcohol) and 241 violations (37 percent) were for “underproof ” (not enough 

alcohol). The table below summarizes the violations identified during the 

2-year period.

Table 2: Pre-Import Sample Violations (FYs 1997-1998)

Reason For Pre-Import Violations

Rejection FY 1997 FY 1998 Totals Percentage

Overproof 138 104 242 37

Underproof 122 119 241 37

Overfill 5 1 6 1

Underfill 19 18 37 6

Labeling 9 7 16 2

Limited Ingredients 8 5 13 2

Prohibited 

Ingredients

24 7 31 5

Contaminants 1 0 1 -

Nonstandard Fill 30 27 57 9

Headspace 4 1 5 1

Totals 360 289 649 100

Source: Chief, ATL

In addition, to determine what steps ATF took upon finding violations, we

reviewed the test results for 23 distilled spirits products submitted for 

pre-import testing between February and November 1998. Sixteen of the 

23 products, or about 70 percent, did not meet an acceptable proof level as 

indicated on the label.

However, ATF did not request additional samples. Instead, in letters to 

importers in 14 of the 16 cases, ATF cautioned the importers concerning their 

results. Thirteen of the letters told applicants that proof/alcohol content must be 

exactly as stated on the label, while one letter warned the importer that any 

samples ATF obtained after importation which tested below accepted levels 

would be labeled as diluted and subject to recall. ATF did not cite the specific 

violations in letters to importers for the remaining two cases.

 

Also, 4 of the 23 distilled spirit products in our sample, or 17 percent, had fill 

levels which fell outside ATF’s acceptable 2 percent tolerance rate. However, 

only 1 of the 4 pre-import letters ATF issued to the applicants indicated they

had to submit another sample for fill testing. The pre-import letters the ATF 

Formula Specialist sent to two applicants only indicated that they may submit an 

additional sample to ATF for fill testing. The pre import letter ATF issued to the 

remaining applicant did not mention the fill level violation.
AUDIT RESULTS

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Further, we noted that applicants often submitted pre-import samples in 

non-standard containers, which precluded ATL from performing fill testing. 

Ten of the 23, or 43 percent, of the pre-import letters we reviewed indicated 

applicants submitted their alcoholic beverage samples to ATF for pre-import 

analysis in non-standard containers. We questioned ATF officials about why 

they allowed applicants to submit samples in non-standard containers, since 

ATL conducts fill testing as part of its pre-import analysis. We were told that 

the current policy allows ATL to reject samples submitted in standard 

containers, but precludes the laboratory from rejecting samples submitted in 

non-standard containers. In effect, this approach potentially punishes importers 

who submit samples in standard containers.

ATF personnel were unable to provide us written procedures documenting the 

roles and responsibilities of the PCBFormula Section and the ATL in the 

pre-import process. Additionally, several issues of ATF’s newsletter, 

Compliance Matters, identified various types of imported alcoholic beverage 

products that ATF either required or no longer required to undergo laboratory 

analysis prior to label submission. However, we could not reconcile the various 

lists, and had to speak to ATF personnel to determine which products ATF 

currently requires to undergo pre-import analysis. 

Furthermore, we found ATF management did not adequately monitor formula 

specialists to ensure that they process pre-import letters in a consistent manner. 

 We found no evidence to indicate ATF management reviewed formula 

specialists’ work to ensure pre-import letters properly disclosed laboratory test 

results and recommended remedial actions when product samples did not meet 

Federal requirements. The Formula Section Supervisor’s position was vacant 

at the time of our review. Lack of periodic supervisory reviews could 

contribute to the inconsistency by specialists in processing pre-import letters.
AUDIT RESULTS

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Finding 3. ATF’s COLA Tracking System Contained Inaccurate and

Incomplete Program Documentation

ATF’s COLA/Formula Modernization (CFM) System contained inaccurate 

and incomplete program documentation. We found COLA applications 

classified as “open” in CFM were actually approved, rejected, or withdrawn. 

PCB personnel failed to update the CFM database to reflect the current status 

of these COLA applications. The inaccuracy of ATF’s CFM database may 

also have resulted in under-reporting the number of COLA applications 

processed by the COLA specialists within ATF’s 9-calendar day processing 

standard.

Recommendation

1. The ATF Director should ensure that the information in ATF’s 

COLA/Formula Modernization System is updated timely and accurately 

to better manage the COLA. 

Management Response and OIG Comment

ATF management agreed that the CFM does not always provide adequate 

and accurate information regarding label and formula applications. In the 

past 2 years, ATF has addressed this area of concern. As part of the 

BAST reorganization, ATF made several modifications to the CFM 

database. These included adding the ability to track applications by team, 

and storing and tracking customer service inquiries. ATF also reported that 

it addressed inaccuracies in the reports generated by the CFM. However, 

ATF noted that improvements were still needed in the reliability of the 

reports.

As mandated by law, ATF must offer electronic filing of COLAs and 

formulas by October 2003. ATF is in the early stages of planning for this, 

and may need to create a new database to receive, process, and store data 

on COLA and formula applications. At a minimum, ATF will need to 

update CFM. ATF plans to request funds for this effort and other 

electronic Government initiatives in its FY 2002 budget. The intention is to 

develop a new database to address the shortcomings in CFM.

In March 2000, ATF hired a Program Analyst to maintain CFM and 

perform error resolution on the data that it contains. This has resulted in a 

significant improvement in the timeliness and reliability of the data. Future 

plans include hiring an additional Program Analyst to assist with this work.
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The Quality Assurance/Output Team has also performed routine audits of 

CFM and its files, which has improved ATF’s ability to track applications.

ATF further stated that COLA processing turn-around time has also 

improved since our audit fieldwork was performed. In 1999, ATF received 

68,000 COLA applications and processed 75 percent within 9 calendar 

days. In 2000, it received 74,000 COLA applications and processed 

70 percent of them within 9 days. ATF also commented that in recent 

years processing time has been affected by the loss of experienced 

employees, time devoted to training new employees, inability to fill 

supervisory positions, and a steady increase in the number of COLA 

applications being received.

We believe completion of these planned corrective actions should 

strengthen ATF’s accountability over COLA applications.

Details

Improved Controls Needed Over 

ATF’s COLA Application Tracking System

We compared two statistical reports generated by the CFM system to evaluate 

the database’s accuracy in identifying the total number of COLA applications 

received during FYs 1997 and 1998. The two reports we compared were the 

Summary Applications Statistical Report and the Turnaround Summary 

Report. The Summary Applications Statistical Report provided statistical 

information about the average length of time it took to process COLAs, and the 

mode by which COLAs entered the PCB (via the front desk, overnight mail, 

regular mail, or facsimile). The Turnaround Summary Report provided 

statistical information on COLA processing turnaround time and the total 

number of COLA applications the PCB received.

Each of these reports listed different figures for the total number of COLA 

applications the PCB received during FYs 1997 and 1998, as shown in Table 3 

below. These amounts differed by 5,979 and 194 for the 2 years, respectively, 

as highlighted in the table.
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Table 3: Differences Between Two Reports in Numbers of COLA 

Applications Received in FYs 1997 and 1998 

COLA Application Receipt 

Method FY 1997 FY1998

Summary Application Statistics 

Report

 Over the Counter 31,721 33,992

 Mail-in 17,830 21,346

 Facsimile 3 1

 Overnight Express

 Total

8,268

57,822

11,258

66,597

Turnaround Summary Report 63,801 66,791

Difference 5,979 194

While testing the accuracy of the CFM database, we asked ATF to run a 

report that listed all COLA applications which had already exceeded the PCB’s 

9-calendar day processing standard and which had an “open” status. From this 

list, we selected a sample of 50 COLA applications. We and ATF employees 

physically searched the PCB operations area in an effort to locate these 

50 COLAs. However, we could find only 17 of the 50 selected applications. 

None of these 17 COLA applications were actually “open” as indicated on the 

CFM database report. Instead, 13 applications had been approved, 

3 applications had been rejected, and the remaining application had been 

withdrawn. The remaining 33 applications could not be found. Table 4 below 

summarizes reasons offered by PCB personnel to explain why they could not 

locate the 33 applications.

Table 4: Reasons ATF Officials Offered for Missing COLA 

Applications

Reasons

Number of 

COLAs

ÿ Application withdrawn and returned to applicant and not logged 

out 3

ÿ Application mailed back to applicant and not logged out 2

ÿ Application lost and resubmitted 1

ÿ No evidence application mailed back to applicant 5

ÿ Applicants contacted and stated they could not locate COLA 

application 7

ÿ No explanation offered by PCB personnel 15

Total 33
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Timeliness Standard Often Not Met

ATF also often failed to meet its 9-calendar day COLA application processing 

standard. Between October 1, 1996, and September 30, 1998, the Labeling 

Section received 130,592 COLA applications and processed 62 percent 

(80,318) within PCB’s 9-calendar day standard, as shown below. 

Approximately 45,000 applications had not been processed within the 

9-calendar day standard, including over 2,800 applications received in 

FY 1997 that had not been processed a year later.

Table 5: COLA Label Application Processing Times

in FYs 1997 and 1998

COLAs 1997 1998 Total Percentage

Received 63,801 66,791 130,592 100.0

Processed 60,976 64,371 125,347 96.0

Processed within ATF’s 9-Calendar 

Day Processing Standard 35,068 45,250 80,318 61.5

Not Processed within ATF’s 9-

Calendar Day Processing Standard.

25,908

60,976

19,121

64,371

45,029

125,347

34.5

96.0

Still in Process as of

September 30, 1998 2,825 2,420 5,245 4.0

Volume 93-1 of ATF’s Compliance Matters newsletter advised alcoholic 

beverage industry members the PCB’s targeted-turnaround time for processing 

label applications was 9 calendar days, or the equivalent of 6 to 7 workdays. 

Volume 95-2 of ATF’s Compliance Matters newsletter further advised 

alcoholic beverage industry members the PCB regularly encountered label 

submissions and correspondence that required more time to review. Some 

situations that affected the PCB’s ability to meet its target turnaround time 

involved new products and difficult questions about policy interpretations. The 

Supervisor, Labeling Section, indicated detailed research and legal reviews also 

resulted in unavoidable delays in meeting PCB’s 9-calendar day processing 

standard.

Additionally, Volume 94-3 of ATF’s Compliance Matters newsletter indicated 

the PCB would notify label submitters by phone, facsimile, or in writing if the 

process was going to exceed the 9-calendar day target. The Supervisor, 
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Labeling Section, stated the PCB never implemented this notification system 

because management felt it would only cause further COLA processing delays.

Study Found Need for Improved Database

A recent analysis by ATF's BAST of PCB operations also supports the need 

for an accurate database. The BAST found the CFM database did not provide 

accurate work distribution information, document tracking, cycle times, or 

performance measures. Additionally, the BAST identified significant problems 

with open label applications. Specifically, the BAST report indicated its 

members could not locate five percent of the COLA applications entered into 

the CFM database because they were not filed, had been improperly filed, had 

not been properly logged out, or contained erroneous data. 
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Finding 4. COLA Program Documentation Not Maintained

ATF did not retain sufficient documentation to support COLA program 

determinations. Specifically, the PCB did not retain documentation 

submitted by alcoholic beverage industry members for "expedited" COLA 

requests. In addition, COLA specialists routinely destroyed rejected 

COLA applications and supporting correction sheets within 90 days. PCB 

managers also did not track the reasons why specialists rejected COLA 

applications. Furthermore, ATF did not always maintain documentation to 

support rejected formula applications.

Recommendation

1. The ATF Director should ensure that COLA program documentation 

(applications for approval, notices of denial, and related documents) is 

maintained in accordance with ATF Order 1345.1, Records 

Management Program and Records Control Schedule. The Order

requires original paper label applications to be retained 25 years. If this 

retention period is considered unrealistic or unreasonable, the Order 

should be modified.

Management Response and OIG Comment

ATF management reported that part of the March 2000 BAST 

reorganization involved the creation of a Customer Service/Input Team. 

This team is responsible for, among other things, screening and sorting all 

applications. As part of this function, the team reviews, approves/denies, 

and tracks all requests for expedited label approval. ATF has also 

published stricter guidelines and more stringent criteria for approval of an 

expedite request.

In addition, ATF reported it has stored 25 years of original approved 

COLAs at the Washington NationalRecords in Suitland, Maryland. As 

part of the March 2000 BAST reorganization, ATF began retaining all ATF 

copies of rejected COLAs in a central file for use by its Customer Service 

specialists when responding to inquiries regarding rejected applications. 

ATF intends to maintain these files for 3-5 years. In addition, ATF plans to 

amend ATF Order 1345.1 to clearly reflect the retention period for 

rejected COLAs.

If fully implemented, we believe the corrective actions will meet the intent of 

the recommendation.
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Details

Documentation on Expedited COLA Requests

PCB personnel did not retain documentation to support expedited COLA 

requests approved during FYs 1997 and 1998. Additionally, ATF’s CFM 

system was not programmed to identify expedited COLAs or accumulate data 

on the number of expedited requests received and processed. As a result, PCB 

management does not have an effective mechanism to monitor expedited 

COLA requests nor identify members of the alcoholic beverage industry who 

may be abusing the expedite process.

Under certain situations, the PCB grants industry members expedite status for 

their COLA applications. To obtain an “expedite,” the applicant must complete 

a Front Desk Coversheet for Expedites form and submit documentation such 

as bottling schedule, shipping documents, and other forms, that establishes the 

need for ATF to expedite the COLA application. For example, an importer 

might need an expedited COLA if the importer did not have much time before a 

shipment of beverage alcohol was due to reach the United States. The 

U.S. Customs Service requires importers to submit approved COLAs with their 

entry paperwork before allowing alcoholic beverages to enter the country. 

ATF generally approves importers’ expedite requests when they are 

accompanied by a shipping schedule.

The Chief, PCB, must approve all expedite requests. Once a COLA 

application has been granted expedite status, it is immediately given top priority 

and assigned to a labeling specialist. The labeling specialist then processes that 

COLA application before working on applications that do not have an 

“expedited” status.

When we began our review in October 1998, PCB management expressed 

concerns that certain industry members may be abusing the PCB’s expedite 

process. On January 26, 1999, the Supervisor, Labeling Section, issued a 

memorandum to industry members restating PCB’s expedited COLA approval 

process. The memorandum indicated the PCB would no longer process 

expedite requests unless they were accompanied by supporting documentation, 

such as a shipping document, a bill of lading, and/or a bottling schedule.

During our evaluation of the PCB’s expedited COLA process, we asked ATF 

personnel to provide us with data on all the expedite requests the PCB 

processed during the scope of our review (FYs 1997 and 1998). We were 

told that the CFM system was not programmed to track expedite requests 

separately from regular COLA applications. As a result, statistical information 

was not available on the number of expedited COLAs processed during this

timeframe.
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ATF personnel told us that the Front Desk Coversheet for Expedites is kept 

for only a few months before being destroyed. In addition, supporting 

documentation is returned to applicants after their expedited COLA requests 

had been approved. 

Maintaining information on expedite requests would help ATF management 

assess labeling specialists’ performance. It would also allow ATF management 

to determine whether certain industry members might be abusing the PCB’s 

expedite process.

Rejected COLA Application Documentation

COLA specialists destroyed rejected COLA applications within 90 days after 

rejecting them. As a result, we could not evaluate the reasons why labeling 

specialists rejected COLA applications. We believe ATF should require 

labeling specialists to maintain documentation on rejected COLAs:

• to identify common errors made by COLA applicants and help avoid them 

on future applications; and 

• so ATF managers know why PCB employees rejected COLA applications, 

which would help the managers ensure employees consistently interpreted 

and applied the law.

ATF notified industry members that, effective March 1, 1994, if the PCB 

rejected a label, ATF would keep one application for its records, along with a 

copy of the correction notice (ATF Form 5190.1). This would enable ATF to 

better address industry members’ questions and concerns. ATF requires 

applicants to submit revised label applications in duplicate with a copy of the 

correction sheet attached. This was highlighted in ATF’s publication 

Compliance Matters 94-1.

We spoke to several COLA specialists to determine if they retained 

documentation on rejected COLA applications. Specialists indicated they 

maintain documentation when an application is initially rejected but keep it on 

hand for only 30 to 90 days because of space limitations.
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Formula Application Documentation

ATF requires members of the alcohol beverage industry to submit formula 

applications and ingredient lists for distilled spirit products, and flavored wine 

and malt beverage products before allowing them to apply for label approval. 

ATF formula specialists review this information to verify flavors used to produce 

alcoholic beverages have been certified by ATL, and the U.S. Food and Drug 

Administration (FDA) has approved all ingredients for human consumption.

During FYs 1997 and 1998, formula specialists rejected 277, or 21 percent, of 

the 1,313 formula applications they processed, as shown in the following table. 

While the CFM system provided data on the number of formula applications 

processed and rejected, the system did not capture the reasons why formula 

specialists rejected applications. However, formula specialists maintained files 

that contained documentation on processed formula applications.

Table 6: Formula Applications Processed in 

 FYs 1997 and 1998

Formula Application Type

Number

Processed

Number

Rejected Percentage

Malt Beverage 370 43 12

Spirit 483 99 21

Wine 460 135 29

Total 1,313 277 21

Source: CFM Turnaround Detail Report

We selected a sample of 20 formula applications processed during FY 1998 to 

determine why ATF rejected them. Formula Section personnel were unable to 

locate one of the selected rejected formula applications. Our review of the 

remaining 19 applications showed supporting documentation was not 

maintained on 4 applications to show why they had been rejected. According 

to the Formula Specialist who had processed the applications, the 

documentation was either passed on to the Labeling Section or returned to the 

applicants.
Appendix 1

ABBREVIATIONS

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ATF Bureau of Alcohol, Tobacco and Firearms

ATL Alcohol and Tobacco Laboratory

BAST Beverage Alcohol Streamlining Team

CFM COLA/Formula Modernization

COLA Certificate of Label Approval

FY Fiscal Year

PCB Product Compliance Branch
Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 2

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Appendix 3

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ADDENDUM TO MANAGEMENT RESPONSE

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Appendix 3

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Appendix 4

MAJOR CONTRIBUTORS TO THIS REPORT

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Northeastern Region

Donald Benson, Regional Inspector General for Audit

Dennis Deely, Audit Manager

Kevin Donahue, Auditor

Tracy Dunn, Auditor

Barry Bruner, Auditor 
Appendix 5

REPORT DISTRIBUTION

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Department of the Treasury

Under Secretary of the Treasury for Enforcement

Office of Strategic Planning and Evaluations

Office of Accounting and Internal Control

Bureau of Alcohol, Tobacco and Firearms

Director

Assistant Director, Alcohol and Tobacco 

Deputy Assistant Director, Alcohol and Tobacco

Chief, Alcohol and Tobacco Programs Division

Assistant Director (Inspection) 

Office of Management and Budget

OIG Budget Examiner