Audit Report

OIG-18-001 

REVENUE COLLECTION AND INDUSTRY REGULATION 

Opportunities Exist To Enhance TTB’s COLAs and Formulas

Online Programs 

October 3, 2017 

Office of 

Inspector General 

Department of the Treasury 
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Contents 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

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Audit Report................................................................................................. 1 

 Results in Brief ............................................................................................ 2 

 Background ................................................................................................ 3 

 Audit Results .............................................................................................. 6 

COLA and Formula Application Processing Times Have Increased and 

Advertising, Labeling, and Formulation Division Specialists Need Updated 

Performance Standards and Cross-Training ................................................ 6 

 Recommendations ...............................................................................16

Advertising Labeling, and Formulation Division Specialist Guidance Could Be 

Improved and Quality Assurance Reviews Are Needed ................................18

 

 Recommendations ............................................................................... 20 

Appendices

 Appendix 1: Objective, Scope, and Methodology ........................................ 22

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

 Appendix 3: Major Contributors to This Report ........................................... 29

 Appendix 4: Report Distribution ................................................................ 30

 

Abbreviations

 ALFD Advertising, Labeling and Formulation Division 

 COLA Certificate of Label Approval 

JAMES Joint Audit Management Enterprise System 

OIG Office of Inspector General 

TTB Alcohol and Tobacco Tax and Trade Bureau 
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OIG Audit 

Report

The Department of the Treasury 

Office of Inspector General 

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October 3, 2017 

John J. Manfreda, 

 Administrator 

 Alcohol and Tobacco Tax and Trade Bureau 

This report presents the results of our audit of Alcohol and 

Tobacco Tax and Trade Bureau’s (TTB) Certificates of Label 

Approval (COLAs) Online and Formulas Online. TTB is the Federal 

agency responsible for carrying out provisions of the Federal 

Alcohol Administration Act that protects consumers from deceptive 

practices and ensures that labeling and advertising of alcohol 

beverages provide adequate information on the identity and quality 

of the product.1

 

Our audit objective was to determine whether TTB’s COLAs and 

Formulas Online are working as intended to improve processes and 

meet the growth of TTB's alcohol-related regulated industries. To 

accomplish our objective, we interviewed officials from TTB’s 

headquarters and laboratory, as well as representatives from the 

alcohol beverage industry who use the COLAs and Formulas 

Online. We also reviewed applicable documentation for COLAs and 

Formulas Online. We conducted fieldwork from September 2014 

through July 2015 with subsequent follow up made through June 

2016 to obtain the status of TTB’s initiatives related to the COLAs 

and Formulas programs. In February 2017, we also followed up on 

TTB’s analysis of processing of COLA and formula applications as a 

result of discussions during the November 2016 exit conference 

with TTB management. Appendix 1 contains a more detailed 

description of the audit objective, scope, and methodology. 

This audit also considered the Committee on Appropriations fiscal 

year 2015 report on the Financial Services and General 

Government Appropriations Bill, whereas the Committee expressed 

concern over TTB’s ability to maintain efficient operations at a time 

 

1

 Public Law 74-401, 49 Stat. 977 (August 29, 1935).
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when the alcohol industry, by TTB accounts, is experiencing 

exponential growth.2 Acknowledging TTB efforts to use technology 

to modernize the label and formula approval process, the 

committee recommended that TTB identify ways to streamline its 

processes, including increased flexibility in staffing. Furthermore, 

TTB’s fiscal year 2016 appropriation included $5 million for TTB to 

accelerate the processing times for label and formula applications.3

 

Results in Brief

Despite TTB’s efforts to improve the COLA and formula application 

processes by decreasing the need for certain application approvals 

and promoting the use of electronic filing, processing times of 

COLA and formula applications have increased. This is due, in part, 

to industry growth and the substantial volume of electronic 

applications resubmitted after correcting errors. The resubmitted 

applications have increased TTB’s workload by as much as 45 

percent. Further, TTB’s electronic resubmission policy has the 

unintended consequence of increasing processing times for the 

majority of electronic applicants that submitted error-free 

applications. We also found, at the time of our audit, that TTB had 

obsolete performance standards and most Advertising, Labeling, 

and Formulation Division (ALFD) specialists were not cross-trained 

to work in other areas of the division.4

 

We found that TTB’s guidance for ALFD specialists to process 

COLA and formula applications could be improved to ensure 

consistency in TTB’s label and formula reviews. Additionally, TTB 

had not performed quarterly quality assurance reviews of formulas 

to ensure consistent processing of applications. 

Accordingly, we are making five recommendations to improve 

TTB’s COLAs and Formulas Online: (1) evaluate the current 

electronic resubmission policy to determine the impact on COLA 

and Formulas Online and the benefit to industry members; 

(2) continue to cross-train staff in order to address fluctuations in 

workload, reduce COLA and formula application processing times, 

 

2

 House of Representatives Report 113-508 (July 2, 2014).

3

 Consolidated Appropriations Act, 2016, Appendix (Public Law 114-113; December 18, 2015). 

4

 ALFD specialists include both Labeling and Formula Specialists. Labeling Specialists process COLA 

applications, and Formula Specialists process formula applications.
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and ensure continuity of operations; (3) update application 

processing standards for specialists to assist in determining staffing 

needs; (4) review TTB’s guidance for processing label and formula 

applications and update as needed to provide a consistent 

methodology for processing applications; and (5) establish and 

document quality assurance reviews for formula applications to 

monitor the consistency and accuracy of all specialists’ formula 

approvals. 

In its management response, overall TTB agrees that opportunities 

exist to enhance its COLAs and Formulas Online Programs as well 

as the associated label and formula review processes. TTB 

responded that it may re-evaluate the current electronic submission 

policy to assess its ongoing impact and relevance when certain 

levels of compliant applications and processing times are achieved. 

Also, TTB will continue cross-training ALFD employees and already 

implemented new specialist processing standards in May 2017. 

Regarding its guidance for processing applications, TTB began 

modifying ALFD specialists’ manuals for more consistency. 

Additionally, TTB has begun conducting quality assurance reviews 

of formula applications. We found that TTB management’s 

response meets the intent of our recommendations, and the 

response is summarized in the recommendation sections of this 

report. TTB management’s response, in its entirety, is included as 

appendix 2. TTB will need to record the estimated date for 

completing its planned corrective actions in the Joint Audit 

Management Enterprise System (JAMES), Treasury’s audit 

recommendation tracking system. 

Background 

Legal Authority and Responsibilities 

The labeling provisions of the Federal Alcohol Administration Act 

require TTB to issue COLAs to prevent the introduction of 

mislabeled alcohol beverage products into interstate commerce.5

Regulations require TTB to process COLA applications within 

 

5

 Under 27 U.S.C. §205(e), a COLA authorizes the certificate holder to bottle and remove or import 

alcohol beverages that bear labels identical to those shown on the certificate of label approval. 
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90 days.6 The initial part of the review, referred to by TTB as a PreCOLA Product Evaluation, is conducted based on the product’s 

formulation and origin. As part of the evaluation, TTB ensures that 

an alcohol beverage is correctly classified for product type and tax 

rate. 

Advertising, Labeling, and Formulation Division 

Before an alcohol beverage product can be sold in the United 

States, ALFD reviews and approves the product’s formula and 

label.7 The formula is reviewed to ensure the product meets 

regulatory and tax requirements, and the product label is reviewed 

to ensure that it meets all regulatory requirements, and is not 

misleading to the consumer. 

ALFD prevents consumer deception on alcohol beverage products 

by ensuring that labels provide consumers with adequate 

information and that the product formula does not contain 

prohibited ingredients. Additionally, ALFD educates and provides 

guidance to the alcohol beverage industry and general public on 

laws and regulations. 

ALFD’s responsibilities include administering the processing of 

COLA and formula applications. Its Formula Specialists review 

formulas for all three alcohol beverage commodities: distilled 

spirits, wine, and malt beverages. ALFD Labeling Specialists who 

review COLA applications are assigned to specialize in one of the 

three alcohol commodities. 

COLAs Online and Formulas Online Systems 

To comply with the Government Paperwork Elimination Act,8 TTB 

launched COLAs Online in 2003. This web-based application 

 

6

 Under 27 C.F.R. §13.21, TTB must provide notification of COLA approval or denial within 90 days of

application. TTB may extend notification another 90 days for unusual circumstances. No regulation 

mandates a time limit for processing formula applications. 

7

 Certain alcohol beverage products must undergo product evaluation to determine whether their 

proposed label identifies the product in an adequate and non-misleading way. TTB requires a review of 

some products’ ingredients and formulation. TTB may also require laboratory analysis of the product. 

8

 Government Paperwork Elimination Act (Public Law 105-277, October 21, 1998) required Federal 

agencies to allow individuals or entities the option to submit information to agencies and maintain 

records electronically, when practicable, by October 21, 2003. 
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system allows alcohol industry members to electronically submit 

and track their COLA applications. This system provides 

information to TTB’s Public COLA Registry providing the general 

public the ability to access detailed information on approved 

COLAs, along with a printable version of the approved COLAs. The 

system also serves as the ALFD’s database used to track workrelated documentation, including all COLA application submissions 

received. 

Prior to issuing a COLA, TTB is required to review and approve 

certain alcohol beverage formulations for regulatory and tax 

compliance. In 2011, to promote compliance with Paperwork 

Reduction Act of 1995,9

 TTB launched Formulas Online, a webbased system used by alcohol industry members for drafting, 

submitting, and tracking formula and sample submissions for 

domestic and imported alcohol beverages and non-beverage 

products.10 Formulas Online is integrated with the COLAs Online 

system, allowing alcohol producers and importers to connect 

approved formulas with their associated label applications. 

According to TTB, the intent of the COLAs and Formulas Online 

systems is to provide TTB personnel and alcohol industry members 

with a streamlined, expedient, online paperless process to provide 

and obtain label and formula approval. Both the COLAs Online and 

Formulas Online systems were intended to improve processing 

times, in part, through the use of system validations to prevent or 

eliminate incomplete or erroneous information from being submitted 

and provide applicants the ability to make corrections to their 

application electronically.11 However, it takes the same amount of 

time for a TTB Labeling or Formula Specialist to review and process 

a paper or an electronic application. 

To promote the use of COLAs Online and Formulas Online by 

alcohol industry members, TTB allows electronic applications to be 

 

9

 Public Law 104-13 (May 22, 1995) 

10 Alcohol used in the production of a food, flavor, medicine, or perfume that are determined by TTB to 

be unfit for beverage purposes are considered to be a non-beverage product. 

11 Examples of system validations include: (1) in the field for alcohol content, a percentage of 0–100 

must be entered; (2) for the image on the label, if the height and width dimensions entered by 

industry members do not meet requirements, an error message is generated; and (3) for the formula 

identification number, a valid number is provided from a drop-down menu on the entry screen. 
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resubmitted with corrections multiple times. Resubmitted 

applications receive priority processing over new applications. By 

contrast, incorrect paper applications are rejected outright and 

must be resubmitted as a new application. No fees are charged to 

any applicants, domestic or foreign, for any part of the label or 

formula application process, including lab analysis. 

Audit Results 

Finding 1 COLA and Formula Application Processing Times Have 

Increased and ALFD Specialists Need Updated 

Performance Standards and Cross-Training

Despite TTB’s efforts to improve the COLA and formula application 

processes by decreasing the need for certain application approvals 

and promoting the use of electronic filing, the processing times of 

COLA and formula applications have increased. The increase is 

due, in part, to increase in industry growth and a high volume of 

electronic applications resubmitted with corrections. Also TTB’s 

electronic resubmission policy has the unintended consequence of 

increasing processing times for the majority of electronic applicants 

that submitted an error-free application. 

Additionally, TTB’s ALFD specialist performance standards were 

obsolete and most ALFD specialists were not cross-trained to work 

in other areas of ALFD. 

Application Submissions Increased Despite Attempts by TTB To 

Reduce Submissions 

As a result of industry growth, the number of label and formula 

applications submitted has increased since TTB launched the 

COLAs Online and Formulas Online systems. 

In fiscal year 2012, TTB revised its COLA application requirements 

with the goal of decreasing the number of applications required to 

be submitted. TTB increased the number of changes, called 

“allowable revisions,” that an alcohol industry member could make 
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to a previously approved COLA without having to submit a new 

application.12 

According to TTB officials, allowable revisions are changes 

determined to pose low risk to compliance, consumer information, 

or safety. Allowable revisions are intended to improve processing 

time by reducing the number of applications submitted and the 

ALFD specialists’ workload. 

Figure 1 provides the totals for paper and electronic COLA 

applications submitted to TTB since the first complete year the 

electronic label application system was available. The figure shows 

that total applications increased from approximately 105,000 to

142,000 which is over 35 percent from fiscal year 2004 through 

fiscal year 2014.

Figure 1: Annual COLA Applications by Filing Method, Fiscal Years 2004–2014 

Source: OIG analysis of historical data from ALFD’s Dashboard report. 

According to TTB officials, allowable revisions resulted in COLA 

application submissions declining by approximately 7 percent in 

fiscal year 2014 compared to a peak of more than 152,000 COLA 

 

12 TTB Public Guidance G 2012-2, “Updated Certificate of Label Approval Application Form Expands List 

of Allowable Changes” (July 12, 2012). In fiscal year 2012, TTB increased the number of allowable 

revisions to 28. TTB further increased allowable revisions to 34 during fiscal year 2014 and there 

have been no additional changes to allowable revisions. Types of allowable revisions included changes 

to alcohol content, vintage date, and the deletion or reposition of graphics on the labels. 

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Paper

Electronic

Application 

Type
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applications submitted in fiscal year 2012.13 However, TTB officials 

stated that continued industry growth would cause the number of 

applications to rise again. TTB intends to consider additional 

allowable revisions in the future, however, at the time of our audit, 

TTB was not able to determine to what extent this would be 

possible. 

As the result of industry growth, formula application submissions 

have also increased over the years. Since the launch of Formulas 

Online, submissions have grown more than 50 percent—from 

approximately 9,000 in fiscal year 2011, when the program began, 

to 14,000 in 2014. 

In fiscal year 2014, TTB attempted to reduce submissions of 

formula applications through a new ruling that eliminated the need 

to submit formula applications for malt beverages when certain 

ingredients or production processes are used.14 According to TTB’s 

fiscal year 2015 Annual Report, the number of malt beverage 

formula applications submitted in fiscal year 2015 declined by 

approximately 28 percent compared to the previous year. However, 

this reduction was entirely offset by an increase in wine and 

distilled sprit formula application submissions.15 In fiscal year 2016, 

TTB continued its attempt to reduce formula application 

submissions with the publication of two rulings that eliminated 

formula filing requirements for certain wine and distilled spirit 

products.16

 

13 TTB reported in its fiscal years 2013 and 2014 Annual Reports that allowable revisions resulted in 8 

percent fewer label applications in fiscal year 2013 than fiscal year 2012, and 7 percent fewer in 

fiscal year 2014. 

14 TTB Ruling 2014-4, “Ingredients and Processes Used in the Production of Beer Not Subject to 

Formula Requirements” (June 5, 2014). This ruling was superseded in fiscal year 2016 with TTB 

Ruling 2015-1 “Ingredients and Processes Used in the Production of Beer Not Subject to Formula 

Requirements” (December 17, 2015).

15 According to TTB’s fiscal year 2015 Annual Report, wine and distilled spirits formula application 

submissions had increased by 27 and 16 percent, respectively. 

16 TTB Ruling 2016-2, “TTB Approves General-Use Formulas for Certain Agricultural Wines” (September 

29, 2016) and TTB Ruling 2016-3, “TTB Approves General-Use Formulas for Certain Distilled Spirits 

Produced Using Harmless Coloring, Flavoring, or Blending Materials” (September 29, 2016).
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Electronic Filings and Application Processing Times Have Increased

In its fiscal year 2014 Annual Report, TTB reported that in fiscal 

year 2014 most alcohol industry members used electronic filing for 

COLA applications (94 percent) and formula applications (84

percent). Totals for applications filed through the COLAs Online 

and Formulas Online systems exceeded TTB’s performance 

measure target of 92 percent at 93 percent.17

According to TTB officials, electronic applications were intended to 

reduce processing times by eliminating the problems and time 

delays associated with mailed paper applications, instituting system 

validations aimed to eliminate erroneous information or incomplete 

applications, and providing the ability to electronically correct and 

resubmit an application. However as shown in Figure 2, the 

processing times for COLAs for all three alcohol beverage 

commodities have increased since fiscal year 2010, with the most 

substantial increase occurring in distilled spirits. Time to process 

COLA applications for that commodity increased from about 2 

weeks in fiscal year 2010 to 6 weeks in fiscal year 2014.

Figure 2: Average Days To Process Label Applications by Commodity, 

Fiscal Years 2010–2014

0

10

20

30

40

50

2010 2011 2012 2013 2014

Malt Beverage Wine Distilled Spirits

Source: OIG review of TTB’s historical analysis of label applications processed. 

 

17 TTB uses the combined electronic filing rates for COLAs Online and Formulas Online as a performance 

measure as shown in TTB’s Annual Report Fiscal Year 2014. 
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Similarly, the average processing time for formulas has increased 

from a little over a week in fiscal year 2011, when electronic filing 

began, to almost 9 weeks in fiscal year 2014. 

TTB officials attributed the increase in processing times for COLA 

applications and formula applications to several factors. These 

included industry growth with existing staffing levels and an 

exceptionally high volume of applications being resubmitted by 

applicants after correcting errors.18 

TTB officials stated that the increased processing times disrupted

the business operations of alcohol beverage producers and 

importers and posed a potential barrier to commerce. According to 

a group of alcohol industry members—particularly distilled spirit 

producers and importers—the increase in processing time is viewed 

as a significant obstacle to bringing products to market.19 For 

example, we found the combined processing times for COLA and 

formula approval for a distilled spirit product measured in October 

2015 could take, on average, up to 14 weeks.20 

Application Error Rate Caused Processing Times To Increase 

According to TTB’s fiscal year 2014 Annual Report new industry 

members add to application processing times because they often 

require extensive assistance during the application process and 

frequently submit applications that require correction.21 TTB 

officials stated that new industry members are primarily responsible 

for increased error rates because they are unfamiliar with 

regulations and need better guidance for completing label 

applications. A May 2015 analysis conducted by TTB showed a 

statistically significant relationship between permit age and errors 

 

18 TTB Memoranda: (1) Analysis of Reasons That Label Applications Are Sent Back for Correction and

(2) Analysis of Reasons That Formula Applications Are Sent Back for Correction (March 31, 2015).

19 On September 5, 2014, a coalition of 10 alcohol beverage trade associations, representing all three 

commodities, collectively wrote a letter to Congress voicing their concern that TTB lacked the 

resources to handle the growing alcohol beverage industry, leading to longer delays in getting 

products to the marketplace. 

20 On October 23, 2015, TTB reported on its web site that the average processing time for a distilled 

spirit formula was 71 days and the average for a distilled spirit COLA was 30 days, and if handled 

consecutively the combined time would be a total average of 101 days to clear the approval process. 

21 TTB defines new industry members as those with a permit to operate that is less than a year old. 
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upon initial submission for electronic COLA applications.22 Our 

review of TTB data found that new industry members had a higherthan-average error rate, but only minimally higher than that of 

experienced industry members. We found that new industry 

members submitted 15 percent of electronic COLA applications in 

fiscal year 2014 and were responsible for 18 percent of COLA 

applications returned for correction. 

Nonetheless, the substantial volume of application errors has 

resulted in increased workload for the ALFD specialists and a 

commensurate increase in processing times. According to TTB’s 

Balanced Scorecard Executive Quarterly Report, specialists were 

handling 42 percent of electronic COLA applications and 34 

percent of electronic formula applications that required correction 

on first submission in fiscal year 2014. Alcohol industry members 

submitted more than 142,000 COLA applications to TTB, but TTB 

specialists processed over 207,000 COLA applications (an 

additional 45 percent). The increase in processing is due to 

industry members resubmitting corrected electronic applications to 

TTB for reprocessing. 

An ALFD specialist described a situation that happened regularly in 

which an industry member would link a COLA application to a 

formula, anticipating that the label would be returned for correction 

because the corresponding formula had not yet been approved. 

This label would be considered a resubmitted application once the 

industry member received an approved formula, and it would go to 

the front of the line for processing. 

TTB reported in its Balanced Scorecard Executive Quarterly Report, 

February 2015, that 58 percent of COLA electronic applications 

and 66 percent of electronic formula applications were approved by 

ALFD specialists on first submission during fiscal year 2014. 

Among electronic COLA applications returned for correction in 

fiscal year 2014, 69 percent were approved on the first 

resubmission, twenty-one percent were approved on the second 

 

22 TTB noted in its analysis that there are several complexities in the data relating to industry member 

operations and production patterns that may limit the utility of the analysis and qualify its 

conclusions. For example, existing permit holders may start producing new products and are new to 

the application process for formulas and/or labels so the age of these applicants is not a true indicator 

of the likely compliance rate of these industry members’ formula and label applications.
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resubmission, and approximately 10 percent were either approved 

or rejected after three or more resubmissions. According to TTB’s 

Memorandum, Analysis of Reasons That Label Applications Are 

Sent Back for Correction, the following three reasons accounted for 

approximately 50 percent of all distilled spirit and malt beverage 

combined labeling errors: (1) the label contained misleading 

information; (2) the label conflicted with the associated formula; 

and (3) the Health Warning Statement contained punctuation or 

style errors. 

According to TTB officials, COLA applications are eventually 

rejected by TTB if they are resubmitted three times with errors or 

they are not resubmitted within 30 days of being sent back for 

correction. Issues involving a label image are allowed four 

resubmissions. In fiscal year 2014, TTB rejected approximately 7 

percent of COLA and 6 percent formula electronic applications. 

TTB officials stated that resubmitted electronic applications 

increased the workload of ALFD Labeling Specialists by 

approximately 45 percent and ALFD Formula Specialists by 30 

percent in fiscal year 2014, which contributed to increased 

processing times.

Figure 3 shows the number of COLA applications initially received 

and the number of applications processed. 

Figure 3: COLA Applications Received and Processed, Fiscal Years 2010-2014

Source: OIG analysis of historical data from ALFD’s Dashboard report and TTB 

officials. 

132,602

145,307 152,741 140,324 142,441

173,494

198,388

221,281

195,719 207,165

0

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014

Initial COLA Applications Resubmitted COLA Applications
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TTB officials and ALFD specialists stated that resubmitted 

applications take the same amount of time to review and process 

as a new application because the entire application must be 

reviewed for any additional changes. Often applications are 

returned and resubmitted multiple times. An ALFD specialist told us 

that days can be spent processing resubmitted applications. 

In an effort to promote electronic filing, TTB set a policy to process 

resubmitted electronic applications before processing new 

applications. However, we found that the policy had produced a 

bottleneck. It had the unintended consequence of increasing 

processing time for the majority of electronic applicants, who 

submitted an error-free application on the first submission. 

TTB’s resubmission policy does not support the purpose of an 

“electronic government” as stated in E-government Act of 2002. 

The purpose of an electronic government, that uses information 

technologies, combined with processes that implement these 

technologies, is to bring about improvements in government 

operations that may include effectiveness, efficiency, and service 

quality. The implementation of TTB’s COLAs and Formulas Online 

systems has led to an increase in electronic filings; however, TTB’s 

application resubmission policy now results in longer processing 

times that impacts the service quality for the majority of 

applicants. 

TTB collected data on COLA and formula application errors to 

identify common trends.23 TTB officials stated that TTB planned to 

address the common errors with system enhancements and to 

conduct outreach to educate industry members. According to 

TTB’s Chief Information Officer (the authority responsible for 

maintaining and deploying changes to the COLA and Formulas 

Online systems), the benefits from enhancements should be 

considered in conjunction with whether processing times would be 

best improved by adding staff to process applications. 

 

23 TTB Memorandum: (1) Analysis of Reasons That Label Applications Are Sent Back for Correction and 

(2) Analysis of Reasons That Formula Applications Are Sent Back for Correction (March 31, 2015).
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ALFD Staff Were Not Cross-trained 

We found that at the time of our review, most ALFD specialists 

were not cross-trained to process both COLA and formula 

applications, resulting in inconsistent and inequitable use of 

resources for processing labels and formulas. According to TTB 

officials, TTB identified the need to cross train formula and labeling 

specialists in fiscal year 2012, but had suspended its efforts due to 

the increased workload caused by the volume of applications and 

existing staffing levels. 

 

During fiscal years 2011 through 2014, the workload for malt 

beverage label applications rose 50 percent and formula 

applications rose 91 percent.24 During the same time period, the 

number of specialists processing those applications remained 

relatively the same. ALFD’s sole specialist assigned to malt 

beverage COLA applications told us that he worked 7 days a week 

to try to keep processing times from rising. Another specialist 

stated that she was “burned out” from processing high volumes of 

applications. 

This specialist also stated, COLAs occasionally require a formula 

application, and cross-training would help specialists to better 

understand that aspect of the process. One ALFD Program 

Manager did not know how an ALFD specialist was fully capable of 

processing a COLA application without having the knowledge and 

understanding of the formula application process. 

In its Standards for Internal Control in the Federal Government,25

the Government Accountability Office (GAO) provides that effective 

management of an organization’s workforce is essential to 

achieving results and an important part of internal control. As part 

of its workforce planning, management must continually assess the 

knowledge, skills, and abilities needed to achieve organizational 

goals and consider how best to maintain a continuity of those skills 

and abilities. 

 

24 TTB could only provide the last 9 months of data on the number of formula applications processed in 

fiscal year 2011. A 12-month extrapolation from the 9 months of data was used to project total 

formula applications processed for fiscal year 2011. 

25 GAO, “Standards for Internal Control in the Federal Government” (GAO/AIMD-00-21.3.1; issued 

Sept. 2014).
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ALFD management stated that cross-training could allow more 

equitable distribution of work among the commodity specialists. In 

July 2015, TTB officials stated that ALFD specialists were being 

cross-trained once they had mastered processing for one 

commodity. Following this, the specialist would begin to learn to 

process applications for other commodities. 

Specialist Processing Standards Were Obsolete 

TTB’s processing standards for its ALFD Specialists need to reflect 

the specialists’ actual workload. Realistic standards for the number 

of labels and formulas that can be processed by staff should be 

established to assist TTB in determining the number of staff 

needed to meet the growing demand or to support its requests for 

additional staff to process applications and reduce processing 

times. 

Our review of the fiscal year 2014 applications processed by ALFD 

specialists found that the processing standards were set 

significantly lower than what ALFD specialists were achieving. For 

example, the sole Malt Beverage Specialist processed more than 

33,000 applications—almost four times the amount that the 

specialist is required to process. TTB requires a labeling specialist 

to process 700 malt beverage applications monthly, for an annual 

total of 8,400 applications. Four Formula Specialists processed 

more than 18,000 formulas in fiscal year 2014. TTB requires each 

of its four Formula Specialists to process 110 formula applications 

per month, for an annual total of 5,280 applications processed. 

If those specialists had worked to the current standards, fewer 

than 5,300 formula applications would have been processed. 

According to TTB officials, processing standards used to measure 

specialist performance have not been updated since 2007 and do 

not adequately reflect current workload. 

According to Office of Management and Budget (OMB) 

Memorandum, Delivering an Efficient, Effective, and Accountable 

Government (M-11-31; August 17, 2011), on the agency level, 

performance goals and measurements are powerful tools to 

advance the effectiveness of programs “when the agencies 
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regularly collect and analyze performance data to inform 

decisions”. 

GAO’s Standards for Internal Control in the Federal Government 

requires management to design and validate individual performance 

measures as well as compare actual performance to planned or 

expected results throughout the organization and analyze 

significant differences. Furthermore, the Office of Personnel 

Management’s Handbook for Measuring Employee Performance, 

provides that on the employee level, performance plans should 

establish elements and standards that address accomplishments 

that lead to achieving organizational goals. All ALFD specialists 

have, as part of their performance evaluations, processing 

standards that measure their processing volume and accuracy. 

At the time of our audit, TTB was working to update specialist 

performance standards. We believe that updated standards will 

allow TTB to more accurately determine the number of staff 

needed to meet the growing demand and to support its requests 

for additional staff to reduce processing times. 

Other Improvements Are Planned 

In September 2014, TTB submitted its proposed rulemaking for 

modernization of alcohol beverage labeling to Treasury’s Office of 

Tax Policy for review. The proposed rulemaking is intended to 

clarify and consolidate TTB’s regulations and policies with regard to 

the labeling of alcohol beverages, thus providing clearer and more 

consistent guidance for industry members. As of June 2016, TTB’s 

Director of ALFD stated that the proposed rulemaking was in the 

final stages of review by Treasury. 

Recommendations 

We recommend that the Administrator of TTB do the following: 

1. Evaluate the current electronic resubmission policy to determine 

the impact on COLA and Formulas Online and the benefit to 

industry members. 

Management Response 
Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 17

Management considered, but has decided not to revise the 

electronic resubmission policy at this time. When TTB’s current 

improvement initiatives to facilitate the submission of compliant 

applications are complete, management may re-evaluate 

changing the resubmission policy. TTB believes the majority of 

noncompliant application submissions are due to industry’s

misunderstanding of TTB’s regulations and/or inadvertent errors, 

and the intentional submission of noncompliant applications as a 

placeholder was prompted by TTB’s increasingly lengthy 

processing times over the past several years. 

OIG Comment 

TTB’s response meets the intent of our recommendation. 

Although TTB has decided not to revise the electronic 

resubmission policy at this time, TTB has recognized the need 

to facilitate the process for submitting compliant applications, 

and will continue to assess its application resubmission policy. 

This effort should help ensure that TTB operations remain 

effective and efficient, and improve service quality to its 

stakeholders. TTB will need to record its planned corrective 

action in JAMES. 

2. Continue to cross-train staff in order to address fluctuations in 

workload, reduce COLA and formula application processing 

times, and ensure continuity of operations. 

Management Response 

Management agrees with the recommendation and will continue 

to cross-train ALFD employees. According to management, 

AFLD’s cross-training protocol has resulted in lower application 

processing times and has ensured continuity of operations 

across application types and commodities. 

OIG Comment 

TTB’s response meets the intent of our recommendation. TTB

will need to record its planned corrective action in JAMES. 
Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 18

3. Update application processing standards for ALFD specialists to 

assist in determining appropriate staffing needs. 

Management Response 

Management concurs with the recommendation. According to 

management, this recommendation was addressed with new 

specialist processing standards that were implemented in May 

2017. TTB stated that it recognizes that application processing 

standards should be reevaluated as program improvements are 

made (e.g., technological and other system improvements) and 

other factors are changed that would support revisions to 

processing standards. TTB developed a workload model in fiscal 

year 2016 and intends to continue using this model to evaluate 

its resource needs, target productivity levels, and address 

turnaround time standards for labels and formulas. 

OIG Comment 

TTB’s response meets the intent of our recommendation. TTB 

will need to record its corrective action in JAMES. 

Finding 2 ALFD Specialist Guidance Could Be Improved and Quality 

Assurance Reviews Are Needed

TTB established formal written procedures for its ALFD specialists 

to follow when processing COLA and formula applications in 

May 2015.

26 We found that TTB guidance for its ALFD specialists 

could be improved to ensure consistency in label and formula 

reviews. Additionally, TTB had not performed quarterly quality 

assurance reviews for formulas to ensure consistent processing of 

applications. 

ALFD Specialist Guidance Could Be Improved 

According to both TTB staff and alcohol beverage industry 

members who we interviewed, there were inconsistencies in the 

 

26 TTB issued two standard operating procedures in May 2015: SOP ALFD S 5190.4, “Alcohol Beverage 

Label Application Review” (May 5, 2015), and SOP ALFD S 5190.5, “Pre-COLA Evaluation Standard 

Operating Procedures” (May 21, 2015).
Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 19

processing of applications among specialists and specialists had 

different interpretations of the regulations that affected the 

determination of application approval. For example, formula 

specialists were not categorizing the reason an application was 

returned for correction in a meaningful manner for approximately 

half of the applications processed in 2014. They grouped these 

applications into one of two generic categories: “Missing 

Information” or “Other.”27 These broad categories did not provide 

useful data about the problems encountered with applications or 

provide TTB sufficient information to address the problems with 

industry members to reduce errors. 

According to TTB officials, ALFD specialists rely on guidance that 

includes federal regulations, TTB standard operating procedures, 

TTB training manuals, industry circulars, rulings, and other 

guidance documents along with professional judgement in 

determining application approval. During our audit, TTB formalized 

its standard operating procedures for processing COLA and formula 

applications in May of 2015. We found that guidance to ALFD 

specialists could be improved to incorporate a consistent 

methodology for ALFD specialists to follow when processing 

applications with errors. We believe a consistent methodology 

would improve the data and provide TTB’s management a means 

to make more informed decisions and improve processes. 

We also found that TTB’s guidance did not have criteria for ALFD 

specialists to use in determining when applications should be 

rejected during multiple resubmissions. According to a labeling 

specialist, ALFD specialists use their own discretion when deciding 

to reject an application, typically after three submissions. 

Quality Assurance Reviews Are Needed 

According to TTB officials, ALFD Quality Assurance Specialists are 

responsible for reviewing the quality of work performed by the 

Labeling and Formula Specialists and for training new specialists. 

ALFD Quality Assurance Specialists are to provide quarterly quality 

assurance reports to ALFD’s Assistant Directors. TTB officials 

stated that the work of the ALFD specialists who exceeded the 

 

27 TTB Memorandum, “Analysis of Reasons That Formula Applications Are Sent Back for Correction”

(March 31, 2015). 
Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 20

acceptable application processing error rate of 15 percent were 

subject to increased quality assurance reviews until error rates 

decreased. However, TTB could not provide us with quarterly 

quality assurance reports for Formula Specialists because quarterly 

quality assurance reviews were not conducted. 

According to OMB Circular No. A-123, Management’s 

Responsibility for Internal Control, December 2004, monitoring is 

an internal control required of government managers. Continuous 

monitoring should be reported on periodically, and assessments 

should be integrated as part of management’s continuous 

monitoring of internal control. The absence of Quality Assurance 

Specialists to perform oversight of Formula Specialists diminishes

TTB’s ability to effectively monitor performance in approving 

formulas and to identify opportunities for process improvement and 

training. 

Recommendations 

We recommend that the Administrator of TTB do the following: 

1. Review TTB’s guidance for processing label and formula 

applications and update as needed to provide for a consistent 

methodology for processing applications. 

Management Response 

Management concurs with the recommendation that TTB’s 

guidance for ALFD specialists should be reviewed and updated 

as needed to ensure consistency in label and formula reviews, 

which is consistent with several ongoing efforts by TTB to 

improve ALFD specialist guidance materials. 

TTB responded that in fiscal year 2017, TTB began 

implementing recommendations from a fiscal year 2016

contractor process review, which are intended to result in 

greater consistency in label and formula application reviews, 

including creating application review checklists and streamlining 

the reasons that a specialist may select when returning an 

application for correction. When complete, these materials will 

also be incorporated into the specialist manuals. 
Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 21

OIG Comment 

TTB’s response meets the intent of our recommendation. TTB 

will need to record its corrective action in JAMES. 

2. Establish and document quality assurance reviews for formula 

applications to monitor the consistency and accuracy of all 

specialists’ formula approvals. 

Management Response 

Management agrees with the recommendation that quality 

assurance reviews are needed for formula approvals and has 

implemented a process for reviews. TTB stated that following 

fiscal years 2016 and 2017 dedicated funding to accelerate 

label and formula reviews, TTB was able to hire an Assistant 

Director for Formulation, who now consistently conducts quality 

assurance reviews for all formula specialists. 

OIG Comment 

 

TTB’s response meets the intent of our recommendation. TTB 

will need to record its corrective action in JAMES. 

 * * * * * * 

We appreciate the cooperation and courtesies extended to our staff 

by TTB personnel. If you have any questions, please contact me at 

(617) 223-8638 or Ken O’Loughlin, Audit Manager, at (617) 223-

8624. Major contributors to this report are listed in appendix 3 and 

the distribution list for this report is included as appendix 4. 

/s/ 

Sharon Torosian 

Director 
Appendix 1 

Objective, Scope, and Methodology 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 22

Our objective was to determine whether the Certificates of Label 

Approval (COLAs) Online and Formulas Online administered by the 

Alcohol and Tobacco Tax and Trade Bureau (TTB) were working as 

intended to improve processes and meet the growth of alcoholrelated industries regulated by TTB. 

To accomplish our objective, we interviewed managers and staff 

members from TTB’s Advertising, Labeling and Formulation 

Division (ALFD) at headquarters in Washington, D.C. and at TTB’s 

Scientific Services Division laboratory in Beltsville, MD. 

External to TTB, we interviewed representatives from alcohol 

beverage trade associations and state alcohol beverage regulatory 

agencies to obtain their views on TTB’s COLAs Online and 

Formulas Online programs. These included the Beer Institute, 

National Association of Beverage Importers, Distilled Spirits Council 

of the United States, Presidents’ Forum of the Distilled Spirits 

Industry, Wine America, Wine Institute, and Massachusetts Alcohol 

Beverage Commission. 

We also reviewed information provided on TTB’s public website, 

including its Annual Reports, the COLAs Online and Formulas 

Online programs, Online Public COLA registry, rulemakings, the 

Code of Federal Regulations, and other label and formula material. 

We reviewed prior Office of Inspector General and Government 

Accountability Office reports. We also reviewed legislation and 

congressional materials, Treasury Orders and Directives, and 

government-wide guidance related to TTB and its COLAs Online 

and Formulas Online programs. We reviewed TTB’s analyses of 

these programs as well as related data. We requested from TTB 

and reviewed any reports, studies, assessments, and initiatives 

related to these programs, as well as any TTB policies, procedures, 

and guidance on the COLAs Online and Formulas Online programs. 

We performed our fieldwork from September 2014 through July 

2015 with subsequent follow up made through June 2016 to 

obtain the status of TTB’s initiatives related to the COLAs and 

Formulas programs. In February 2017 we also followed up on 

documentation as a result of discussions during the November 

2016 exit conference with TTB management. 
Appendix 1 

Objective, Scope, and Methodology 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 23

We conducted this performance audit in accordance with generally 

accepted government auditing standards. Those standards require 

that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 
Appendix 2 

Management Response 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 24
Appendix 2 

Management Response 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 25
Appendix 2 

Management Response 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 26
Appendix 2 

Management Response 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 27
Appendix 2

Management Response 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs

(OIG-18-001) Page 28
Appendix 3 

Major Contributors to This Report 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 29

Ken O’Loughlin, Audit Manager

Timothy Cargill, Auditor-In-Charge 

Patrick Arnold, Auditor-In-Charge 

Andrew Morgan, Referencer 
Appendix 4 

Report Distribution 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 30

The Department of the Treasury 

Deputy Secretary 

 Fiscal Assistant Secretary 

Office of Strategic Planning and Performance Improvement 

Office of the Deputy Chief Financial Officer, Risk and Control 

Group 

Deputy Assistant Secretary, Tax, Trade, and Tariff Policy 

Alcohol, Tobacco, Tax and Trade Bureau

Administrator 

 

Office of Management and Budget

OIG Budget Examiner 

U.S. Senate 

Chairman and Ranking Member 

Committee on Appropriations 

Chairman and Ranking Member 

Subcommittee on Financial Services and General Government 

Committee on Appropriations 

Chairman and Ranking Member 

Committee on Finance 

Chairman and Ranking Member 

Committee on Health, Education, Labor, and Pensions 

U.S. House of Representatives 

Chairman and Ranking Member 

Committee on Appropriations 

Chairman and Ranking Member 

Subcommittee on Financial Services and General Government 
Appendix 4 

Report Distribution 

Opportunities Exist To Enhance TTB’s COLAs and Formulas Online Programs 

(OIG-18-001) Page 31

Committee on Appropriations 

Chairman and Ranking Member 

Committee on Ways and Means 

Chairman and Ranking Member 

Committee on Energy and Commerce 
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