NB Liquor’s ‘private arrangements’ hurting profits, auditor general finds

The New Brunswick Liquor Corporation hasn’t been doing enough to promote the liquor industry in the province and has been making special deals with certain producers that are hurting the Crown corporation’s profits, according to the general.

Paul Martin says in an audit released Thursday that NB Liquor has a mandate to support provincial producers but is “disconnected” from their needs.

The corporation does not “actively consult or engage with local producers” regularly and does not “proactively consult local producers regarding the development of plans and policies having a direct impact on their businesses,” the audit says.

The audit also says the corporation doesn’t consistently apply criteria for deciding what products it carries, or stops carrying, or how much it charges for them.

May be favouritism

“The lack of documented review and approval of key processes and rationale for strategic decisions increases the risk of favoritism and poor decision-making,” Martin says.

“Without such evidence, we could not determine whether products were listed, priced, or delisted as a result of favoritism, bias, or objective information.”

In a response included in the report, NB Liquor says it has adopted a three-year local craft producer strategy with performance targets and an industry advisory committee.

It is also pledging to better document financial analysis and the decision-making process.

NB Liquor promised to be better at documenting its finances and decisions. (CBC)

NB Liquor said in an email Thursday no one was available for an interview, but six of the audit’s 19 recommendations have already been implemented and the rest will be “addressed” in the next two fiscal year.

“Over the past three years, we have come a long way when it comes to following industry best practices and in the development of our programs and services, offering various retail channels across the network and supporting our growing local alcohol producer sector,” said spokesperson Emily Dow.

New Brunswick Craft Alcohol Producers Association president Lloyd Chambers says he has already seen an improvement.

“Some of those items, ANBL is already working on with us,” he said. “I think we’re moving that way anyway and I think this [report] will just be a bit of a catalyst to move us forward maybe a little quicker.”

The auditor general also highlights what he calls “special arrangements” for at least four local producers who received lower mark-up rates on their products, making them more attractive to consumers.

One such deal was described by NB Liquor as a policy “for breweries of a certain size” based on production volumes.

Only one brewer qualified, but the audit does not identify it and Martin would not give the name to reporters.

A favorite history with Moosehead

In 2016 CBC News reported on a leaked NB Liquor document that listed 22 ways the corporation was favoring Saint John’s Moosehead Breweries with policies the document called “anticompetitive.”

They included a limit on store displays for non-Moosehead products, a price increase on some non-Moosehead beers and the cancellation of a Budweiser promotion “due to Moosehead concerns.”

At the time, Moosehead CEO Andrew Oland defended the company, saying it was fighting “tooth and nail for everything we can get from NB Liquor.”

Moosehead did not respond to a request for comment Thursday.

The audit says another special arrangement for another producer cost NB Liquor $949,000 in 2020-21 and will remain in place for at least another year, “furthering the inequity among producers and hindering ANBL’s profit,” Martin said.

Such special deals are exceptions to the corporation’s published mark-up structure and should be clearly documented with a financial analysis attached, the audit says.

Private deals hurt profits

“These private arrangements, which were outside the mark-up structure, not only decreased ANBL’s profits and introduced a risk of favoritism, they also decreased the level of transparency.”

NB Liquor’s response says the corporation “strives to ensure its pricing is transparent, fair and consistent for all suppliers.”

The report says craft alcohol accounts for 4.2 per cent of NB Liquor’s total sales but represents 27.6 per cent of its total products.

In 2020-21 there were 102 local alcohol producers, including 62 breweries.

The New Brunswick Liquor Corporation Act was amended in 2013 to include a mandate for the company “to participate in the development of the liquor industry in the province.”

But Martin says his audit found no documentation of the corporation doing that and no targets to evaluate how it was doing.

Failure to act on issues

In 2017 a working group was created including representatives from NB Liquor, the New Brunswick Craft Alcohol Producers Association and several government departments.

The working group’s report acknowledged that NB Liquor’s policies were “disconnected from the people who are most affected by them.”

“Despite this acknowledgment, ANBL did not act on raised issues and solutions identified, including ‘quick hit’ solutions,” Martin writes.

“It continued to develop policies in a manner which were disconnected from local producers instead of involving them in implementing ideas and strategies to grow together.”

Auditor general says NB Liquor is not doing enough to connect with local producers. (CBC)

The audit acknowledges some changes in 2019 and 2020 to help craft producers, including ending the mark-up on direct sales at breweries and distilleries for products taken off-site, and letting breweries and distilleries sell products from other local producers for use off-site .

Martin’s report also says there is a poor government oversight of the health and dental benefit plan for 30,000 provincial employees and their families.

The health part of the plan has had a deficit since 2016, a shortfall that reached $6.9 million in 2021.

The finance and treasury board department “did not have effective oversight” of the plan because of “significant weaknesses” in how it is run, the audit says.

Martin says the deficit continues to grow despite a one-time payment of $8.8 million by the province in 2017 to cover the gap.

In a response included in the report, the province says it made another payment of $5.2 million in April to offset the deficit and avoid future interest payments.

The auditor general also questions why Vestcor, the provincial pension plan administrator, was appointed to run the benefits plan without a tender.

Vestcor was paid $1.4 million to run the plan without the province auditing the company’s records and without it knowing whether the amount paid was the best value for the money.

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