The auditor general finds that NB Liquor’s “special arrangements” are detrimental to profits

New Brunswick Liquor Corporation wasn’t doing enough to promote the county’s liquor industry and was making private deals with some producers that hurt Crown profits, according to the auditor general.

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

The audit says the company does not “actively consult or engage with local producers” regularly nor “proactively consult local producers regarding the development of plans and policies that have a direct impact on their business.”

The audit also says that the company does not consistently apply criteria to determine which products it carries, stops carrying, or how much it charges them.

may be favoritism

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

“Without such evidence, we were unable to determine whether products were listed, priced, or written off as a result of favoritism, bias, or objective information.”

In a response included in the report, NB Liquor said it had adopted a three-year local artisanal producer strategy with performance targets and an industry advisory panel.

It also undertakes to better document the financial analysis and decision making process.

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

NB Liquor said in an email Thursday that no one was available for an interview, but six of the 19 audit recommendations had already been implemented and the rest would be “processed” in the next two fiscal years.

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

New Brunswick Alcohol Producers Association president Lloyd Chambers says he’s already seen improvement.

“Some of these items ANBL is already working with us,” he said. “I think we move that way anyway and I think so [report] It would just be a little motivating to push us forward maybe a little bit faster.”

The auditor general also highlights what he calls “special arrangements” of at least four local producers who have earned low interest rates on their products, making them more attractive to consumers.

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

Only one brewery qualifies, but the audit did not identify it and Martin would not give the name to reporters.

History of patronage with Moshead

In 2016, CBC News reported on a leaked NB Liquor document that listed 22 ways the company favored Saint John’s Moosehead breweries with policies called the “anticompetitive” document.

They have included a limit on store offerings for non-Moosehead products, an increase in prices for some non-Moosehead beers, and the cancellation of a Budweiser promotion “due to Moosehead concerns.”

At the time, Moosehead CEO Andrew Holland defended the company, saying it was fighting “quite literally for everything we can get from NB Liquor.”

Moosehead did not respond to a request for comment Thursday.

The review says that another special arrangement for another product cost NB Liquor $949,000 in 2020-21 and will remain in place for at least another year, “which increases inequality between producers and hampers ANBL’s profits,” Martin said.

The audit says such private deals are exceptions to the company’s published profit structure, and should be clearly documented with a financial analysis attached.

Private deals hurt profits

“These private arrangements, which were outside the profit margins structure, not only reduced ANBL’s profits and introduced the risk of cronyism, but also reduced the level of transparency.”

NB Liquor’s response stated that the company “strives to ensure that its pricing practices are transparent, fair and consistent for all suppliers”.

The report says that craft liquors account for 4.2 percent of NB Liquor’s total sales but account for 27.6 percent of their total products.

In 2020-2021, there were 102 domestic 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 documents proving the company did so, nor targets for evaluating the company’s performance.

Failure to act on cases

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

The working group’s report acknowledged that NB Liquor’s policies were “dissociated from those most affected by them”.

Martin wrote: “Despite this acknowledgment, ANBL has not acted on the issues raised and solutions identified, including ‘quick beating’ solutions.

“I continued to develop policies in a manner separate from local producers rather than involving them in implementing ideas and strategies for growth together.”

The auditor general says NB Liquor is not doing enough to reach out to local producers. (CBC)

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

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

The health portion of the plan has been running a deficit since 2016, a shortfall of $6.9 million in 2021.

The audit says the finance department and Treasury Board “did not have effective oversight” of the plan due to “significant weaknesses” in how it was managed.

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

In a response cited in the report, the county said it made another $5.2 million payment in April to make up the shortfall and avoid future interest payments.

The auditor general also questions why Vestcore, the regional pension plan manager, was hired to administer the no-bid benefits plan.

Vestcor was paid $1.4 million to operate the plan without a county audit of company records and without knowing if the payment was the best value for money.

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