Sloppy accounting, poor management, weak board oversight and unilateral decisions by a former chief executive led to inflated employee bonus payments at NB Liquor of $638,700 in 2018, a review by New Brunswick's Office of the Comptroller has found.
The bonus figure cited in the review is significantly more than first reported.
"There is opportunity for improvement regarding the administration, calculation, management, governance, and transparency of the ANBL [NB Liquor] incentive plans," concluded the review, which made 10 recommendations to fix numerous shortcomings in how the agency has been governed and managed.
The review was ordered by New Brunswick Finance Minister Ernie Steeves in May following a CBC report on errors and patchwork fixes at the corporation in 2018 that ended with a flood of bonus pay for employees.
Fiscal end date incorrect
The CBC report detailed how NB Liquor management had lost track of when its fiscal year ended in 2018 — wrongly picking March 25 instead of April 1 — and had to cram the extra week into its accounts after the error was discovered.
That added an unbudgeted 53rd week of sales and profits to the company's bottom line which, in turn, triggered hundreds of thousands of dollars in bonus pay to employees under the corporation's profit-sharing plan.
However, while the original CBC story put the cost of employee bonuses triggered by the extra week of sales at just over $404,000, the official review by the comptroller's office found the total cost 40 per cent higher, at more than $583,000.
Most of the bonus money was to NB Liquor's unionized employees as stipulated in their contract, although $46,732 was paid out to managers and executives.
The review also found a second problem, where NB Liquor overestimated profits achieved in the fourth quarter of the same year and overpaid bonuses by a further $55,349 before that error was discovered.
The report blames former NB Liquor president Brian Harriman for authorizing bonus payments to employees that were caused by the extra week of sales, without the knowledge of the board of directors.
It found the board properly ordered profit targets at NB Liquor to be increased when it was told an extra week of sales was being added to the year — a move that would have negated most of the extra bonuses — but said Harriman ignored that change.
The CEO directed bonuses to be calculated using a lower net income target than what had been approved by the Board," concludes the report.
"While the OoC [Office of the Comptroller] does not condone this practice, the CEO does have authority under the by-laws to determine the amount of bonus paid to employees. The CEO did not benefit from the additional bonus payment."
Compounding that problem, incentives at NB Liquor are paid on both quarterly and annual results, and the report said additional bonus amounts in 2018 were wrongly paid when the corporation overestimated profits in the final quarter.
"The estimated 4th quarter net income was $471,000 higher than the actual net income," the review found. "This resulted in 4th quarter bonuses being approved by the CEO and paid when the target was not met. It ultimately resulted in an additional overpayment of $55,349 in 4th quarter bonuses paid."
Harriman resigned as NB Liquor and Cannabis NB President earlier this year to take an executive position with Sundial Growers, a private cannabis producer in Calgary. He did not immediately respond to a request for comment on the report but he was not alone in being singled out for criticism.
Wrong people paid
The report also found fault with sloppy accounting practices that miscalculated bonus amounts, and in some cases paid them to the wrong people.
It also found weaknesses in board oversight of NB Liquor and criticized a lack of full documentation of board activity.
"The OoC noted throughout the course of the review a lack of documented standard operating procedures for when and how to adjust budgeted net income targets."
"The OoC also observed a lack of post-mortem review to ensure that adjustments made throughout the year were appropriate and reasonable," said the review.
"There is a lack of approval of the adjusted budgeted net income targets, as well as a lack of communication of the targets used in the bonus payment calculations."
Failings being addressed
University of New Brunswick accounting Prof. Matthew Wegener said the review by the province appears thorough and he fully expected problems uncovered would show some blame belongs with the politically appointed board members.
"I would say that that really shouldn't be altogether that surprising," he said. "There would have to be some failings within the governance to allow this situation to occur."
The Office of the Comptroller, headed by Paul Martin, provides accounting and internal auditing services for the province and prepares its financial statements. It enforces accounting standards but, unlike the Office of the Auditor General, is not independent of government.
The report on NB Liquor was completed in August and delivered to the finance minister.
There is no attempt to recover the money spent. But Finance Department spokesperson Vicky Deschênes said the failings at NB Liquor uncovered by the review are being addressed.
"We are satisfied with the results of the audit, and the findings have been shared with NB Liquor's officials. NB Liquor has already responded to the report, and has implemented/or will implement the recommendations," Deschênes said in an email to CBC News.