Les Leyne: Liquor-price mistake costs millions

Les Leyne mugshot genericThere was a revealing moment in the last tangle before the legislature adjourned for a week about the liquor business in B.C. It was about an error made by the Liquor Distribution Branch several years ago that went undetected for long enough to build to a sizable amount of money paid out by mistake.

But it was also about the audacity on display by one sector of the industry when it comes to grabbing all it can get.

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NDP MLA David Eby obtained an April memo to Justice Minister Suzanne Anton about a slip-up that had just been discovered in the LDB’s pricing regime. It pays commercial wineries a seven per cent commission on wine they sell to wholesale customers and the hospitality industry. The idea is that such sales save the LDB the trouble of doing it, so the branch covers their cost of handling product.

The memo informed the minister that due to a recently discovered system error, the LDB had been overpaying commissions to the commercial wineries on their sales to wholesale customers. The branch had been paying them seven per cent of the retail price, instead of a lower discounted price that should have been the basis of the commission. The slip apparently came to light after the complicated discount system was blown up and replaced by a simpler, more streamlined approach.

Under the old system, in place for years, the LDB and commercial wineries had a deal where they would get seven per cent “of the value of sales” to wholesale customers. The memo said: “The commission should have been calculated on the actual price that was paid by the wholesale customer … However, it was discovered that the commission was being calculated on the full retail price [i.e. the price before any discounts were applied].

“That means that over the years, the LDB has been overpaying commercial wineries on their sale to customers who received a discount. The total value of these overpayments is in the seven-figure range.”

That’s a remarkably wide estimate — between $1 million and $9.9 million — that likely reflects how long the error was in effect. For a specific example, the memo used a $12.99 bottle of wine. The LDB for years paid commercial wineries seven per cent — 91 cents a bottle — when they wholesaled it to licensed retail stores and the like. But they were selling the bottle at a 16 per cent discount, as per the old pricing regime. So the commission should have been 76 cents. The more expensive the wine, the higher the overpaid commissions.

The memo is just the kind of bomblet the Opposition likes to lob at government during question period. When Eby asked the minister responsible, Coralee Oakes, about it, she was completely flummoxed and fell back on citing the success of the liquor reforms of the past year.

“I find it very rich that the member opposite continues to go down a path that suggests we are not supporting a wine economy,” Oakes said.

Huh?

Oakes later told reporters there were differing legal interpretations that would have made pursuing repayment difficult.

The Opposition noted the difference between the government’s zealous pursuit of other clients who get overpayments, such as welfare clients.

The commercial wineries’ reaction to the mistake is just as interesting as the error itself. Included in the leaked memo was a note from Josie Tyabji, of the Constellation Brands Canada winery conglomerate. After the error was discovered and fixed, she wrote the LDB requesting the seven per cent commission be increased to 8.2 per cent in order to continue with consistent compensation “and to pay us the same amount of money moving forward.”

So they were overpaid for years and when the mistake was corrected, they ask for an increased commission so they can continue to enjoy the overpayment.

The memo suggests the request was denied. “The LDB explained that she cannot use the historical commission payments as the standard because those payments were significantly inflated due to the error.”

Under the new pricing system, commercial wineries get two other breaks that will increase their revenue. But they wanted to retain the old break as well, even though it was all a mistake.

lleyne@timescolonist.com

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