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Nepotism, expensive wine and the Newfoundland and Labrador Liquor Corp. are the subject of a scathing report by auditor general Julia Mullaley.
Former Newfoundland and Labrador Liquor Corp. (NLC) CEO Steve Winter was funnelling money to his son, Greg Winter, through purchases of fine wine through his son’s company, Dialog Wines, according to the report.
“The CEO participated in decisions to purchase specialty wines which benefited the close family member at the expense of the NLC and which influenced the performance of the CEO’s duties as a public office holder,” reads the report.
“As a result, the CEO breached the NLC’s code of conduct and may have breached the fiduciary duty to the NLC.”
The report outlines examples where the Winters appear to have worked together on the program.
In July 2017, the report says, Winter ordered NLC officials to make a rush order on 96 bottles of specialty wine, at a cost of $23,098. Each bottle had a retail cost of $539. Greg Winter was paid a $2,037 commission on the deal.
“To date, only four have been sold, bringing into question the reason and necessity of a rush order,” reads the report.
"That's why I ordered it."
“The four bottles that were sold were requested by (Greg Winter) on December 29, 2017 for sampling purposes and under NLC’s sampling policy, they could be purchased at the landed cost of $261 each, not the retail of $539.”
Steve Winter picked up the bottles and had them put in NLC’s inventory “with a commitment to pay later.” The report says payment was finally received in March 2019, for $211 each.
In another example, Greg Winter emailed Steve Winter to discuss a particular product.
“You know I sell it, right?” Greg Winter is said to have written.
“I do. That’s why I ordered it,” Steve Winter replied.
Mullaley couldn’t say for certain how much money may have gone to Dialog Wines through the scheme.
The report says Steve Winter established the “Bordeaux Futures” program as part of an effort to increase the sales of fine wine at the NLC.
The AG report found no business case for the program. Usually, such programs go through the NLC’s merchandising division for a “well-documented planning and acquisition process.”
That wasn’t the case for Bordeaux Futures, according to the report.
“This process was managed directly by the then-CEO, was not documented or transparent and effectively eliminated the merchandising division from any evaluation and decision-making role,” reads the report.
“During the 10-year period ended April 6, 2019, NLC purchased specialty wines with a landed cost totaling $25.8 million, of which $15.6 million, or 60 per cent, were Bordeaux wines.”
"There was an established practice by the former CEO of purchasing wines under the Futures program in quantities that far exceeded customer demand."
Mullaley says Winter personally procured an excessive amount of fine wine through the program.
“There was an established practice by the former CEO of purchasing wines under the Futures program in quantities that far exceeded customer demand, resulting in a significant build-up of excess inventory, which reached a high of almost $10 million in 2015,” said Mullaley.
“We found there was just really no clear or obvious business rationale to operate the Futures program at the inventory levels being procured.”
Of the $15.6 million of Bordeaux wine purchased through the program, 29.4 per cent — or $4.5 million — was purchased through the company owned by Greg Winter, the highest percentage of 22 agents selling the wine.
Since the program’s inception to the end of the auditor general’s report, the program made a net profit of $1.4 million for the NLC. However, the report says due to unsold stock worth $3.6 million in excess inventory and prepayments to contractors, it’s more like a $2.2-million loss on the program, to date.
The report also found an apparent blind spot in conflict of interest legislation. The report only describes “possible nepotism,” because the legislation may not contemplate adult independents as family members.
The citizens' representative also investigated the situation and found a gap in the conflict of interest legislation.
“The definition of family, when dealing with children, is confined to a minor or a minor who is primarily dependent upon the office holder,” reads the AG report.
“As the result of this restricted definition, the citizens' representative concluded that the CEO was compliant with the Conflict of Interest Act as (Greg Winter) was an adult child of the CEO.”
The Telegram contacted a lawyer for Winter for comment, but did not receive a reply by deadline. In a statement to the CBC, Winter says the report is unfounded.
“We're talking about $15 million over a long period which accounts for less than three per cent of the NLC's business activities," he told the CBC.
“This is about taking a run at my son's business. … I didn't break any rules and if the legislation is no good that's not my fault.”
Finance Minister Tom Osborne says he fired Winter in January 2018 over concerns raised related to the situation, before the auditor general’s investigation began. Osborne says the “difficult decision” he had to make was also influenced by Winter’s opposition to the legalization of cannabis, according to Osborne.
Osborne took issue with the characterization, saying NLC regulations did find family and close friends covered under conflict of interest rules.
Osborne says he is concerned by the findings of the report. He says it has yet to be decided whether a complaint will be made to the police over the report.
“I am going to be seeking advice from the Department of Justice on what, if anything else, should be done in terms of the contents of the report,” Osborne said.