LCBO Winery Audit Process The LCBO has a Memorandum of Understanding (MOU) with the Alcohol and Gaming Commission of Ontario (AGCO) to provide audit services with respect to licenced Ontario wineries. The LCBO also has a Memorandum of Agreement (MOA) with Vintners Quality Alliance Ontario (VQAO) that includes the provision of audit services with respect to member wineries.

Winery Audit Process - Agenda Planning Execution Validation Reporting Questions Overview of the LCBO winery audit process and a question period at the end.

Winery Audit Planning – Required Information Current and accurate inventory of packaged goods and offsite warehouse inventory (if applicable) Current and accurate inventory of bulk wine and tank records showing volume, variety and vintage Winery reports (aka “J10s”) for the audit period with the supporting ledgers used to prepare the reports (source documentation) for all sales channels Record of sales for the part-month up to the day of the audit Blending and bottling/packaging records (includes kegs) Production records including Grape Growers of Ontario Grower Summary report, weigh slips, and grading (brix) information VQAO transfer forms, invoices and supporting documentation (i.e. bill of lading) for all bulk sales and/or bulk purchases Documentation to support any loss or disposals of wine Based on the annual audit schedule, LCBO auditors will coordinate appointments with the winery to establish a date to attend the winery to conduct fieldwork required to support the audit. Once the date and time are established, the Auditor will send an email with the requirements for documentation and information using standard engagement correspondence.

Winery Audit Execution – 5 Step Approach Reconcile Inventory Setting the current inventory on hand (inventory to be provided by winery) Recording inventory volume increases since the last audit (production/purchases) Recording inventory volume decreases since the last audit (sales/disposals) Reconcile Sales Reviewing supporting sales documentation since last audit (ledgers, POS reports) Recording part-month sales up to the current date of the audit (all sales) Reviewing the pricing of available products to ensure compliance with the LCA AGCO Testing Ensuring compliance with Wine Content and Labeling Act (WCLA) Ensuring compliance with the Winery Retail Store Information Guide Ensuring AGCO authorizations and licenses are appropriate and valid VQAO Testing Ensuring compliance with certain aspects of the VQA Act (Reg. 405 and 406) Reviewing VQA approvals and transfers to ensure they were accurately reported Reviewing VQA sales to ensure they were accurately reported LCBO Testing Ensuring compliance with certain aspects of the Liquor Control Act Ensuring accurate calculation and remittance of fees, deposits and levies Ensuring LCBO authorizations (Direct Delivery and Offsite Warehouse) are valid 1 2 3 4 Review key components of each step. Allow for questions and discussion. 5

Winery Audit Validation – Review Results Investigate large or unusual inventory variances Verify current on-hand and offsite inventory figures Verify new production, inventory purchases, sales and disposals Review compliance with AGCO and VQAO regulations Verify the information from the prior audit to ensure accuracy LCBO auditors will review and validate the audit results with the winery. Some examples of validation items are included on this slide.

Winery Audit Reporting - Stakeholders LCBO Audit AGCO Report VQAO Report Winery Report LCBO Report Once the audit has been reviewed and validated with the winery, the results must be communicated to the respective stakeholders. A list of stakeholders is shown on this slide.

Winery Audit Contacts and Resources Jason Hackbush Audit Project Manager, Internal Audit Services, LCBO T: 416-365-5693 E: jason.hackbush@lcbo.com Peter Harris Auditor, Internal Audit Services, LCBO T: 289-241-4967  E: peter.harris@lcbo.com Doing Business with LCBO (Trade Resources Online) www.doingbusinesswithlcbo.com/tro/CorporatePolicy/CorporatePolicy All questions related to AGCO or VQA rules and regulations should be directed to the respective stakeholders. LCBO audit related questions should be directed to the Auditor or APM. Winery reporting or Corporate Affairs questions should be directed to those departments.

Questions Questions related to AGCO or VQA rules and regulations should be deferred to the respective stakeholder. Winery reporting questions should be deferred to the winery reporting team. LCBO audit questions can be taken away and responded to at a later date if we are uncertain of the answer at the time of presentation.