Compliance Assessment Summary Report: Arctic Co-Operatives Ltd
For Funding Agreement no. 1718-HQ-000045 and funding agreement no. 2021-HQ-000026 between Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC) and Arctic Co-Operatives Ltd.
Name: Arctic Co-Operatives Ltd.
Location: desk audit
Time period covered by audit: April 1, 2018 until March 31, 2021
Total amount of CIRNAC funding received from 2018 to 2021: $53,357,097
Context
At the request of the Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC), Samson performed a desk compliance assessment of the Funding Agreement between Nutrition North Canada (NNC or the 'Program') and Arctic Co-Operatives Ltd. (Recipient). Nutrition North Canada is a Government of Canada Program that helps make nutritious food and some essential items more affordable and more accessible to northern communities. The purpose of the assessment, in accordance with our engagement with NNC, was to provide information on:
- Whether the Recipient is passing on the full value of the subsidy to consumers;
- Whether the amounts disbursed to the Recipient through the fiscal years 2018/2019 through 2020/2021 were appropriately claimed in compliance with the Terms and Conditions of the Recipient's Funding Agreement;
- Whether program visibility requirements are met and that the subsidy is transparent to consumers;
- The Recipient's reporting and claiming systems and procedures with regard to gaps and controls issues; and
- Whether the Recipient respected program rules in regard to sales to ineligible clients.
The period covered by the compliance assessment is from April 1, 2018 until March 31, 2021. We determined our sample size by applying professional judgement based on the frequency of claims and the number of items in each claim.
Due to the Covid-19 travel restrictions, no on-site was performed and our compliance assessment was performed as a desk audit. As a result, our interviews were performed based on electronic communication with the Recipient to identify and document their key control activities, their procedures and processes related to the claim of funds to NNC, program delivery and reporting. In addition, due to the travel restriction we were unable to verify the accuracy of the weighting system used by the Recipient.
We subsequently performed detailed audit procedures on the accuracy and validity of the Recipient's claims and on the margin earned by the Recipient on the subsidized products.
Based on the procedures performed and as more fully described in our report, we did not find any significant deviations in the samples we selected; however, we identified improvements in the form of recommendations to improve the Recipient's control environment in relation to the Program.
Conclusions
Overall, we are of the opinion that the funding provided to the Recipient was spent for the intended purposes and in compliance with the terms and conditions for 2018-19 to 2020-21 Funding Agreements signed with the department.
- The amounts disbursed to the Recipient over three fiscal years (2018/19 – 2020/21) were appropriately claimed in compliance with the terms and conditions of the Recipient's Funding Agreement.
- The Recipient is in compliance with the visibility requirements detailed in the Recipient Program Manual AND The amounts presented in the monthly food price reports presented to NNC were accurate.
- Based on discussions with the Recipient, they are aware of the requirements preventing the sale of subsidized product to ineligible businesses and establishments.
- The Recipient is using the most effective and cost-effective supply chain arrangements and routes.
- With the limitation of the audit2, in our opinion the Recipient passed on the subsidy to eligible clients and the value of the subsidy is not being eroded by the Recipient's profit margin practices.
- The recipient has transferred the full value of the subsidy to consumers and the value of the subsidy is not eroded by mark-up practices.
- Four recommendations were identified to improve the Recipient's management systems, processes and practices that would address the deficiencies noted.
The table below summarizes the recommendations identified by the auditor, the actioned measures required to be undertaken by the retailer/supplier, and their status.
| Auditors Recommendation for Arctic Co-Operatives Ltd. | Arctic Co-Operatives Ltd. Action Plan | Status |
|---|---|---|
| The Recipient should ensure that the total weight claimed per supplier invoice always reconciles with the Departmental itemized shipment report. | After review of the management letter, the Recipient has contracted an established third-party EDI platform and formed an internal project team to start the process of transitioning to electronic data interchange. This project is still in the early stages, so exact milestones are not formally established. We anticipate this project will allow the use of actual vendor data for weights and items shipped as opposed to the present process that pro-rates by item based on total invoice weight and eliminate any item discrepancies which ensures that the amount claimed does not exceed the amount legitimately permitted under the program. | Complete |
| The Recipient should ensure that an appropriate review process of the itemized Shipment Report is put in place prior to its submission for payment. | After review of the management letter, the Recipient has contracted an established third-party EDI platform and formed an internal project team to start the process of transitioning to electronic data interchange. This project is still in the early stages, so exact milestones are not formally established. We anticipate this project will allow the use of actual vendor data for weights and items shipped as opposed to the present process that pro-rates by item based on total invoice weight and eliminate any item discrepancies which ensures that the amount claimed does not exceed the amount legitimately permitted under the program. | Complete |
| The Recipient should ensure that all claims are submitted on the set date established by the Program. | After review of the management letter, the Recipient will continue working to reduces ground transportation times to get product into communities with minimal delay and to reduce spoilage in transit. By pooling volumes with other Co-ops across Western Canada, we can achieve scale in pricing and breadth of assortment that would be unattainable otherwise. The byproduct of this is that the wholesale cooperative distributor has the direct vendor relationship and there are time delays in invoicing clearing their central billing process. While the EDI project may see an improvement in the associated timelines to pull together the thousands of invoices required to complete a claim, at this juncture it remains uncertain if sufficient improvements can be made to meet the stated normal program timelines. As we advance through the EDI project, ACLD can provide the Program with regular status updates. |
Ongoing |
| The Recipient should ensure that an appropriate review process of the monthly food reports is put in place prior to its submission to NNC. | After review of the management letter, the Recipient has made significant efforts and is in regular contact with the Program to get the required level of data integrity to make the monthly food reports a useful tool for Program administration. ACLD will maintain regular contact with the Program to ensure that the customizations and improvements meet their requirements. | Complete |