Compliance assessment report True North Community Cooperative
For Funding Agreements no. 1213-01-000064 and 1314-01-000011 between Aboriginal Affairs and Northern Development Canada and True North Community Co-Coperative
100 Queen Street
Ottawa, Ontario K1P 5T8
October 1, 2015
Private and confidential
Aboriginal Affairs and Northern Development Canada
10 Wellington Street
Gatineau, Quebec K1A 0H4
Recipient Compliance Review of the Nutrition North Canada Program
Dear Sir or Madam:
Deloitte is pleased to submit this report which highlights our findings stemming from the compliance assessment of the funding agreement #1213-01-000064 and #1314-01-000011 between Aboriginal Affairs and Northern Development Canada and True North Community Co-Operative for the Nutrition North Canada program, for the period from April 1, 2012 to September 30, 2014.
If you have any questions with respect to the information contained within this report, please do not hesitate to contact us.
Chartered Professional Accountants
Licensed Public Accountants
1 Executive summary
At the request of Aboriginal Affairs and Northern Development Canada ("AANDC"), Deloitte LLP ("Deloitte" or "we" or "us") performed a compliance assessment of the funding agreement between AANDC and True North Community Co-Operative ("TNCC" or the "Recipient") in respect of Nutrition North Canada. Nutrition North Canada ("NNC" or the "Program") is a Government of Canada subsidy program to provide Northerners in isolated communities with improved access to perishable nutritious food. NNC is part of the Government of Canada's Northern Strategy. Funding agreements #1213-01-000064, and #1314-01-000011, including amendment no. 0001 (collectively, the "Agreement") were signed by both parties on April 24, 2012 and April 1, 2013 respectively. The purpose of the assessment, in accordance with our engagement with AANDC, was to provide information on:
- whether the Recipient is passing on the full value of the subsidy to consumers;
- whether program visibility requirements are met and that the subsidy is transparent to consumers;
- the Recipient's reporting and claiming systems and procedures with regards to gaps and controls issues; and
- whether the Recipient respected program rules in regards to sales to ineligible clients.
The period covered by the compliance assessment is from April 1, 2012 until September 30, 2014. We determined our sample sizes by applying professional judgment based on the frequency of claims and the level of risk associated with the Program.
Our compliance assessment took place from January 11 to January 15, 2015, at the Recipient's storefront location in Thunder Bay, Ontario.
We met with the Recipient to identify and document their key control activities, their procedures and processes related to the claim of funds from NNC, program delivery and reporting. We considered the program visibility. We subsequently performed detailed procedures on the accuracy and validity of the Recipient's claims in order to ensure that the Recipient was appropriately passing along the subsidy to the eligible consumer. We did not perform an audit of the claims.
Based on the procedures performed and as more fully described in our report, we did not find any significant deviations in the samples we chose; however, we identified improvements in the form of recommendations to improve the Recipient's control environment in relation to the Program.
We would like to thank the staff and management of both AANDC and the Recipient for their co-operation.
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2.1 Program information
Nutrition North Canada ("NNC" or the "Program") is a market-driven food subsidy program administered by Aboriginal Affairs and Northern Development Canada ("AANDC") that seeks to make perishable, nutritious food more accessible and more affordable to residents of isolated northern communities that lack year-round surface and marine transportation links to southern centres. The Program came into effect on April 1, 2011, replacing the previous Food Mail Program, which was a transportation subsidy program delivered by the Canada Post Corporation on behalf of AANDC.
There are currently 103 communities eligible for the program (84 full and 19 partial), located in Nunavut, Northwest Territories, Yukon, Labrador, Quebec, Ontario, Manitoba and Saskatchewan. Two levels of subsidy rates per kilogram have been established for each community; Level 1 (higher) for the most nutritious perishable food and Level 2 (lower) for other eligible items. Communities where operating and transportation costs are higher are entitled to higher subsidy rates. The subsidy is only applicable to eligible items shipped by air to eligible communities.
Northern retailers and southern suppliers registered with the Program are responsible for managing their supply chain and claiming a subsidy from NNC for eligible food and non-food items that they ship to eligible communities. On a monthly basis, they must submit a claim (kg x subsidy rates), a detailed shipment report (kg per item, community, client type, etc.), invoices and waybills to receive the payment (some are entitled to advance payments based on forecasted weights). These are submitted to the Program's claims processor under contract with AANDC (the Saskatchewan Institute of Information Technology in collaboration with Crawford). The claims processor verifies the claims and provides NNC with a recommendation for payment. Registered northern retailers must also submit, directly to NNC, a monthly pricing report for a pre-determined list of food items. These and other program requirements are identified in funding agreements between the recipients and AANDC.
As of September 22, 2014, NNC has 27 southern suppliers and 8 northern retailers (including 2 country food processors) registered in the program. Northern retailers are those entities that operate food retail outlets through one or more stores in eligible communities. Southern suppliers are food providers operating out of non-NNC communities that supply eligible items directly to small northern retailers, commercial establishments (restaurants, etc.), social institutions (daycares, etc.) and individuals (referred to as direct or personal orders) located in eligible communities. Country food processors are plants located in Cambridge Bay and Rankin Inlet in Nunavut that transform fish and meat for distribution to eligible communities within the region.
2.2 Recipient information
True North Community Co-Operative is a registered southern supplier located in Thunder Bay, Ontario; its purpose is to facilitate the sale of regionally produced goods (primarily food) throughout Northern Ontario. As a cooperative, the Recipient currently has 737 members including 580 individuals, 150 producers and 7 commercial membershipsFootnote 1. The Recipient operated a storefront location in Thunder Bay (until January 2015), after which it was relocated to Sudbury, Ontario. The Recipient facilitates the order and shipment of perishable goods to various First Nations communities in Northern Ontario.
On April 24, 2012, AANDC and the Recipient entered into funding agreement no. 1213-01-000064, which took effect on April 1, 2012 and expired on March 31, 2013. On March 18, 2013, AANDC and the Recipient entered into funding agreement no. 1314-01-000011 (including amendment no. 0001) which took effect on April 1, 2013 and is scheduled to expire on March 31, 2016 (collectively, the "Agreement"). Subject to the terms and conditions of the Agreement, the Minister will make contribution payments to the Recipient for amounts not to exceed:
- $20,000 for the year ended March 31, 2013;
- $40,000 for the year ended March 31, 2014; and
- $40,000 for the year ending March 31, 2015.
AANDC may issue additional payments above the amounts in the Agreement, depending on the circumstances, such as reimbursement after the Recipient meets the conditions of payments.
2.3 Purpose and scope
As part of its accountability measures, AANDC must ensure that program recipients comply with the requirements of their respective funding agreements. Given that the Program relies in part upon the practices, processes and procedures that have been adopted by the Recipient, by performing an assessment of selected agreement holders, AANDC will obtain information to support whether adequate financial control practices are in place and whether the initiative is managed properly.
AANDC contracted Deloitte to perform a compliance assessment of the Recipient. The objectives of the compliance assessment were to provide the Government of Canada with information on whether the Recipient complied with the terms and conditions of the Agreement. Specifically, our compliance assessment was meant to consider whether:
- The Recipient has administrative controls in place that support compliance with the terms of the Agreement and that they are designed and implemented appropriately;
- The Recipient has financial controls in place that support compliance with the terms of the Agreement and that they are designed and implemented appropriately;
- The Recipient has reporting processes and systems that support compliance with the terms of the Agreement, and that they are designed and implemented appropriately to ensure the Recipient possesses accurate and reliable information in support of their claim related decision making; and
- Management practices for the provision of the subsidy to the ultimate consumers are effective and meet the goals of the NNC initiative.
Our procedures addressed all these areas, and our findings and recommendations have been included in our report for AANDC's consideration. The period covered by our procedures relating to the Recipient was from April 1, 2012 until September 30, 2014.
3 Approach and Methodology
Deloitte developed a specific approach to assess the Recipient's compliance with the terms and conditions of the Agreement with AANDC, including assessing the design and implementation of financial control practices, reporting, and overall administration of the Nutrition North Canada program to meet the objectives of the initiative.
We obtained the monthly subsidy claims submitted for the period from April 1, 2012 to September 30, 2014. Deloitte conducted an interview on January 11, 2015 with the Recipient's representatives to gain a more in-depth understanding on the organizational practices, processes and methodology in order to assess the risk related to compliance with the funding agreement between AANDC and the Recipient.
Based on the results of the interview, Deloitte determined a sample size based on the frequency of claims over the period in question through professional judgement.
The compliance assessment took place from January 11 to January 15, 2015. Before arriving on site, Deloitte reviewed the information provided by AANDC and/or the Recipient, including:
- Nutrition North Canada Program – National Manual for Program Recipients (April 2014);
- Contributions to Support Access to Health Foods in Isolated Northern Communities – Terms and Conditions (May 28, 2014);
- Funding agreement no. 1213-01-000064 which took effect on April 1, 2012 and expired on March 31, 2013;
- Funding agreement no. 1314-01-000011 (including amendment no. 0001) which took effect on April 1, 2013 and is expected to expire on March 31, 2016;
- AANDC's general risk assessment of the Recipient (received January 2015);
- Treasury Board Policy on Transfer Payment and the Guide to Grants, Contributions and other Transfer Payments.
Upon review of these documents, Deloitte developed objectives and criteria (as identified in Section 5), which, if met, would allow us to provide information to support AANDC in assessing compliance by the Recipient with the terms and conditions of the funding agreement between the Government of Canada and the Recipient on the basis of the outcome of the particular procedure undertaken.
Deloitte examined certain accounts and records of the Recipient related to the Agreement, and conducted interviews with key personnel of the Recipient who were involved with either the administrative or financial components associated with the implementation of the Agreement. Control activities relevant to the delivery of the NNC program were identified and assessed for evaluating design and implementation only.
Our specified procedures report has been included in Appendix B.
4 Restriction on use of Report
This report is not intended for circulation or publication, nor is it to be reproduced for any other purpose than for the use of AANDC without our prior expressed written permission in each specific instance. We do not assume any responsibility for losses suffered by any party as a result of circulation, publication, or reproduction of this report contrary to the Provisions of this paragraph.
The procedures we performed do not constitute an audit or review engagement and, accordingly, we do not express an opinion or provide assurance in our report.
We reserve the right, but will be under no obligation, to review this report, and if we consider it necessary, to revise our report in light of any information, which becomes known to us after the date of this report.
5 Findings and Recommendations
5.1 Assessment of subsidies and profit margins
The Recipient must ensure that it passes on the full amount of the subsidy to consumers at the time of sale: fully passing on the subsidy means that the entire amount of the subsidy is deducted from selling prices, and that the Recipient is calculating profit margins on the product's "landed cost", net of the subsidy.
The amount of the subsidy is calculated based on the weight (in kilograms) of products shipped by air, multiplied by the specific subsidy rates established by AANDC for eligible communities. There are two levels of subsidy rates – Level 1 is a higher subsidy rate, for the most nutritious foods; Level 2 is a lower subsidy rate. A detailed list of foods qualifying for either a Level 1 or Level 2 subsidy rates is maintained by AANDC, and reviewed periodically.
5.1.1 Objective 1: Description of process and methodology used to determine that subsidy is passed to consumers
- The Recipient is a not-for-profit cooperative that facilitates the shipment of goods (mainly fruits and vegetables) to communities in Northern Ontario, in and around the James Bay area. TNCC also operates a retail store located in Thunder Bay. Over the period of our assessment, the Recipient shipped goods to seven eligible communities:
- Angling Lake
- Big Trout Lake
- Fort Albany
- Sachigo Lake
- Wunnummin Lake
- The coordinator of the markets within each community will receive an order form. Every Thursday, TNCC's buyer at the Ontario Food Terminal issues the projected cost for the various products. Based on the projected prices, the community coordinator will place an order. The order form is an Excel document.
- Orders are placed by community coordinators, and food is purchased by a buyer directly, who is employed by the Ontario Food Terminal in Toronto, Ontario (a provincial government agency that serves as a point of access for all fruits/vegetables that are either imported or locally produced, prior to being sold anywhere in Eastern Canada).
- The food is subsequently shipped by truck from Toronto to Cochrane, Ontario (by McKevitt Trucking).
- There are two trucking companies that travel from Toronto to Cochrane on a regular basis that offer the capabilities to transport perishable goods. Through enquiry, we were advised by management that the other company is typically more expensive than McKevitt Trucking; the Recipient has selected the lowest cost supplier for road travel.
- From Cochrane, the food is loaded onto a freight train (Ontario Northland) and sent to Moosonee, Ontario. The train operates twice weekly, every Tuesday and Friday.
- As there is only one train service that goes to Moosonee, no quotes are obtained from other suppliers.
- The food is then flown from Moosonee into the various communities, typically through chartered flights (Wabusk, Thunder Air, or Bushlands).
- Shipments are typically between one and four times per month, to eligible communities. The majority of TNCC's shipments are made to Fort Albany.
- Due to the requirements of having climate controlled vehicles, ice roads cannot be used.
- Ontario Food Terminal will invoice the Recipient; the invoice will include the cost of food, and a $0.25 fee per item ordered. Once shipped, the Recipient will in turn issue an invoice to the community. The Chairperson of the Recipient prepares all invoices; there is no independent review of the invoice prior to them being sent to the community.
- The top of the invoices list all items purchased, the quantity, the price, the weight, the NNC category (Level 1, Level 2 or n/a), and the amount of the NNC subsidy per item.
- The bottom of the invoices show the total cost, the profit margin (a flat 5% markup of the cost to cover TNCC's administrative fees, of which any excess is reinvested into the communities), the total NNC subsidy applied, and the costs of the various freight (truck, train, air) to arrive at the total invoice value.
- The invoices also often include a "prepaid shipping" amount. Most airlines will not deliver the goods unless they receive a cash payment upon landing (if not paid, they will take off again and not leave the goods).
- Within the communities (who have placed orders), the food is then packaged in boxes of varying size for purchase by communities, and any residual items are sold at food markets. The prices charged by the community coordinators through the boxes or food markets are often at or close to the cost paid (there is no intent to generate profit; however, we were unable to verify the final selling prices within the communities).
- The Recipient is only responsible for facilitating the purchase and transportation of goods to northern communities; it does not sell directly to the consumer. The Recipient applies the subsidy to the goods sold to the community coordinators based on the terms of the Agreement; the community coordinators are separately responsible for prescribing the end prices.
- There is a plan to develop formal agreements with the eligible communities, which would include terms/conditions that the community coordinator is not making a profit off the goods shipped by the Recipient; however, at the time of our field work, no such agreements were implemented.
5.1.2 Objective 2: Examination of Recipients’ pricing / invoicing practices in relation to the subsidy, e.g. profit margins on subsidized products vs. unsubsidized products
- The Recipient focuses solely on eligible goods (mainly fruits and vegetables, and on rare occasions meat/dairy).
- There may be some occasions where unsubsidized products are shipped; these items are indicated as "n/a" and no subsidy is calculated.
- See section 5.1.1 for detailed pricing and invoicing practices, including subsidized and unsubsidized products.
5.1.3 Objective 3: Demonstrate that the Recipient is calculating profit margins on the product "landed" cost of a product. For the purpose of this analysis, 'landed’ cost includes product cost + shipping + overhead
- See section 5.1.1 and 5.1.2 for detailed information on pricing practices, including profit margins.
- As only a flat 5% markup is added to the original cost of the goods, no formal analysis of the profit margin is therefore performed by the Recipient. The Recipient indicted that, as a not-for-profit organization, no profits are generated. The 5% markup is intended to cover administrative costs, and any amounts earned about what is needed to cover these administrative costs are reinvested in the participating communities (for example, the purchase of refrigerators for food storage). The Recipient does not prescribe the sales prices to the final northern consumer; this is the responsibility of the community coordinator.
5.1.4 Objective 4: Confirmation from the Recipient that profit margins were analyzed / examined and there is evidence that profit margins are not eroding the subsidy
- See process at Sections 5.1.1 and 5.1.2 related to the profit margin process.
- See process at Section 5.3 for the Recipient's analysis and reporting process.
- The subsidy is applied to the freight charges incurred by the Recipient.
- The Recipient has established processes and procedures which allow the subsidy to be passed on to the community coordinator.
5.2 Assessment of program visibility and transparency
Under the guidelines set out in the Nutrition North Canada Program – National Manual for Program Recipients, recipients are required to ensure that the NNC program is visible and the subsidy is transparent to consumers. The requirements differ depending on whether the recipient is a Northern Retailer, Southern Supplier or Country Food Processor/Distributor. The Recipient in this compliance review is a registered Southern Supplier.
Southern Suppliers must clearly identify the amount of the price reduction associated with the subsidy. If instructed, they must also include communication material and other information about the program that has been provided to them by AANDC.
5.2.1 Objective 1: Ensure that the Recipient has established a process to identify the amount of price reduction associated with the subsidy
- See section 5.1.1 for the process related to the price reduction associated with the subsidy.
5.2.2 Objective 2: Ensure that subsidy rates are included on cash receipts and proper in-store signage is displayed
- See comments at section 5.1.1.
- The invoices list all items purchased, the quantity, the price (based on the cost from FoodShare), the weight, the NNC category (Level 1, Level 2 or n/a), the total cost, and the amount of the NNC subsidy per item.
- The Recipient indicated that they had previously generated their own posters to place in the Thunder Bay retail store location (providing information about the program, as well as showing a cost comparison between the price of food sold through the retail stores (typically Northern stores) versus at the community markets (with food shipped by TNCC). Nothing was posted during our on-site visit as the retail location was closed; however, as a Southern Supplier, in-store signage is not a mandatory requirement under the terms of the Agreement.
- A video was produced through the Ontario Good Food Ideas (from Government of Ontario grant funding) to document the Recipient's North to North program. The video, which is approximately 8-9 minutes long, is available online.
- The video gives background on the Recipient and the Nutrition North program, shows how the food is shipped from Toronto, and the benefits to the remote communities. This video has become one of the main promotional tools, and has often been presented at conferences (where other communities are looking at how they can establish similar community markets).
- We understand through discussion with the Recipient that the coordinators are not provided with specific materials, but they spread the word about the community markets throughout the community (word of mouth, signs, on the radio).
- Notwithstanding the above noted promotional materials, the Recipient was unable to provide us with information stating whether the end consumer had visibility to the NNC Program on items purchased or in-store signage.
5.2.3 Objective 3: Ensure that the Recipient has established an effective and cost-effective supply chain management
- See sections 5.1.1 and 5.1.2 for the process established by the Recipient related to its supply chain management process.
- No formal analysis of freight/supply chain costs is performed by the Recipient, due to the limited freight options to move goods to the Northern communities.
- The invoicing practices of the Recipient are transparent, whereby the subsidy and freight rates are clearly identified in multiple documents from the point of order initiation through to the final payment/order fulfillment. However, the Recipient cannot ascertain whether the subsidy is provided to the final northern consumer for their information and verification, if necessary. As such, we were not able to ascertain whether the end consumer receives any information on the Nutrition North Canada Program.
Recommendation: We recommend that the Recipient implement a process to ensure that the end consumer receives adequate information on the Nutrition North Canada program.
5.3 Assessment of reporting and claim submission systems and procedures
In order to properly implement and monitor the effectiveness of the delivery of the NNC program, AANDC relies on information submitted by the Recipient. On a monthly basis, the Recipient must submit a subsidy claim form, an itemized food shipment report, and electronic copies of all invoices and waybills associated with the claim. The subsidy claim form must be signed by the Recipient, certifying that the subsidy has been fully passed on to the consumers. The format of the reports is prescribed by AANDC, and templates are provided to the Recipient.
The claim submission and itemized shipment report provides the total weight of items (in kilograms) shipped to eligible communities. The report is broken down by individual NNC item identification number and community. The claim is subsequently submitted through NNC's claim submission software, and each claim is reviewed by a third party claims processor for any deficiencies. Identified deficiencies are forwarded to the recipient and must be reconciled prior to payment.
5.3.1 Objective 1: Certify that only eligible items are claimed for and reported
- See sections 5.1.1 and 5.1.2 for the process related to eligible and non-eligible items.
- Claims are submitted on a monthly basis by the Recipient
- The Recipient's Chairperson accumulates the documentation and inputs the information into the NNC form, which is subsequently submitted to AANDC.
- We noted that claims are frequently filed after the deadline (15th day after the month end); we were informed by the Recipient that significant information is required to prepare the form and is not always readily available (e.g. shipping documents must be sent from northern communities to Thunder Bay).
- The Recipient has since updated its process and provides estimates to AANDC by the required deadline; actual results are provided at a later date.
- We noted that there is no independent review of the claim forms prepared for AANDC by the Recipient.
- Twenty-three (23) individual orders (from six different monthly claims) over the thirty-month period of our compliance assessment were selected for detailed testing. We noted two errors in the amount tested:
- The April 2012 claim included an over-claimed amount of $195.77.
- The September 2013 claim included an under-claimed amount of $217.46.
- In both cases, the total weights per the invoice was different than the weights that were used to base the calculation of the subsidy amount.
5.3.2 Objective 2: Calculate the appropriate weight of items being claimed
- See sections 5.1.1 and 5.1.2 for the process related to ensuring the appropriate weight of items being claimed.
- As the majority of products shipped are fruits and vegetables, a reasonability assessment of the weight of products claimed was conducted by comparing a random sample of items from selected claims and recalculating an expected weight based on the quantity purchased and the reference weights for produce as indicated in the Nutrition North Canada Program – National Manual for Program Recipients, and comparing this to the actual weight of goods as indicated on the invoice and shipping documents.
- See results of testing at section 5.3.1 and the exceptions noted.
5.3.3 Objective 3: Ensure that monthly claims and detailed reports are valid and accurate
- See sections 5.1.1 and 5.1.2 for the process related the reporting process implemented by management.
- See results of testing at section 5.3.1 and the exceptions noted.
5.3.4 Objective 4: Demonstrate that controls in place find errors and fix them on a timely basis
- See sections 5.1.1 and 5.1.2 for the process related the reporting process implemented by management, including deficiencies noted related to segregation of duties.
- Notwithstanding the controls that management has implemented, we noted errors in the Recipient's claimed subsidy amount; see section 5.3.1 for supplementary information in this report.
5.3.5 Objective 5: Verify that monthly food price reports are accurate (Northern retailers)
- This objective is not applicable; the Recipient is a Southern Supplier.
Recommendation: We identified errors in the amounts claimed by the Recipient; we also noted a lack of segregation of duties in the Recipient's reporting process. We recommend that the Recipient improve its controls over the calculation of the subsidy in order to ensure the accuracy and validity of claimed subsidies. An independent review process prior to submitting information to AANDC would increase the quality of the information being submitted.
5.4 Assessment of Compliance with Program Terms and Conditions
In addition to the terms and conditions assessed above, there are additional compliance requirements and guidelines that recipients are expected to adhere to and respect. As part of the initial application process for recipients to participate in the NNC program, certain eligibility criteria were required to be met. For Southern Suppliers, including the Recipient, these criteria include having a business number with the Canada Revenue Agency, location, and the provision of a list of current or anticipated customers (including Northern Retailers, social institutions and commercial establishments).
The Nutrition North Canada Program – National Manual for Program Recipients specifically disallows recipients from claiming a subsidy on products sold to or ordered on behalf of resource companies, construction companies and government establishments located in or near eligible communities. Such ineligible companies include, but are not limited to, mining companies, oil and gas companies, electricity companies, environmental cleanup operations, exploration companies and camps, and military establishments and operations. Southern Suppliers are specifically required to inform their clients that they cannot sell and/or ship subsidized items to such restricted organizations and agencies.
Additionally, recipients can only claim a subsidy on eligible products shipped to eligible communities by air. A subsidy cannot be claimed on products shipped by any other transportation method (ice road, barge, train, transport, etc.).
5.4.1 Objective 1: Ensure that ineligible businesses and establishments do not receive a subsidy
- As previously mentioned, there were only seven (7) customers that were served by the Recipient during the scope of our assessment.
- All products shipped have been sold directly to community coordinators (no other organizations). Prior into entering into any new agreements, the Recipient would ensure that the community is listed as eligible in AANDC's Nutrition North Canada Program – National Manual for Program Recipients.
- While the Recipient has no knowledge of such a situation, the Recipient has not established a process to ensure that the ultimate consumer is an eligible consumer per the terms and conditions of the Program.
- We have obtained from the Recipient the list of customers for the period under assessment. We have assessed all customers on the list and, based on the nature of the recipient, assessed whether any ineligible businesses and/or establishments benefited from the list. Based on our assessment, the Recipient did not provide a subsidy to ineligible businesses and establishments.
- We also assessed the list of customers to identify potential related parties; we did not identify such parties.
Recommendation: The Recipient did not provide, for the period under review, a subsidy to ineligible organizations. However, the Recipient has not established a process to ensure that the ultimate consumer is an eligible consumer per the terms and conditions of the Program. We recommend that the Recipient implement a process to ensure that ineligible parties do not have access to goods shipped by the Recipient under the Nutrition North Canada program.
Based on the procedures we performed, no significant exceptions were noted in the compliance with the program.
We also noted a number of areas for the Recipient to improve its overall control environment:
- The Recipient should implement a process to ensure that the end consumer receives adequate information on the Nutrition North Canada program;
- The Recipient should improve its controls over the application of the subsidy in order to ensure the accuracy and validity of claimed subsidies;
- The Recipient should ensure that an independent review process occurs prior to information being submitted to AANDC, which will increase the quality of the information being received by AANDC; and
- The Recipient should implement a process to ensure that ineligible parties do not have access to goods shipped by the Recipient under the Nutrition North Canada program.
The procedures we performed do not constitute an audit or review engagement and, accordingly, we do not express an opinion or provide any assurance in our report.
AANDC should also note that our assessment relates to the period from April 1, 2012 to September 30, 2014.
Appendix A – Summary of claim submissions
|Month||Amount of Claimed Subsidy||Selected for Detailed Review|
|Total Subsidy Claims||$ 94,438|
Appendix B – Specified procedures report
100 Queen Street
Ottawa, Ontario K1P 5T8
To: Aboriginal Affairs and Northern Development Canada ("AANDC")
Re: True North Community Co-operative (the "Recipient")
As specifically agreed, we performed the following procedures in connection to the above Recipient's claims against the Nutrition North Canada ("NNC") Program for the period from April 1, 2012 to September 30, 2014:
- Documented through discussion and observation with the Recipient the process and methodology used to determine how the subsidy is passed to consumers.
- Documented the Recipient's process to identify and calculate the amount of price reduction associated with the subsidy.
- Documented through enquiry of the Recipient the processes implemented to ensure program visibility, both in relation to the requirements outlined in the Agreement as well as any additional measures that the Recipient has taken to promote the program. We observed the communication materials prepared by the Recipient in relation to the NNC program. We tested, on a sample basis, the inclusion of subsidy calculations and rates on invoices.
- Documented the Recipient's supply chain management process through enquiry of the Recipient, with an emphasis on the effectiveness of the supply chain..
- For a sample of six monthly claims, we:
- Reconciled the total monthly claim to the underlying itemized food report; and
- Recalculated the total itemized food report and recalculated the subsidy and any administrative fees.
- From the sample of six monthly claims, we further sub-selected a sample of twenty-three (23) individual orders and:
- Verified the products were shipped to an eligible community (through verification of shipping documents and comparison to the NNC Program Manual);
- Recalculated the total individual order, including the total Level 1 and Level 2 subsidies, and traced the total of the individual order to the overall monthly claim;
- Traced the total weight from the order form to the shipping documents and the calculation of the subsidy.
- Verified that the Level 1 and Level 2 subsidy rates applied for each selected community were consistent with the rates prescribed by AANDC;
- Traced the total weight from the order form to the shipping documents and calculation of the subsidy; and
- Verified the shipping rate used to calculate the customer's total purchase cost was in agreement with the waybills provided by the airline companies.
- From the twenty-three (23) individual orders, we sub-selected one or two specified items from each (twenty-nine (29) items in total) and:
- Verified the price agreed to the order form and receipts; and
- Recalculated the weight of the item (using the Reference Weights within the Nutrition North Canada Program Manual and compared this to the weight per the order form (which is used to calculate the subsidy).
- Documented the controls designed and implemented by management to identify and correct errors in claims submitted to AANDC.
- Documented through enquiry of management the process to identify potentially ineligible customers. We also reviewed the orders from the sample of monthly claims in procedure 7 for any ineligible customers.
As a result of applying those procedures, we noted the following:
- The Recipient does not perform a formal cost analysis in relation to the subsidy.
- Due to the supply chain management process implemented by management, we are unable to conclude whether the Recipient has passed on the subsidy to the end consumer.
- The Recipient was unable to provide us with information stating whether the end consumer had visibility to the NNC Program on items purchased or in-store signage.
- The Recipient has not established a process to ensure that the ultimate consumer is an eligible consumer per the terms and conditions of the Program.
- Based on the results of procedure 8, we identified two instances where the weight of products per the invoice did not agree to the weight used in the calculation of the subsidy applied.
- Based on the results of procedure 9, the Recipient did not implement an independent review of claims prior to submitting the claims to AANDC.
However, these procedures do not constitute an audit of the Recipient compliance with the Nutrition North Canada Program, and therefore we express no opinion on the Recipient's compliance with the Nutrition North Canada Program.
This letter is for use solely in connection with AANDC's assessment of the Recipient's compliance with the Nutrition North Canada Program.
Chartered Professional Accountants
Licensed Public Accountants
October 1, 2015