Compliance Assessment Summary Report: Arctic Fresh Inc.
For Funding Agreement no. 2021-HQ-000029 and funding agreement no. 2122-HQ-000049 between Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC) and Arctic Fresh Inc.
Name: Arctic Fresh Inc.
Location: desk audit
Time period covered by audit: April 1, 2020, until March 31, 2023
Total amount of CIRNAC funding received for this period: $1,924,399
Context
At the request of the Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC), Samson & Associés CPA / Consultation Inc. performed a desk compliance assessment of the Funding Agreement between Nutrition North Canada (NNC or the 'Program’) and Arctic Fresh. (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 2020/2021 through 2022/2023 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, 2020, until March 31, 2023. We determined our sample size by applying professional judgement based on the frequency of claims and the number of items in each claim.
The 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 the 2020-21 to 2022-23 Funding Agreements signed with the Department. However, findings and recommendations under section 1.2 were identified and should be read in conjunction with these conclusions.
- Except for the errors noted under section 5.1(2), we can confirm that the amounts disbursed to the Recipient over three fiscal years (2020/21 – 2022/23) were appropriately claimed in compliance with the terms and conditions of the Recipient's Funding Agreement. Furthermore, the subsidy claimed for reimbursement by the Recipient relates to the type and nature of eligible cost requirements of the Program.
- Based on our review, the Recipient's sales invoices clearly identify the amount of the price reduction associated with the subsidy. However, the NNC Program is not visible on the Recipient's website as required in Section 4.1 (Program Visibility) of the National Program Recipient Manual. Furthermore, in relation to Objective #2a, the Recipient and Third-Party Retailer entered into an Agreement on April 1, 2023, which outlines the obligations and responsibilities of both parties.
- Based on discussions with the Recipient, they are aware of the requirements preventing the sale of subsidized products to ineligible businesses and establishments and the review did not find any sales to ineligible businesses.
- The Recipient is using the most effective and cost-effective supply chain arrangements and routes.
- The Recipient's database needs to be reviewed to accurately reflect the NNC product codes and the accurate subsidy.
- 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.
- Six recommendations were identified to improve the Recipient's management systems, processes and practices in order to 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 Recommendations for Arctic Fresh | Action Plan for Arctic Fresh | Statue |
|---|---|---|
| The Recipient should implement a reconciliation process between the sales invoices and the amounts claimed to ensure that claims are accurate and that subsidies are fully and correctly transferred to clients, in compliance with program requirements. | After review of the management letter, the Recipient as since transitioning to direct reporting through Shopify, we are seeing much greater alignment between sales data, shipment data, and subsidy-eligible product records. | Complete |
| The Recipient should implement enhanced measures to preserve supporting documentation for the required seven-year period, in order to ensure traceability and compliance with the terms of the agreement. | After review of the management letter, the Recipient is confirming that existing systems, including Shopify and cloud-based storage platforms, already support long-term or indefinite retention, ensuring alignment with NNC requirements. All NNC-related documentation will continue to be stored within secure cloud environments that retain historical information indefinitely. Internal policies have been updated to incorporate the explicit seven-year retention requirement. Redundant backups are maintained to safeguard historical data. Annual accessibility and completeness checks will confirm ongoing compliance. | Complete |
| The Recipient should ensure that there is a reconciliation between the weight on the sales invoice and the weight on the waybill to ensure that the proper amounts are claimed and subsidies are properly passed on to clients. | After review of the management letter, the recipient has implemented new reports within since utilizing the new system which generates sales data based on waybills confirming item weights, quantities and eligibility before claim submission. In addition, a manual verification is completed each cycle to ensure the subsidy is passed-through, quarterly audits for stability and staff training/internal validation. The Recipient is enhancing its weight-matching procedures to align with the improved reconciliation framework in recommendation 1. The updated workflow includes: Shipment-preparation, employees have access to weight information at the time items are packed and are required to flag any discrepancies between physical weights and system data. After shipment, waybill weights are matched to Shopify-generated sales data as part of the claim preparation process. Variances are logged, investigated, and addressed prior to submission. A final cross-check by our team is included in the reconciliation checklist. A weight-accuracy audit will occur monthly during transition and quarterly thereafter to track trends and ensure ongoing compliance. |
Complete |
| The Recipient should ensure that the Third-Party Retailer fully understands its contractual commitments and remains in compliance with all agreed-upon terms. | After review of the management letter, the Recipient will conduct structured annual reviews with the Third-Party Retailer to ensure the accurate and consistent application of NNC program obligations. Updated guidance materials, written summaries of responsibilities, and consistent communication will support this oversight. The Recipient will complete Quarterly compliance confirmations from the retailer, affirming adherence to all NNC requirements. Periodic submission of sample records to verify correct subsidy application, pricing treatment, and eligibility coding. | Complete |
| The Recipient should ensure that the NNC program is visible on their website (articfresh.ca), social media and other media platforms used to promote NNC-eligible food products. | After review of the management letter, the Recipient will enhance the visibility and transparency of the NNC program on ArcticFresh.ca, our primary online grocery platform. Improvements will include: Creating a dedicated NNC information page, which will include the NNC FAQ section and sample receipts showing how subsidies appear to customers. Clearly labeling NNC-eligible items across the online storefront. Conducting an annual visibility review to ensure information remains accurate and compliant. |
Complete |
| The Recipient should perform a general review of its database to ensure that products are correctly coded with the appropriate NNC product codes. | After review of the management letter, the Recipient is completing a full review of all product listings to ensure each item is assigned the correct NNC product code, use a mandatory product-coding checklist for all new item creation, ensuring that items enter the system with correct NNC categorization. To maintain accuracy over time, the Recipient will also conduct a semi-annual product-coding audit. | Complete |