Compliance assessment report True North Community Cooperative

5.1.1 Objective 1: Description of process and methodology used to determine that subsidy is passed to consumers

Observations:

• 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
  • Attawapiskat
  • Big Trout Lake
  • Fort Albany
  • Kashechewan
  • 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

Observations:

• 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

Observations:

• 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

Observations:

• 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.

5.2.1 Objective 1: Ensure that the Recipient has established a process to identify the amount of price reduction associated with the subsidy

Observations:

• 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

Observations:

• 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

Observations:

• 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.

5.3.1 Objective 1: Certify that only eligible items are claimed for and reported

Observations:

• 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

Observations:

• 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

Observations:

• 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

Observations:

• 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)

Observations:

• 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.

5.4.1 Objective 1: Ensure that ineligible businesses and establishments do not receive a subsidy

Observations:

• 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.