Compliance Assessment Management Letter: Arctic Cooperatives Ltd

RE: Compliance Assessment Report Results and Follow-Up

Dear Mr. Wilson:

Deloitte recently conducted a Compliance Assessment of your organization for the 2015-2016 fiscal year to ensure that Recipients are compliant with the terms and conditions outlined in their Contribution Agreements with Nutrition North Canada (NNC). Specifically, our Auditors were looking to verify the following:

• 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 attached Compliance Assessment Report describes the Auditor's observations, conclusions and recommendations for your organization. Please provide a written response within 30 days of the date of this letter with a plan that outlines how your organization has addressed or will be addressing the recommendations below:

1. The Recipient should consider implementing data entry controls to ensure subsidy rates and eligibility as entered into the retail system are accurate and appropriate. The auditors noted that the full subsidy was passed to the member co-ops however; they were unable to observe pricing methodology as well as profit margins applied to determine retail prices to end users at the member co-op level. The auditors also noted that ACL does not perform profit margin analysis to determine a markup on goods sold, as sales are made to member co-ops at cost plus freight and fees. On April 1, 2015 a new clause was added to your funding agreement which requires your organization to provide all available information on the current profit margins and profit

margins over time to ensure profit margins are not eroding the subsidy. It will be important for your organization to require member organizations to report this information to you so that you are in a position to provide this information for future audits.

Please note that the Compliance Assessment Report, Management Letter and Action Plan will be posted to the Department's website.

Should you have any questions or concerns regarding this Compliance Assessment or the posting of information within it, please do not hesitate to contact your NNC representative.

Sincerely,

Diane Robinson
Director
Nutrition North Canada

c.c.: Glenn D Williams (Chief Financial Officer)