Compliance Assessment Summary Report: Arctic Cooperatives Ltd.

Background

Indigenous and Northern Affairs Canada ("INAC") selected Arctic Cooperatives Ltd. (the "Recipient") for a compliance assessment for the April 1, 2014 to March 31, 2015 funding year.

INAC 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.

Findings

Based on the sample tests, discussions with the Recipient and the other procedures performed, we observed the following:

• The Recipient does not perform a profit margin analysis to determine a markup on goods sold, as sales are made to Member Co-ops at the cost purchased by the Recipient from the vendor, plus additional freight and fees. Pricing methodology, as well as profit margins applied to determine retail prices to end users, could not be observed at the Member Co-op level.
• Throughout our testing, supplier invoices and customer statements were reviewed to verify that the full amount of subsidy is passed along to the Member Co-op. No errors were noted. Invoices were also traced to customer payments to check that claimed weights were actually shipped.
• We noted that there was no independent review of data inputting of NNC data entered into the system.
• We obtained photos demonstrating that promotional material is provided to and used by Member Co-ops in order to promote the NNC program. We also received an example of cash receipts on a sale from a Member Co-op to an end consumer that listed the subsidy rate and total subsidy amount applied to the sale.
• The Recipient has processes in place to continually assess the most effective and cost-effective supply chain arrangements and routes to reduce food prices for consumers in the North. We observed the Recipient's map of their distribution hubs and reviewed a sample of airline agreements that showed favorable airline rates when compared to market rates.
• The claims process is mainly automated and performed by one person, with an independent review aimed to detect errors. Claims are approved by a manager before submission. Throughout our testing, no errors were noted.
• Given that the Member Co-ops, and not the Recipient, sells to end consumers, we could not observe whether ineligible business and establishments are receiving the subsidy.

Recommendations

We recommend the Recipient consider implementing additional controls as follows:

• The Recipient should consider implementing data entry controls to ensure subsidy rates and eligibility as entered into the retail system are accurate and appropriate.

Current Status

The final report has been issued.