Compliance Assessment Summary Report: Le Marché Central du Nord Inc.

Background

Indigenous and Northern Affairs Canada ("INAC") selected Le Marché Central du Nord Inc.  (the "Recipient") for a compliance assessment for the April 1, 2014 to March 31, 2015 funding year.

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 their respective funding agreements. 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.

Deloitte LLP, an independent audit firm, was commissioned to undertake the compliance assessment. The compliance assessment took place in February 2015.

Findings

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

• Per discussion with the Recipient, they do not perform a profit margin analysis to determine a markup on goods sold, as sales are made to customers at the cost to the Recipient from their related party supplier, plus additional freight and fees. The pricing methodology could not be observed due to the inconsistent application of freight and administration fees and unavailable supplier information to support the per unit product cost.
• The Recipient passes on their subsidy to customers by applying it directly to their invoice. We noted the subsidy was clearly listed on customer invoices to inform customers of the NNC program and that the total dollar amount of subsidies claimed were passed onto the consumer. 
• Our testing noted six (6) errors related to incorrect subsidy rates being applied by the system, incorrect NNC code classification and incorrect weight recorded from the system.
• With the Recipient, we discovered a systemic error where standard weights inputted in the system overrode actual weight of certain items which should have been physically weighed. We could not determine the extent of error.
• To test that the subsidy was not being eroded, we compared overall profit margins of the Recipient to those prior to NNC. Given the many different determining factors to consider in the analysis, the observations were inconclusive in determining whether the full benefit of the subsidy was passed on to the consumer. Per discussion with INAC, INAC plans to monitor profit margin considerations with the Recipient to assess erosion of the subsidy.
• The Recipient has agreements for preferred airline rates with the objective of ensuring the most effective and lowest cost supply chain arrangements are selected to reduce food prices for consumers in the North.
• The claims process involves manual and automated processes that are performed by one person, with no independent review aimed at detecting errors.
• During our review, we observed that the Recipient sold to an ineligible establishment.

Recommendations

We recommend the Recipient consider implementing additional controls as follows.

• Address weaknesses in its data integrity within the inventory management system used for reporting (i.e. weights, eligible communities, subsidy rates). We recommend that the Recipient ensure that programmed NNC data is reviewed after data input in order to ensure the validity and accuracy of claimed amounts.
• Implement a process whereby there is an independent review of claims prior to submission to NNC for processing.  This has the potential to reduce the number of errors in the claims.
• Implement a process to ensure that the ultimate consumer is an eligible consumer according to 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.
• Establish a defined pricing policy (markups and fees) and implement controls to ensure consistent application of the policy in establishing customer sales prices.
• Obtain and retain supplier information related to the cost of goods to be able to consistently and accurately price products for sale.

Current Status

The final report has been issued.