Compliance Assessment Summary Report: Arctic Co-operatives Ltd.

Background

Crown-Indigenous Relations and Northern Affairs Canada ("CIRNAC") selected Artic Co-ops and one if its independently owned co-operatives, specifically, the Tudjaat Co-operative Ltd. ("Tudjaat") together (the "Recipient") for an independent assessment for the funding period April 1, 2014 to December 31, 2016. CIRNAC contracted Ernst & Young LLP to provide an independent report examining certain aspects of the Recipient’s management of the funding received under the program. Specifically, the engagement was planned to:

• Perform an audit of the subsidy claimed for reimbursement as it relates to the type and nature of eligible cost requirements of the program;
• Review compliance with the program visibility requirements and transparency of the subsidy to consumers as it relates to the requirements of the agreement;
• Provide recommendations on the Recipient’s reporting and claiming systems and procedures which support compliance with the terms of the agreement;
• Provide recommendations on management’s processes related to supply chain practices; passing on the full value of the subsidy and related profit margin practices; and sales to ineligible clients.

Ernst & Young LLP, an independent firm, was commissioned to undertake the engagement which took place at the offices of the Recipient.

Recommendations

Based on the procedures performed by Ernst & Young LLP, the following recommendations were provided to the Recipient for consideration:

• 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.
• Update the billing system to properly reflect the subsidy rate on the sales receipts provided to consumers.
• Provide additional in-store signage, tags or any other materials to inform consumers of the items subsidized by CIRNAC under the Program.
• Develop a policy, process and procedure for assessing profit margins on a regular basis for subsidized and unsubsidized food items to verify and support that profit margins are not eroding the subsidy that is to be passed on to customers, in accordance with the NNC Program National Manual objectives.
• Sign a formal agreement between head office and the stores that explicitly outlines the responsibilities of each party in relation to the NNC program and aligns with the terms and conditions of the Agreement signed between CIRNAC and Arctic Co-ops.
• As part of its inventory counts, document the best before date of food product beside the quantity. This would allow the store manager to compare the current and previous inventory counts to support that older food is being properly cycled through the sales process.

Current Status

The final report has been issued.