Compliance Assessment Summary Report: North West Company LP (Operating as Valu Lots)

Background

Crown-Indigenous Relations and Northern Affairs Canada ("CIRNAC") selected Valu Lots (the "Recipient") for an independent assessment for the funding period April 1, 2015 to March 31, 2017. 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 consider and provide observations and recommendations on:

• the subsidy claimed for reimbursement as it relates to the type and nature of eligible cost requirements of the program;
• the program visibility requirements and transparency of the subsidy to consumers as it relates to the requirements of the agreement;
• the Recipient’s reporting and claiming systems and procedures which support compliance with the terms of the agreement;
• 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.

Procedures and findings

We performed the following and identified findings where noted:

• Performed substantive procedures on a sample of the underlying sales transacted by the recipient during the period and submitted as part of the subsidy claim, in order to assess if the shipments being claimed were in accordance with the provisions for Type and Nature of Eligible Costs, as per the NNC Program National Manual.
• As part of our substantive procedures, for the sample selected we inspected the sales invoice for program visibility requirements.
• The Funding Agreement stipulates various reports to be provided on a monthly and annual basis for each fiscal year. On a sample basis we inspected the submitted information to verify if the respective deadlines were met.
• We conducted an interview with the store manager to gain an understanding of the profit margin practices of the Recipient.
• When performing our substantive procedures, we inspected consumer invoices in consideration of whether sales were being made to ineligible consumers.
• We conducted an interview with the Recipient manager and were informed that the supply chain is managed by the North West Company LP head office using a large network of airline and other transportation companies. We inspected copies of carrier agreements stipulated rates and charges.
• We conducted interviews with the Recipient Manager, to obtain an understanding of the processes used in implementing the program. We focused our inquiries and inspection of relevant information around the following processes:
  • Purchase orders and sales orders
  • Pricing and invoicing
  • Monthly subsidy claim

Recommendations

The following recommendations were provided to the Recipient for consideration:

• Monitor deadlines and provide the required information to CIRNAC by required deadlines.
• 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.
• 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.

Current status

The final report has been issued.