Compliance Assessment Summary Report: Atlantic Grocery Distributors Ltd.
For Funding Agreement no. 1516-HQ-000024 1718-HQ-000069 between Crown-Indigenous Relations and Northern Affairs Canada and Atlantic Grocery Distributors Ltd
January 31, 2021
Name: Atlantic Grocery Distributors Ltd.
Location: Bay Roberts, Newfoundland
Time period covered by audit: April 1, 2016 until March 31, 2019
Total amount of CIRNAC funding received for 2016 to 2019: $290,710
Background
Atlantic Grocery Distributors Ltd is a private company operating a wholesale food distribution in Bay Robert, Newfoundland, a community of approximately 11,000 people. Located 89 kilometers west of St John’s, it is accessible by road, air, and sea and therefore has easy access to the products it requires to serve its customers. The company is the largest wholesale distributor to independent grocers in Newfoundland and Labrador and serves over 2,000 food services and retails operators, including those established in the seven northern communities eligible for the subsidy program. It also operates a second business location in Port aux Basques on the southwest part of the island, but this location does not participate in the Subsidy program offered by Nutrition North Canada.
The warehouse in Bay Roberts is the site of the headquarters and occupies an area of 200,000 square feet of space. Over the course of the year, the company purchases $185 million of goods for resale from 80 to 100 different suppliers. Products sold to customers in Northern communities are limited to dry goods and frozen foods only as the distance between Bay Robert and Happy Valley–Goose Bay presents an impediment to the company’s ability to maintain the freshness of produce that can only be delivered to the Northern communities through the air from Happy Valley–Goose Bay.
The company is run by a hands-on proprietor with a team of approximately 200 employees. It has set up a formal organizational structure divided into six departments, with senior managers responsible for a specific department. Key employees are experienced and know what they are responsible for. Employees involved in the delivery of the Program include the Sales Representative, the Ships Team Leader, and the Sales Manager. The Ships Team Leader is responsible for preparing the monthly claims submitted to the Claims Processor.
Audit objectives and scope
In 2019-20, Nutrition North Canada approved an audit plan for the Nutrition North Canada Program based on risk assessment ratings and other relevant factors. The Recipient has been selected to be audited and, in compliance with the plan, Spearhead Management Canada Ltd has conducted an audit of the funding provided for the period from April 1, 2016 to March 31, 2019.
Based on our mandate, the compliance audit assessment objectives included the following areas:
- Compliance of claims with the terms and conditions of the Agreements
- Program visibility and Transparency to customers
- Eligibility of customers and Effective and efficient supply-chain arrangements and routes
- Transfer of full subsidy to customers and Recipient’ profit margin practices
- Recipient’s management system, processes, and practices
Summary of findings
Objective 1: Compliance of claims with the terms and conditions of the Agreements
The Recipient submits monthly claims for reimbursement based on the templates provided by the Program and the requirements of the Agreements. As a result of our examination, we found that the Recipient has implemented a process that supports the preparation of the claims submitted to the Program and have found no errors in the level of subsidies claimed or the weight of the products shipped to customers.
Conclusion: The Recipient has submitted claims in compliance with the Terms and Conditions of the Agreement and we have not identified any financial adjustments to the claims submitted for the period from April 1, 2016 to March 31, 2019.
Recommendation: None required.
Objective 2: Program visibility and Transparency to customers
Invoices generated from the accounting system and provided to customers include a combination of eligible and non-eligible products and do not show food category, subsidy level and subsidy amount for each product sold. To keep customers informed of the subsidy provided by the Program (and facilitate the claim process), the Recipient has developed an Excel supplementary document to identify the amount of the subsidy available for each invoice. In that respect, a document is created for invoices that carry eligible products showing the order number, item ID, description, quantity ordered, shipping weight, Nutrition North Canada product code and subsidy amount in total. This supplementary document is not shared systematically with the customers and it does not clearly identify the different levels of subsidy for the invoice.
Conclusion: The current invoicing system does not support program visibility and transparency of subsidy to customers. The invoices issued to customers include eligible and non-eligible products and the document identifying the amount of subsidy does not provided details of the subsidy by product and is not systematically shared with the customers.
Recommendation #1: It is recommended that the Recipient modify the document supporting the sales invoices to clearly identify the different levels of subsidy.
Recommendation #2: It is recommended that the Recipient systematically distribute the supplementary document to the customers who are benefiting from the subsidy program.
Objective 3: Eligibility of customers and Supply-chain arrangements and routes
Eligibility of customers. The Recipient has been an approved Southern supplier under the Nutrition North Canada Program since 2012 and is dealing with returning customers in a limited number of communities on the north-east coast of Labrador. Based on experience and the limited opportunities for new commercial ventures in these communities, the Recipient can easily identify eligible customers within the communities that they serve and make sure that they are eligible organizations. To confirm the eligibility of the customers, we selected a sample of customers from various claims and researched their commercial background using research engines provided by the Internet.
Conclusion: The Recipient is claiming subsidies for eligible customers only, thereby complying with the requirements of the Program.
Recommendation: None required.
Effective and efficient supply-chain arrangements and routes. Atlantic Grocery Distributors Ltd is operating in the open market and must secure appropriate supply-chain arrangements and delivery routes to ensure the viability of its operations as a food broker. In that respect, it has developed a network of 80 to 100 suppliers operating in Montreal, Toronto, the United States and overseas to access the various products that they provide to their customers. With an annual purchasing power exceeding $185 million, it is in a good position to secure access to products that meet their requirements in terms of quantity, quality and pricing. It also ensures prompt delivery of the products sold to customers though contractual arrangements with the only airline that flies to the Northern communities that they serve.
Conclusion: The Recipient has implemented effective and efficient supply-chain arrangements and delivery routes, in line with the opportunities that are available under current market conditions.
Recommendation: None required.
Objective 4: Transfer of full subsidy to customers and Recipient’s profit margin practices
The Recipient has implemented an online ordering system available to customers through a portal that contains a catalogue of products and associated prices. The catalog is updated regularly. Customers are matched to dedicated sales representatives who manage the customers’ orders and negotiate discounts based on factors such as volume, frequency of orders and loyalty program participation.
The Recipient’s pricing policy is based on the inventory cost grossed up by profit margins that are revised periodically to respond to market conditions. Elements included in the inventory cost of the product include the actual cost of the item and the freight charged by the supplier to get the product to the warehouse. The sale price of a product is determined by applying the profit margin to the inventory cost and remains the same, whether it is sold to eligible or ineligible customers. As the cost of delivering the products to the customers and the subsidy provided are not reflected in the sale price determination process, the full subsidy is passed on to the customers.
Conclusion: The Recipient has implemented a pricing policy supported by an appropriate inventory costing methodology that ensures that the subsidy provided by the Program is passed on to the customers in its entirety.
Recommendation: None required.
Objective 5: Recipient’s management systems, processes, and practices
Preparation of claim. Employees involved in the delivery of the Program include the Sales Representative, the Ships Team Leader, and the Sales Manager. The Ships Team leader is the employee responsible for preparing the monthly claim submitted to the Program. The process supporting the preparation of the claims includes collecting the invoices for which a subsidy will be claimed, validating the weight of the products to the waybills issued by the airline transporter, populating the Shipment Report template issued by the Program, scanning support documentation, and uploading the information to the Claims Processor’s portal. Though no one reviews the claims prepared by the Ships Team Leader, the Recipient has added adequate steps to the process to ensure the accuracy and completeness of the claims.
Through our examination of a sample of invoices, we found no errors in the level of subsidies and weight claimed for the three years under review.
Conclusion: The Recipient has implemented an appropriate claim preparation process and has succeeded in mitigating the risks linked to the fact that the claims are not verified by a third party prior to submission.
Recommendation: None required.
Submission of reports. Under the terms and conditions of the Contribution Agreement, the Recipient is required to submit the monthly claim by the 15th day of the following month and the March full claim by April 6. A review of the dates of submission of the claims to the Claims Processor shows that the Recipient was late in April and May 2016 in submitting the claims and but has since met the requirements of the Program.
Conclusion: While the Recipient was late in submitting its claims twice at the beginning of the audit period, this is no longer an issue and does not require a recommendation.
Recommendation #1: None required.
Action Plan for Atlantic Grocery Distributors Ltd.
The table below summarizes the recommendations identified by the auditor, the actioned measures required to be undertaken by the retailer/supplier, and their status.
| Auditor’s recommendation(s) | Action Plan | Status |
|---|---|---|
| 1. Modify the document supporting the sales invoices to clearly identify the different subsidy levels. | Following the revision of the Compliance Management Letter, AGDI will create an excel sheet listing all purchases for all Nutrition North customers. This list will be attached to an invoice and emailed to each customer in advance of receiving their orders. This will clearly indicate the amount of Nutrition North Subsidy for each individual product, as well as confirm the subsidy level and rate. | Complete |
| 2. Modify the invoices, or ensure to systematically distribute supplementary documents to the customers who are benefiting from the subsidy program. |