Compliance Assessment Summary Report: Distribution Côte-Nord Inc.

Objective 1: Compliance of claims with the terms and conditions of the Agreements

The Recipient participates in the Program only when marine transportation is stopped, which is normally during the winter months. The Recipient prepares and submits claims to the Claims Manager using the tools provided, including the Shipping Report. Distribution Côte-Nord Inc. maintains a computerized inventory system supported by a Rimouski firm specialized in this field. Each product was weighed and the weight entered in the computerized system according to the various units of measure of each product. The invoices of Distribution Côte-Nord Inc. indicate the total weight of the products at the bottom of each invoice. The assistant groups the products by category with the weights, and enters them in an Excel file. She then compares the total weight of the invoices with the total weight of all eligible categories according to the program coding. At the beginning of the next month, she manually transposes the data from her Excel file to the portal and ensures that the totals in her Excel file agree with the totals in the claim before transmitting the file.

The documentation submitted by the beneficiary in support of his claim consists of the following bills of lading for road and air transportation, except for customers on Anticosti Island. For the latter only the bill of lading of the road carrier is submitted. According to the Recipient, the absence of a bill of lading from the air carriers for clients on Anticosti Island is due to the difficulty in obtaining them. This deviation from the process would have been approved by the Program because of because of the difficulties encountered in obtaining bill of lading from the airlines.

During our review, we noted that the total weight on the invoices was consistent with the total weight on the motor carrier's bill of lading and the air carrier's bill of lading when available. We also noted that the weights claimed by subsidy category were consistent with those of the products on the invoices.

Conclusion: Although the Recipient has submitted claims prepared using the tools put in place by the Program and that the goods transported to the airport are supported by an appropriate bill of lading, the fact remains that the absence of documentation supporting the to Anticosti Island does not allow us to establish the validity of the amounts claimed for the products delivered to the customers in this community.

Recommendation #1: It is recommended that the Recipient obtain a copy of the bills of lading issued by the air carrier delivering the goods to the Anticosti Island customers to confirm the actual transportation of the goods to this remote community.

Objective 2: Program visibility and Transparency to customers

Although Distribution Côte-Nord Inc. signed the contribution agreement with Nutrition Nord Canada, there is a very close collaboration between this company and the Société des traversiers du Québec to inform the Northern communities of the subsidies available during the opening period.

In this context, the recipient is informed by the Société des traversiers du Québec of the beginning of the period and notifies all its clients by e-mail to inform them of the beginning of the transportation of eligible products by air. It is the Société des traversiers du Québec that incorporates the the Program's conditions in its notices of opening by indicating which foods are eligible and adds the internet link to access the program.

Conclusion: The Recipient has put in place a written procedure to notify all its clients of the beginning of the period as established by the Société des traversiers du Québec in its notices.

Recommendation: None required.

The computerized system for inventory control and invoice preparation is not configured to inform clients of the amount of subsidy associated with their purchases and thus support the transparency of the contribution. The Recipient informed us that it would be too costly to modify the system to include invoices with the subsidy amounts only during the opening period and for eligible clients.

Customers are billed separately for the cost of transporting the goods delivered to them. The carrier issues a freight bill based on the ocean freight rates published by the Company in its notices of clearance. Although customers may conclude that it is the subsidies that allow them to pay only the marine rates during the period of opening, there is no document that illustrates the impact of subsidies on the actual cost of transportation during this period.

Conclusion: The recipient has not put in place procedures to ensure transparency in the subsidies awarded by the Program.

Recommendation #2: it is recommended that the recipient develop a document that notifies clients of the subsidies they have received in connection with the Program.

Objective 3: Eligibility of customers and Effective and efficient Supply-chain arrangements and routes.

Eligibility of customers. The business relationship between the Recipient and the Société des traversiers du Québec has an impact on the procedures put in place by Distribution Côte-Nord Inc. to authenticate the eligibility of clients to the Program. Again, the Recipient has not established specific procedures to confirm that its clients are eligible for the Program and relies on the controls put in place by the Corporation to identify clients who are eligible. As part of its controls, the Corporation maintains an up- to-date list of clients eligible for marine rates by community during the opening period, which it shares with the Recipient.

Conclusion: The Recipient does not have procedures in place to authenticate client eligibility for the Program but is able to confirm it by using the list prepared by the Société des ferries du Québec.

Recommendation: None required.

Effective and efficient supply-chain arrangements and routes. Newfoundland Multi-Foods Ltd. is a for- profit company operating in a competitive market and in that respect, is looking to maximize profits by ensuring that it connects to an effective and efficient supply-chain. Over time, it has developed commercial ties with suppliers in Montreal to support the purchase of produce, meats, frozen foods and bread and ties with suppliers in Nova Scotia who provide milk, cheese, and yogurt products. The acquisition of these goods is based on price, quality, and availability. Delivery of purchased goods to the Recipient’s warehouse is usually done by truck, two to three times a week, weather permitting.

The delivery of goods to eligible communities is made by air through the only aviation company servicing these communities out of Happy Valley-Goose Bay, Labrador.

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.

The recipient operates in an open market where it must offer similar or better purchasing conditions than its competitors in order to keep its customers. It has set up an efficient supply chain by using various wholesalers in the Montreal area and other regions of Quebec, depending on the regions of Quebec, and availability of products. Products are delivered to Distribution Distribution Côte-Nord Inc. warehouse in Baie Comeau by truck according to the orders placed with the wholesalers.

During the opening period, customer orders are picked up by the road carrier mandated by the Société des traversiers du Québec, which transports them to the airport for delivery in remote communities. The road carrier is responsible for notifying the air carrier, also mandated by the Société, to forward the orders to the airport in the remote community. It is the Corporation that negotiates the contracts with the road and air carriers. Although the Recipient is not aware of the terms of these contracts, it benefits indirectly from them and may conclude that customers benefit from the favorable rates negotiated by the Corporation.

Conclusion: The Recipient has an effective supply chain and distribution contract in place that ensures the orderly and timely delivery of orders to customers.

Recommendation: None required.

Objective 4: Transfer of full subsidy to customers and Recipient’s profit margin practices

The transportation of goods to remote communities involves two different steps: 1. road transportation between the recipient's warehouse and the airport; and 2. air transportation to the communities. In this case, the overall transportation is coordinated by the Société des traversiers du Québec Ferry Company, which is responsible for all logistics related to the transportation of goods to remote communities.

The amount of the subsidy claimed by the recipient shall be remitted in full to the Corporation as compensation to ensure the responsibility of transportation. It is the Company that in effect transfers the subsidies to the clients by limiting the transportation charges to the marine rates published in its notices of release. The cost of transportation is recorded on the bill of lading issued by the last carrier and given to the customer for payment. According to the contract signed between the beneficiary and the Société des traversiers du Québec the last carrier must invoice the client according to the marine tariffs for the transportation of eligible regardless of the actual cost of transportation. The amount of subsidy for each order is not shared with clients, as described in the previous section.

Distribution Côte-Nord has only one price list for all of its customers, both those near Baie Comeau and those in the communities eligible to the Program. This price list varies according to the fluctuation of the purchase price of the products. According to the information obtained, the recipient includes the following elements in the price of their products: the cost of the merchandise, the cost of transportation to their warehouse and overhead costs to which a profit margin is applied.

Conclusion: Although the Recipient does not benefit from the subsidies provided under the Program, it is not in a position to confirm that clients have received the full amount of the subsidy.

It is not in a position to confirm that clients have received all of the subsidies paid. In fact, since transportation is coordinated by the Société des traversiers du Québec and information on the actual cost of transporting the food to remote communities, the recipient does not have the necessary data to confirm that the totality of the subsidies have been transferred to clients.

Recommendation #3: It is recommended that the recipient develop procedures to notify clients of the amount of subsidies provided by the Program and confirm that the subsidies are transferred in in full to clients.

Objective 5: Recipient’s Management system, processes, and practices

Preparation of claims. Distribution Côte-Nord Inc. maintains a computerized inventory system which allows the follow-up of products in inventory and facilitates the preparation of invoices to customers. Each product has been weighed and the weight entered in the computerized system according to the various units of each product. The invoices issued by the recipient show the total weight of the products at the bottom of each invoice, but not the weight for the quantity of each product delivered. However, since the invoices indicate the quantity of each product and the unit of measure, the assistant is able to calculate the weight for each item on the order.

Claims are prepared by the owner's assistant of Distribution Côte-Nord Inc. with invoices and bills of lading for shipments to customers in eligible communities. She groups the products by category and enters them into an Excel file. She then compares the total of the weight of the invoices with the total weight of all eligible categories according to the coding of the Program coding. At the beginning of the next month, the assistant manually transposes the data from her Excel file to the Claims Manager's portal and ensures that the totals in her Excel file match the totals in the Dispatch Report before submitting it. The process established by the Recipient to calculate the subsidy amount per client is effective since it is possible to link invoices, the list of weights by product in inventory and the claims submitted to the claims manager.

However, we noted that no one checks the claims prepared by the assistant before they are submitted to the claims manager. The risk of error is limited since the assistant ensures that the weight recorded on the bill of lading is consistent with the weight recorded on the Report. In our review of a sample of transactions, we were able to confirm that there were no error in the level of subsidies claimed for the audit period. In addition we were also able to confirm that the Recipient had correctly coded the products on the Shipping and their weight.

Conclusion: The Recipient has an effective process in place to support the preparation of claims submitted to the Claims Manager and has successfully mitigated the risk associated with no one reviewing the claim before it is submitted.

Recommendation: None required.

Submission of reports. Under the terms of the Program, the Recipient must submit claims by the the 15th day of the month following the claim period and the March report by April 6. A review of the claim submission dates demonstrates that the Recipient has not met the Program's requirements with respect to this obligation. We also noted that the February and March 2017 claims were rejected for resubmission on May 5 and May 15, 2017, respectively.

Conclusion: The claims are not being submitted under the terms of the agreement as the February 2017, April 2018 and May 2018 claims were submitted late.

Recommendation #4: It is recommended that the Recipient ensure that claims are submitted in accordance with the terms of the agreement.