Compliance Assessment Summary Report: Hamilton Wholesalers Ltd

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 while four products were coded to the wrong product line, there was no impact on the level of subsidy claimed since the products were eligible for the same level of subsidy.

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

Regular exchanges between the Recipient and the customers and the limited changes to the Subsidy Program are key elements that ensure that customers are aware of which products are eligible for subsidy. Invoices issued to customers clearly identify the actual cost of delivering the goods to the eligible customers and the corresponding subsidy provided by Nutrition North Canada. Furthermore, the Recipient divides orders from customers on different invoices by grouping eligible products by level of subsidy on the same invoice, thereby increasing the visibility of the level of subsidies provided by Nutrition North Canada for each category of subsidized products.

Conclusion: The Recipient has complied with the visibility requirements of the Program and has implemented an invoicing process that supports transparency of the subsidy to customers.

Recommendation: None required.

Objective 3 - Eligibility of customers and Effective and efficient 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 clients 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 clients only, thereby complying with the requirements of the Program.

Recommendation: None required.

Effective and efficient supply-chain arrangements and routes. The Recipient is operating in the open market where it competes against two other major Southern suppliers. To stay competitive and retain customers, it must secure suitable and cost-effective supply-chain arrangements and delivery routes to ensure the financial sustainability of the business. As a result, the Recipient is dealing with various product suppliers in Québec and across Canada to ensure availability, quality, and competitive pricing of products. 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’ profit margin practices

As a food wholesaler, the Recipient’s business model is guided by the availability of products, competitive pricing, and timely delivery to customers. The Recipient’s pricing policy is based on the inventory cost grossed up by a set profit margin. 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. Profit margins on products, which typically vary between 5% and 15%, are reviewed annually and used to support the pricing of goods offered for resale. 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.

Any discount granted to a customer relates to volume and/or frequency of orders only and the discount is shown explicitly on the invoices issued to the customers. The inventory costing methodology and the pricing process implemented by the Recipient support the transfer of the full subsidy to the customers. Furthermore, invoices issued to eligible customers provide the description of the products sold, the cost of delivering the goods (which matches the manifest and the waybill issued by the airline), and the details of the subsidy provided by Nutrition North Canada. The information reflected on the invoices is clear, accurate and complete and allows customers the opportunity to confirm that they have effectively benefited from the subsidy in full.

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. On a monthly basis, the Office Manager collects the invoices for which a claim will be made, tabulates the information required on the Shipment report and validates the weight claimed to the waybills and shipping manifests. The volume of sales in any given month governs the amount of time required to prepare the Shipment report and upload the support documentation. Once finalized, the Shipment report is uploaded unto the Claims Processor’s portal for verification and payment, along with the documents supporting the claim.

No one verifies the accuracy of the information submitted to the Claims Processor as the company does not have extra resources that can be dedicated to the task. The owner of the company considers that the risks of error are limited based on the following steps:

1. Invoices are issued by level of subsidy to customers.
2. Products are clearly identified on invoices and easily matched to eligible products.
3. Specific manifests and waybills issued by the airlines are matched to the invoices issued to a customer for all eligible goods.
4. The Office Manager matches the waybills and manifests to the weight reported on the invoices.

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. However, we found four errors in product codes but they had no bearing on the global claim amount since they fell within the same level of subsidy.

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 Agreements, 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 Recipient has been late in their submissions of claims over the three years under audit.

When we discussed the timing of submission of claims, management indicated that they have limited resources available to dedicate to the task and that their financial system, which meets their current operational needs, does not support the preparation of the report. As a result, manual intervention is required, and it is a lengthy process. Furthermore, the Recipient noted that the amount of administration fees granted under the Agreement signed with the Program does not cover the real costs associated with the preparation and submission of the claims.

Conclusion: The Agreement signed with the Program stipulates that claims need to be submitted by a set date and that failure to do so means that the Recipient has not complied with the terms and conditions of the Agreement.

Recommendation #1: It is recommended that the Recipient comply with the requirements of the Agreements by submitting the claims by due date.