Compliance Assessment Summary Report: Newfoundland Multi-Foods Ltd
For Funding Agreement no. 1617-HQ-000012 and 1819-HQ-000016 between Crown-Indigenous Relations and Northern Affairs Canada and Newfoundland Multi-Foods Ltd.
January 31, 2021
Name: Newfoundland Multi-Foods Ltd.
Location: Happy Valley-Goose Bay, Newfoundland
Time period covered by audit: April 1, 2016 until March 31, 2019
Total amount of CIRNAC funding received for 2016 to 2019: $657,530
Background
Newfoundland Multi-Foods Ltd. is a private company located in Happy Valley-Goose Bay, Labrador, a community of approximately 8,000 people serviced by road, air, and sea. Acting as a food wholesaler, it provides and arranges for delivery of goods to customers located in communities around the Happy Valley-Goose Bay area and on the north-east coast of Labrador.
Operations are conducted from a 10,000 square feet warehouse where products received are stored in coolers and freezers to avoid spoilage. Over the course of the year, the Recipient purchases goods for resale from a variety of suppliers located in Montreal, Nova Scotia, and Newfoundland. Products purchased from the suppliers include fresh produce, frozen food, milk, cheese, yogurt and bread and availability and pricing are dictated by the open market. The Recipient accepts delivery of products from the suppliers three times a week, with two major shipments of produce and frozen foods arriving from Montreal and one major shipment of milk, cheese, yogurt, and bread arriving from Nova Scotia. Deliveries to the warehouse are usually done by truck.
The company is run by a manager with a team of twelve employees. Key employees are experienced and know what they are responsible for. Employees involved in the delivery of the Program include the Manager, Assistant Manager, and the Invoicing supervisor, with the latter individual responsible for preparing the monthly claim submitted to 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. The level of subsidy and weight claimed are supported by appropriate documentation uploaded to the Claims Processor’s portal. 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 and weight claimed to the Program.
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
Newfoundland Multi-Foods Ltd. has implemented an accounting system that supports the invoicing process directly from the system. Goods purchased for resale are inventoried in the system and coded to clearly identify the UPC code, the brand, the product description and size, the price and the weight. However, the accounting system does not allow the Recipient to enter the product codes used by Nutrition North Canada into the system and therefore, they cannot generate invoices showing Nutrition North Canada codes automatically. To address this limitation of the system, the Recipient separates orders from customers based on eligible and non-eligible products, issues a separate invoice for each one and provides the details of the subsidy on the invoice.
Through our examination of an appropriate sample of invoices, we found that all invoices clearly identified the level and amount of subsidy granted to the customers, thereby complying with the visibility and transparency requirements of the Program.
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. Newfoundland Multi-Foods Ltd. has been an approved Southern supplier since 2012 and operates within seven eligible communities. The communities are small and well known to Newfoundland Multi-Foods Ltd. and it is easy for the Recipient to confirm the eligibility of the customers that they serve within each community. The category of customers for which they are claiming a transportation subsidy is identified in the shipment report that is prepared monthly and submitted to the Claims Processor for validation purposes.
During our examination of a sample of invoices drawn from the Shipment report, we researched the clients who were provided with the subsidy on research engines to confirm their field of operations and ascertain that it met the requirements of the Program. We found that all met the requirements of the Program in terms of eligibility.
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. 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.
Objective 4: Transfer of full subsidy to customers and Recipient’s profit margin practices
Deliveries to the warehouse are validated by the Buyer and invoices from suppliers are submitted to the accounting for posting to the accounting system. Pricing of goods in the inventory system includes the actual cost of the products, the freight cost to get them to the warehouse and overhead.
The company offers a variety of products to customers and the costing information is provided to customers through direct communications as the company does not have a catalogue that lists all products available. The prices shown in the inventory system are used to determine the selling price of products to customers, with discounts offered to certain customers based on volume and frequency of orders.
Profit margins are applied to the inventory cost only and consequently, this process ensures that the subsidy provided by Nutrition North Canada is transferred in full to the customers. Invoices issued to customers separate the cost of goods purchased from the actual cost of transporting the goods to the communities and a credit for the subsidy provided by Nutrition North Canada is directly applied to the invoice as a separate line.
The inventory costing methodology and the pricing process implemented by the Recipient support the transfer of the full subsidy to the customers. Furthermore, the information provided on invoices allows the 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 system, processes, and practices
Preparation of claims. On a monthly basis, the Invoicing supervisor collects the invoices for which a claim will be made and calculates manually the weight in kilograms for each item listed on the invoices. The weight calculated is then matched to the waybills to ensure the validity of the calculations and the invoice information is uploaded to the Excel template that serves as the "Shipment Report". Once finalized, the Excel spreadsheet 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. The risks of error are limited based on the following steps:
- Invoices are issued by level of subsidy to customers.
- Products are clearly identified on invoices and easily matched to eligible products.
- Specific manifests and waybills issued by the airlines are matched to the invoices issued to a customer for all eligible goods.
- The Invoice supervisor 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.
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 has been late on six occasions during the period covered by the 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.
Conclusion: The Agreement signed with the Program stipulates that claims need to be submitted by a set date and failure to do so means that the Recipient has not complied with the terms and conditions of the Agreements.
Recommendation #1: It is recommended that the Recipient comply with the requirements of the Agreement by submitting the claims by due date.
Action Plan for Newfoundland Multi Foods
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. Comply with the requirements of the Contribution Agreement by submitting monthly claims by the due date. | Following the revision of the Compliance Management Letter the recipient will personally approve the customer invoices and review the claims prior to submission and ensure that the claim is submitted on time. | Complete |