Compliance Assessment Summary Report: Arctic Fresh Inc.

Context

At the request of the Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC), Samson performed a desk compliance assessment of the Funding Agreement between Nutrition North Canada (NNC or the 'Program’) and Artic Fresh Inc. (Recipient). Nutrition North Canada is a Government of Canada Program that helps make nutritious food and some essential items more affordable and more accessible to northern communities. The purpose of the assessment, in accordance with our engagement with NNC, was to provide information on:

• Whether the Recipient is passing on the full value of the subsidy to consumers;
• Whether the amounts disbursed to the Recipient through the fiscal years 2016/2017, 2017/2018 and 2018/2019 were appropriately claimed in compliance with the Terms and Conditions of the Recipient’s Funding Agreement;
• Whether program visibility requirements are met and that the subsidy is transparent to consumers;
• The Recipient’s reporting and claiming systems and procedures with regards to gaps and controls issues; and
• Whether the Recipient respected program rules in regards to sales to ineligible clients.

The period covered by the compliance assessment is from April 1, 2016 until March 31, 2019. We determined our sample size by applying professional judgement based on the frequency of claims and the number of items in each claim.

Due to the Covid-19 travel restriction, no on-site was performed and our compliance assessment was performed as a desk assessment. As a result, our interviews were performed based on electronic communications with the Recipient to identify and document their key control activities, their procedures and processes related to the claim of funds to NNC, program delivery and reporting. In addition, due to the travel restrictions, we were unable to verify the accuracy of the weighting system used by the Recipient.

We subsequently performed detailed assessment procedures on the accuracy and validity of the Recipient’s claims and on the margin earned by the Recipient on the subsidized products.

On August 21, 2017, NNC informed the Recipient that the Recipient was in default due to late submission of reports and a Management Action Plan was to be provided to NNC by September 15, 2017 to address the inefficiencies in their current reporting and processing control.

Furthermore, we were informed that for the period 2017/2018, the Claims Processor (RCGT) indicated to NNC that some of the claims provided by the Recipient did not comply with program terms and conditions and they were unable to validate if the full subsidy was passed on to the customer. For the periods tested in 2016/2017, the invoice provided to the customer did not indicate if the subsidy had appropriately reduced the cost to the customer. For the example, the invoice total amount did not indicate the invoice total amount less the subsidy was equal to the total cost to the customer. As a result, for the amounts claimed from January 2016 to July 2017, we are unable to provide an assurance that the subsidy was passed to the customer.

Based on the procedures performed and as more fully described in our report, some errors were identified for the period of 2018/2019 and we did note some improvements.

Recommendations

Recommendation #1: The Recipient should review its invoicing process/software to ensure that the subsidy for which the customer is entitled to is passed on to them.

Recommendation #2: The Recipient should ensure that a second review of the itemized shipment report is performed prior to submitting his claim for payment.

Conclusions

Based on the samples tested, discussions with the Recipient and the other procedures performed, we can conclude the following:

• Due to the high number of errors found by the Claims Processor, we conclude that the management practices still need improvements to adequately support the delivery of the program;
• For the periods tested in 2016/2017, the invoices did not indicate the subsidy that the customer received. As a result, for the amounts claimed from January 2016 to July 2017, we are unable to provide an assurance that the appropriate subsidy was passed to the customer.
• The format of the invoice was corrected from December 2017. As a result, subject to the limitations of performing a desk audit, the Recipient was now in compliance with the visibility requirements detailed in the Recipient Program Manual.
• The Recipient passed the subsidy on only to eligible clients;
• The Recipient is using the most effective and cost-effective supply chain arrangements and routes;
• Except for the amounts detailed in the report, the Recipient has passed on the full value of the subsidy to consumers;
• The value of the subsidy is not being eroded by the Recipient’s profit margin practices except for items bought at reduced prices from supplier; and
• We have identified two recommendations to improve the Recipient’s management systems, processes and practices that would address the deficiencies noted.

We are of the opinion that we cannot provide assurance that for the period January 2016 to July 2017 that the funding provided to the Recipient was spent for its intended purposes.

We are of the opinion that we can provide an assurance that for the period December 2017 up to the March 31, 2019 that overall, the funding provided to the Recipient was spent for its intended purposes.