Compliance Assessment Summary Report: Stanton Group Ltd

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 Stanton Group Ltd. (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 regard to gaps and controls issues; and
• Whether the Recipient respected program rules in regard 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.

Based on the procedures performed and as more fully described in our report, we did not find any significant deviations in the samples we selected; however, we identified improvements in the form of recommendations to improve the Recipient’s control environment in relation to the Program.

Recommendations

Recommendation #1: The Recipient should ensure it complies with the NNC National Manual for Program Recipients, which requires that: The Recipient sign a contract with each of its third-party retailers, which specifies:

1. the obligation to pass on the full subsidy to the consumer;
2. the obligation to post Nutrition North Canada signage in the store;
3. that they will be listed as a third-party on the Nutrition North Canada website; and
4. that Nutrition North Canada may assess or audit the third parties upon request.

Recommendation #2: The Recipient should review its invoicing process/software to ensure that the subsidy for which the customer is entitled is passed on.

Recommendation #3: The Recipient should perform a general review of the product weights in their database to ensure that the appropriate weight is paid to the customer and claimed to NNC.

Recommendation #4: For transparency, the Recipient should review the presentation on the invoice submitted to the customer to ensure that upon review of the invoice, the Recipient can accurately recalculate the subsidy for which the customer is entitled to.

Recommendation #5: The Recipient should ensure that a second review of the itemized shipment report is performed prior to submitting the claim for payment to NNC.

Recommendation #6: The Recipient should obtain confirmation from NNC to determine if these customers are eligible.

Conclusions

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

• The management practices in place to support the delivery of the program are adequate;
• The amounts disbursed to the Recipient over three fiscal years (2016/17 – 2018/19) were appropriately claimed in compliance with the terms and conditions of the Recipient’s Funding Agreement and there was no amount of overpayment from the sample;
• Subject to the limitations of performing a desk audit and with the exception of the noted recommendations, the Recipient is adhering to and is in compliance with the visibility requirements detailed in the Recipient Program Manual, and the subsidy is presented on invoices;
• With the exception of the noted recommendations, the Recipient passed on the subsidy to eligible clients;
• The Recipient is using the most effective and cost-effective supply chain arrangements and routes;
• With the exception of the noted recommendations, the Recipient has passed on the full value of the subsidy to individual consumers and to its third-party retailers;
• The value of the subsidy is not being eroded by the Recipient’s profit margin practices; and
• We do have six recommendations to improve the Recipient’s management systems, processes and practices that would address the deficiencies noted.

Overall, we are of the opinion that the funding provided to the Recipient was spent for the intended purposes and in compliance with the terms and conditions for 2016-2017 to 2018-2019 Funding Agreements signed with the department.