Compliance Assessment Summary Report: Value Lots

Context

At the request of the Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC), Samson & Associés CPA / Consultation Inc. performed a desk compliance assessment of the Funding Agreement between Nutrition North Canada (NNC or the 'Program') and Value Lots (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 2018/2019 through 2020/2021 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, 2018 until March 31, 2021. 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 restrictions, no on-site was performed and our compliance assessment was performed as a desk audit. As a result, our interviews were performed based on electronic communication 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 restriction we were unable to verify the accuracy of the weighting system used by the Recipient.

We subsequently performed detailed audit 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 the 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.

Conclusions

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 the 2018-19 to 2020-21 Funding Agreements signed with the Department. However, findings and recommendations under Section 1.2 were identified and should be read in conjunction with these conclusions.

• Except for the errors noted under Section 5.1, we can confirm that the amounts disbursed to the Recipient over three fiscal years (2018/19 – 2020/21) were appropriately claimed in compliance with the terms and conditions of the Recipient's Funding Agreement;
• 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. However, with the information provided on the invoice, the customer is unable the verify if the NNC subsidy indicated by the invoice is accurate.
• Based on discussions with the Recipient, they are aware of the requirements preventing the sale of subsidized product to ineligible businesses and establishments and the review did not fin any sales to ineligible businesses;
• The Recipient's database should be reviewed due to the errors3 that were identified.
• The Recipient is using the most effective and cost-effective supply chain arrangements and routes;
• In our opinion, the Recipient passed on the subsidy to eligible clients and the value of the subsidy is not being eroded by the Recipient's profit margin practices. Furthermore, with respect to Third-Party Retailer, the Recipient did not sell to Third-Party Retailer consequently. Therefore, this section of the objective is not applicable.
• Six recommendations were identified to improve the Recipient's management systems, processes and practices that would address the deficiencies noted.

The table below summarizes the recommendations identified by the auditor, the actioned measures required to be undertaken by the retailer/supplier, and their status.