Good morning, Madam Chair, and members of the committee. Thank you for the invitation to come before you. It's good to be back here. I have my colleagues with me in order to provide support or respond to your questions on this very important issue.
Let me begin by saying that the study is very timely. As you will no doubt hear from other witnesses who come before you, the default prevention and management policy and its provisions—particularly those related to third party management—have encountered many challenges and a fair share of critical comments over the years. As such, they have been, and continue to be, areas of serious preoccupation and ongoing concern for the department.
Having said that, I would like to note that the default prevention and management policy, or DPMP, articulates a useful framework to, first, ensure that situations of defaults are addressed as early as possible through graduated means whereby only the level of intervention necessary is used; second, support first nations' efforts to prevent, identify, and address their own default; and third, help first nations manage their way out of defaults towards long-term sustainability in delivery of programs and services to their citizens.
Before going any further, I should inform you that I have to define the notion of default in the default prevention and management policy. Default is a condition that may include one or more of the following triggers: first, the health, safety, or welfare of the citizens is at risk, and this may be caused by floods, fire, a breakdown in service delivery, or sudden developments that cause citizens to go without essential services; second, the first nations government fails in its key obligations under the funding agreement, which may include the refusal to sign the funding agreement, leaving its citizens without essential services and the department with no legal means to transfer money to these citizens; third, an adverse auditor's opinion on the first nations' annual audited financial statements, which denotes a lack of confidence demonstrated by the auditor of the first nations community; and fourth, the first nations' financial position deteriorates so as to place management of public funds or delivery of funded programs and services at risk.
In my remaining time in my remarks, I will focus mainly on some of the key challenges we have encountered with the DPMP. I will also touch on issues we are dealing with, and on the efforts we in the department—working closely with first nations and indigenous representative organizations—are making to try to address these concerns. The objective of these efforts is to help first nations to exit defaults as quickly as possible and in better shape, avoid future defaults, and build increased capacity for them to manage their affairs sustainably, accountably, and for the benefit of their citizens.
The policy came out originally in 2008 and was reviewed and subsequently updated in November 2013. This is the basis of the policy we're working with today, although it is now subject to review as part of the minister's signing an MOU with the Assembly of First Nations, AFN, whereby we are looking at a new fiscal relationship. One of the elements of this is the default prevention and management policy. We are very excited by the committee's study because we'd like to take advantage of your good work for that ongoing technical exercise.
The principal objective of the policy is to maintain continuity in the delivery of federally funded programs and services to first nations citizens while the first nation is in default. This policy aligns with the Treasury Board transfer payment policy, which ensures that when a government ministry transfers funds to a recipient, regardless of whether it's a first nation or any other organization, there is a duty imposed on the government ministry to evaluate the risk profile of recipients of government financial transfers and manage these transfers accordingly, based on the risk profile. It's under that Treasury Board transfer payment policy that we have developed our default prevention and management policy as a subset of how we manage those funds on behalf of Canadians.
What we're trying to do with that policy is establish a principle that first nations citizens should be held harmless and protected from the failings of their governors or administrators or from circumstances over which they have no control.
Together with Health Canada, which represents the majority of aboriginal spending, we have tried to work collaboratively on a number of fronts to support the management of grants and contributions. We use joint approaches on general risk assessment, default identification, and remediation so that, as much as possible, they are joint actions of engagement with the community.
While everybody is very familiar with this phrase, “third party management”, that's not what the default prevention and management policy is all about. There are a number of pillars associated with this policy. The first one is default prevention, and that's avoiding the situation to begin with. The objective here is to avoid defaults by being proactive and working with the department. What we try to do, according to the Treasury Board transfer payment policy, is evaluate the risk situation, or in a more positive way, the health situation and the well-being of the community. We have established a number of indicators to assess the risk profile or the health and well-being of that community. We use, for example, something called the general assessment score or methodology to do that monitoring and to see whether there are any warning signs. If we see any warning signs, then we engage with the first nation to see whether we can get them back to where they should be, in terms of a better score, to avoid the default in the first place.
If we are not successful in those efforts in working with the first nation to avoid default, we go to pillar two, which is the default management itself. We apply a risk-based default assessment tool, a risk rating on the degree of the default. As I said before, with the default prevention and management policy, when you get into default management, that does not necessarily mean we automatically go to third party management. That is the most interventionist element, and we try to avoid that.
There are various levels of intervention or engagement with the first nation that we try to exercise before imposing third party management. For example, we try to do what is called a recipient. At the first level, a very light one, we ask the first nations community to develop a management action plan to get them out of the default. On their own, they develop a plan to get themselves out of the default. At the second level we then say, “You need some help. You need an adviser to get you out of the default. You can even appoint the adviser you want.” The first nation contracts an adviser to assist them in the implementation of this management action plan to get them out of the default. These advisers are paid out of the band support funding.
The last, and the one you may hear the most criticism about, is the most interventionist, and that is called third party funding agreement management. This is where we engage and we contract a third party manager who we choose to manage the funding agreement that we have between us and the first nation.
We try to use that rarely, and we only do it in circumstances where all other avenues have failed. That's usually because the first nations governance breaks down or there's an inability to address the circumstances that caused it.
The third and final pillar is sustainability, which is trying to get the first nations to never go back to it again and to move forward.
Here are some key statistics. There are about 142 incidents, with various levels of intervention. About one-third of the first nations communities have low capacity. Seventy of those 142 are of the most light recipient-managed action plans. Then there are about 62 first nations that have a recipient-appointed adviser. There are 10 first nations under third party management. By the end April, we expect that to move to eight. Essentially, about 1% of first nations communities are in third party management, which is a good sign. It's good to see that it's a declining number over the years. It used to be 15, 12, 10, and now eight, so it's going in a good way.
One of the things we are trying to do to fix the problem is look at a number of things, such as innovation, by, for example, engaging with the First Nations Financial Management Board, which is an indigenous institution to work with selected first nations and third party management to get them out of default. That's one example of things we're trying to do.
Thank you for the presentation.
This is an issue I think that we're experiencing across Canada. It's a little bit different in the north because our financial arrangements are a little different. However, we still have similar challenges. I think you did a good job outlining your policy, but the policy really means nothing if the funding is inadequate, if there are other factors that are out there that are triggering the situation.
I've had the opportunity to talk to many aboriginal leaders in my riding over the years. I worked as a band manager and so I've seen it from many angles. In the last while, the last 10 years, we've seen up to a 40% reduction in band core funding. It's leaving the band councils in the situation where they're trying to transfer money from one budget line to another just to cover crisis situations.
I talked to the chief in my community this weekend and he indicated to me that their band council has been in a deficit situation for 16 years and unless he does absolutely nothing, pays absolutely nobody, he's probably not going to get out it.
We have communities that are over a million dollars in the hole because they can't afford to operate their offices, yet they have a responsibility. The federal government has offloaded a lot of the responsibilities onto the band councils. It was, “you got your money, you look after your people”. It's a sink-or-swim situation and for the ones who have real challenges, once they encounter a deficit situation they can't seem to get out.
We have had studies done in the north by the Auditor General that have assessed our obligations and they gave us a failing mark on meeting those obligations for land claims organizations, self-government. We can't really point to that as a solution to our issues.
We've had the Auditor General do studies on funding to our communities because we don't have reserves. We have two reserves in the Northwest Territories and the rest are public communities filled with aboriginal people. The Auditor General said we're not meeting our obligations.
I wanted to talk about some of the triggers that we're encountering. I heard you mention some things, but I wanted you to focus more on adequate funding and whether there's any intention to reinstate some of the funding that was cut.
I totally concur with you that the implementation of the policy doesn't mean much for certain first nations if there's not overall adequate funding. It all depends upon what the circumstance is.
Sometimes it's just a lack of governance. It's not necessarily the lack of funding whereby there has been a breakdown. Every third party management situation, if you take just that element of the policy, has different circumstances.
That being said, where it's related to financial insolvency and a lack of appropriate financial management and administration, your point is correct, whereby if you don't have sufficient band support funding or if there's insufficient capacity development dollars.... For example, we have a very small budget at Indigenous and Northern Affairs for professional and institutional development, to provide some money to those first nations to help them with their management action plan, but it's just to help them and it's not sustainable. If they don't have sufficient band support funding overall, then there is a likelihood, particularly for those first nations that don't have own source revenues to cover those deficits, to borrow from others.
This is where the minister has instructed us to engage with central agencies about—
Thank you, Madam Chair.
There was one comment you just made that I found quite stunning. We hear regularly in the House that if members want to have access to the financial information of the band, you actually have it through audited statements. To suggest that you cannot tell us the status of deficits is quite stunning to me, because that goes absolutely contrary to what we're being told on a regular basis.
I just wanted to flag that. It gives me great concern if you cannot tell us what the deficit situation is. That would be my first comment.
I have a second request. You talked in vague generalities, but could you table the document with the committee? You said 142 and the different levels, but it would be very interesting to know how long people have been at the different levels. I'd like to see a trend over time, because I've heard that sometimes there's a bit of an industry and that indeed, although the goal is to get people out of third party management, sometimes the motivation perhaps is not there. I would like to see data that looks at trends over time tabled with the committee. That would be very helpful.
I agree with my colleague Mr. McLeod that it would be worthwhile having insight in terms of the degree of adequacy for needs. It's a bit of a different issue, but I think it is an important issue that needs to be reflected.
As you go through the statements that have been posted, it would be good to know, also in terms of transparency, how we've drifted downwards since the lack of compliance.
There's one band, Neskantaga, where the auditor said he was unable to satisfy himself over the completeness, existence, and valuation of capital assets. This has been for a couple of years now. Are they in third party management? What is the plan for that particular band?
Thank you, Madam Chair.
I usually continue the conversation in the language I was speaking when I went to bed the night before. I'll speak in French this morning.
I'm not sure today's study is the top priority of aboriginal communities. Aboriginal matters were so neglected in the past that everything became a priority in the communities. I'm not sure the topic of this study is a priority.
That said, let me be clear. I've always believed that transparency and accountability are two pillars of all governance in both aboriginal and non-aboriginal communities, especially since we're covering many angles of the default prevention and management policy issue.
A ministerial task force must focus not only on the legislation, but also on the government policies. I suppose this will be one of the topics addressed, or at least I hope so. According to Indigenous and Northern Affairs Canada's 2016-17 report, the plan is to start reviewing the policies on this issue. I'm sure this committee will submit an excellent report, as usual. Obviously, the memorandum of understanding with the Assembly of First Nations will also address this policy. Therefore, I'm not sure we know exactly who will do what within the range of processes related to this topic.
My first question concerns the cost of these processes at the first, second or third level. The communities are responsible for covering the costs. You emphasized the words “who we choose”, but you failed to mention that the communities pay for these processes to be carried out.
As a result, who determines which budget item the money will come from to pay for these third-party managers or to cover the other aspects of the policy?
Our view is that our legislative mandate is to try to reduce the socio-eonomic gaps faced by communities. It's very hard to accomplish that when we have this irritant in the relationship with the community, which is the default prevention and management policy. How do we make that policy less of an irritant so we can concentrate on what Mr. McLeod said, which are the underlying root causes?
When you have that level of low noise out there, it takes away from what the minister is very focused on, the development of a comprehensive community plan where you get the whole community to engage in it, and then we can invest according to what the community wants. When you're in a level of default, then there's a level of irritation whereby the first nations community doesn't necessarily want to move forward in partnership with us in a productive way to deal with that, funding levels aside. That's just one issue.
We also have to acknowledge that, notwithstanding the recent progress in third party from 15 now down to eight by the end of April, a number of first nations have been in third party or some level of intervention for way too long. There is a systemic issue and we need to figure out the underlying root causes. Maybe it's band support funding, maybe it's the overall level of funding. Why are some first nations not able to get them totally out? Why have them in there? We have one first nation that's been in since 1998. That very much concerns me; they have essentially, through those years, given up, and they've become used to having somebody manage their affairs. We need to stop that.
In every case there is a management action plan. Each situation is different and depends on how they got to that situation in the first place. For some, as I said, it's just in getting quorum. There is a division within the community, and they just can't get together to have a proper governance board in order to manage themselves. That's one reason.
Another one is financial management. They don't have any financial bylaws. They don't have a technical capacity in finance, so they need to go through that process.
Another reason is that they've been in default with lenders. That is where we, through the adviser, need to get that debt down so that they can actually go into that third pillar of our policy, sustainability. Then we move away because the debt that they have accumulated over the years has been repaid.
It depends upon every situation. We monitor progress, and as we see progress, we move from third party to the lighter interventions, eventually getting out. That's part of that dashboard review of how they are doing: are they getting out or are they still stuck? If they're still stuck, why? Why aren't we getting them up to the next lighter intervention level so that we can get them out?
Thank you, Madam Chair.
I want to comment on my last exchange with Mr. Beaudoin.
I think, at the third level of intervention, it's very cruel to force aboriginal communities to determine where they'll draw resources from to pay for what's happening to them. Most communities already have a lack of income and resources. Even so, they're forced to determine where they'll take money from to pay for the intervention. Strictly speaking, I find this cruel. I really wanted to bring this issue up.
Mr. Thoppil, I was struck by the conclusion of your presentation document, which says
|| In closing, each of the challenges I have noted reflects a real policy concern in the context of a renewed relationship with Indigenous Peoples that will be important for this Committee to consider.
A number of points were raised in this paragraph. It refers to challenges, policy concerns and renewed relationships with indigenous peoples. We must take all these points into consideration in our report. That's what you're saying. I want you to elaborate on this.