Good morning. I'm Manny Jules, the chief commissioner of the First Nations Tax Commission. Thank you for this opportunity to appear before this committee. Your study on INAC's default prevention and management policy is important and timely.
This government has committed to a new fiscal relationship that provides stable revenues to our communities, and improves infrastructure services and outcomes. Strong financial management, transparency, and accountability are key elements of a new fiscal relationship.
As you know, I've been working toward a new fiscal relationship for over 40 years. I was co-chair of the national table on fiscal relations from 1998 until 2001. We have always known that a new fiscal relationship needed first nations institutions. That is why we advanced and implemented the First Nations Fiscal Management Act also known as the FMA.
That act was passed in 2005, and it created four institutions to support a new fiscal relationship, one of which was the First Nations Tax Commission. One of the other institutions created was the First Nations Financial Management Board. It's chair, Harold Calla, has done a great job of building that institution for accountability and management. I know that his observations and work will be extremely valuable to your study.
However, I want to focus my comments on the first objective of your study, issues and challenges that affect financial management in our communities. It is important, because I believe you're asking about the root causes of our financial management issues.
To begin, the foundation of all governments is land and tax jurisdiction. The methods used to apply these fundamental jurisdictions determine economic success or failure. When these jurisdictions are used, they create governance and public institutions that grow economies to the benefit of all citizens. Trust then rises in government and institutions. When they are used to benefit some but not all citizens, economic disparity rises and trust in government and institutions declines. As stated in a recent book, the use of these jurisdictions is why some nations fail while others succeed.
First nations people had these jurisdictions before contact. There was no requirement for a royal proclamation or treaties if indigenous populations didn't have title and tax jurisdiction. We used these jurisdictions well. It has been estimated there were more numerous than Europeans at the time of contact. Of course, the introduction of guns, germs, and steel, per the book title of the same name, changed that.
Colonization took our land and our tax jurisdiction. As stated in 1841:
|| The Indian occupies valuable land unprofitably to himself and injurious to the country. He gives infinite trouble to the government and adds nothing either to the wealth, the industry, or the defence of the Province
It ultimately resulted 35 years later in this passage that remains in the Indian Act today, that reserves are:
||a tract of land, the legal title to which is vested in Her Majesty.
We fought to get our land back. In 1910, my ancestors, the chiefs of the interior tribes of British Columbia, wrote the following to clarify their land claim position:
||We stand for the obtaining of a permanent and secure Title (to be acknowledged by the government as such) of our ownership of our present reservations, and of such lands as may be added thereto.
Canada became frustrated with our efforts to raise money by collecting taxes, so in 1927, the Indian Act was changed to take away our tax jurisdiction. It said:
|| Every person who...receives, obtains, solicits or requests from any Indian any payment...for the purposes of raising a fund or providing money for the prosecution of any claim...shall be guilty of an offence...
The express purpose of these policies was to create dependency. As the following quote from Hansard in 1918 indicates:
|| Well, the Indian may be satisfied and he may not. My personal view with regard to the Indian is that he is the ward of the Government, and being a ward he is bound to accept the treatment given him.
We have been fighting for our lands and tax jurisdiction ever since, and we've had a number of victories: the Supreme Court recognition of our rights and title in several decisions, including most recently the Tsilhqot’in decision; the 1982 Constitutional recognition in section 35; the United Nations Declaration on the Rights of Indigenous Peoples; the 1988 amendment to the Indian Act; the passage by Parliament of the First Nations Land Management Act in 1999; and the passage by Parliament of the First Nations Fiscal Management Act in 2005.
It is clear that this government wants change. Last month, the Minister of Justice and Attorney General of Canada, the , said the following at a conference here in Ottawa:
|| As a government, we recognize that the fundamental purpose of section 35 is reconciliation of the prior occupation of Indigenous peoples with Crown sovereignty. And we are fully committed to fulfilling the constitutional promise made to Indigenous peoples in 1982...reconciliation actually requires laws to change and policies to be rewritten...if we are to get rid of the Indian Act, we need to determine how First Nations transition away from band government to something which is reflective of the proper title and rights holder...Only Indigenous peoples can determine their institutions and shape their future.
The Minister of Justice is right. She is also wise enough to know that this change will be hard. We need to overcome historical mistrust. We need to convert our rights and title to governance, institutions and jurisdictions. We need to rebuild our governments and our nations. Most importantly, we need to restore the foundations of governments and economies: our land, our tax, our jurisdictions, our institutions.
Over time, our fundamental jurisdictions have been legislated away, and they must be legislated back. We know how to do it. When the First Nations Fiscal Management Act was implemented in 2007, we were unsure how successful it would be. Fast forward 10 years, and over 200 first nations are now using the FMA. It is now the most successful indigenous-led, optional jurisdiction initiative in Canadian history. The FMA works.
It works because we led and designed it. It works because it expanded our tax jurisdiction. It works because it provided us access to capital just like other governments. It works because it grew our economies. It works because it built our capacity, and proved that we can exercise our jurisdiction on our lands. It works because it provides the necessary first nations institutional bridge to restore the jurisdictions that were taken away.
Just as important, it works because parliamentarians, like the members of this committee, in the past listened. They heard our petitions and engaged our vision. They tested our reason. They read and challenged our technical presentations. They confirmed our resolve, and then, in the end, they made legislative changes. This is what reconciliation looks like.
As the Prime Minister has said:
||If we are to move forward in the nation-to-nation relationship, we have to try new things, to take risks even. Some of what we try will work, some of it won't. Some of it will work for some nations, but not others. But we can't be afraid to try. Part of rebuilding trust, includes being willing to try together.
Therefore, the key to improving financial management in our communities is to build on this successful model. This parliament must restore the jurisdiction that previous parliaments legislated away.
I look forward to working with you to erase this past injustice. Accordingly, I have seven recommendations to accomplish this.
First, Harold Calla is the chair of the First Nations Financial Management Board. His recommendations to prevent defaults and improve financial management must be implemented.
Second, we need more tax jurisdiction. Our communities have asked for a better version of the first nations goods and services tax, the aboriginal resource tax, and tobacco tax jurisdictions.
Third, we need a revenue based on a fiscal relationship, not one based on government transfers. First nations do not more dependency.
Fourth, we need to expand the First Nations Management Act to include our new tax and financial management jurisdictions, and to remove the constraints of the Indian Act.
Fifth, we need two new fiscal management act institutions. We need to have the first nations statistical institutions focused on a new fiscal relationship, and a first nations infrastructure institution that helps first nations build more cost effective and sustainable infrastructure.
Sixth, our land must be registered in our own land registry system. We need title to our lands. Interested first nations need the proposed indigenous land title legislation and proposed first nations land title registry.
Seventh, we need the capacity to implement our jurisdictions in a manner that grows our economies, and we need an excellent first nations public service. We need to expand the access to education and training at the Tulo Centre of Indigenous Economics.
Thank you for giving us the opportunity to appear before you.
I want to remind everyone, because sometimes we forget, that this legislation, when it was passed in 2005, was passed with all-party support. This is not a partisan issue. We've never come to these committees and not made people aware of that. We have some real issues—you all are familiar with them, and we don't need to repeat them here—and they require some attention.
Intervention is a symptom of a whole array of problems. This situation is not going to be solved overnight. The reality is that our communities became frozen in time. We were divided up into 633 Indian bands from among the nations that we had. It's now a problem that you have to deal with. Part of the challenge we're seeing in British Columbia and other places is the desire to reconstitute those nations, to get some critical mass.
Intervention comes about as a consequence of not being allowed to engage in the economy, to grow, to be in business, and of not having government powers. I think it's really important that you understand that this is what I mean when I say we became frozen in time. We became wards of the government in a dependency-based economy, and we've been fighting since the 1960s to move away from that.
Now, I'm an accountant by training and a member of the Squamish Nation in Vancouver. I understand the need for good financial management, but I also understand, quite frankly, that if you don't develop capacity in the areas of economic development and start talking about wealth management, you are not going to be successful. The cycle of dependency continues.
The challenges that you're going to hear about from the people who are going to speak to you later facing those who become involved in trying to support these communities are very difficult. We do not want to become better managers of the poverty that exists in our communities; we want to be in a position to share the experiences we all have from our communities and provide them to those who haven't had the benefit of that experience because of their location.
We're in a unique time in this country in which the northern communities have the opportunity, through their engagement in the major resource development that's contemplated in this country, to be the beneficiaries of a wealth transfer. We need access to the capital markets. You're going to hear from Steve about that. That's a fundamental issue.
I always like to ask: does anybody ever think there's going to be enough transfer funding to take care of the issues? I was at the Senate committee last year. Housing and infrastructure need between $20 billion and $30 billion. Where is all of that money going to come from, if we don't engage the private sector, if we don't engage in business and economic development? To do so, we have to be credible partners. We have to be credible governments; we have to be able to manage wealth, manage debt, and understand and communicate with our people.
A lot of what we do—and Suzanne does a great job of this—is building financial literacy in these communities. I always tell the story about my coming many years ago to Ottawa and having to leave on a Sunday. We were at a family gathering, and I said, “Auntie, I have to leave; I have to go to Ottawa to talk about fiscal relations.” My great-aunt turned to me and said, “Which one of our relations is named 'Fiscal'?”
Voices: Oh, oh!
Mr. Harold Calla: That's where we're starting from.
Why is financial management important? Minister Bennett came to me over a year ago and asked, “Will you help us look at intervention?” I said we will, but only if it involves capacity development; only if it involves our being able to get those communities through the door to certification and access to capital; only if it means that you're going to invest resources to allow them to develop community and economic development plans and will not be punitive towards those who opt in.
What we have today is a challenge, which you'll hear of next. How do you get out of third-party management? You use discretionary money to offset the deficits until the financial ratios look good. That's the first thing.
What has to happen is that the whole system has to change within the department, and people have to be empowered. The system has to change. The ratios have to change. We have to start looking at different ways in which we're going to achieve this success and this turnaround, and we should not force everybody to wait until we have somehow found the cash to balance the deficit and then start. We have to start from the very beginning.
We're enjoying success in the pilot projects that have been supported by this government. That is telling us what path to move forward on. It's about working with the private sector, working with the people you're going to be hearing from next. And it's about developing the means for capacity development and the means to provide an opportunity for many to get access to the centres of excellence capabilities they can't now access.
The Financial Management Board has supported the capacity development of 31 communities in the northern energy corridor in British Columbia. It has has been supported by the government, by the previous government, and continued by this current government. What we've been able to do is to bring together increased capacity for those people who are already involved, who are being consulted on how they would respond to these energy projects and what they would do with a $40-billion project. There's a huge difference in the capacity that's required to do those things, and part of the challenge that many of our communities face is their discomfort in how to even approach these issues. You just back away. We all suffer: Canada suffers and our first nations' communities suffer when that happens.
Part of the solution that you're going to discover here is the need to invest in capacity development. I appeal to you to not be swayed by the notion, “Well, you want more money. It's at an increased cost.” You're going to face increased costs if we don't do this, because the cost of the social net is going to go up. We can't build healthy communities on the backs of welfare and shelter allowance. We need to build communities that can engage in the mainstream economy, that can contribute to the mainstream economy.
Think for a moment, and look at the gap that exists between aboriginal and non-aboriginal communities. As we develop wealth, where are we going to spend it? We're going to spend it in our communities. Who is going to benefit from that? Every Canadian.
Yes, there are some pretty significant issues. There are some policy issues within the department that they're willing to work at, and we're starting to work with them, but this concept of institutional development in an optional way has to become the model that we move forward with.
I think this paternalism—perhaps well intended by the Indian Act and the Department of Indian Affairs—and paternalistic attitude have to change. We have to build on developing our institutional infrastructure. We have to have our equivalent to your central agencies. We have to be able to talk to the Department of Finance, to Treasury Board, to the PCO. We have to be in those arenas to talk about the solutions, and first nations institutions are the best way for that to happen.
I really appreciate the support that we've been given to engage in this pilot project. We think it will become a model for the future, and we hope that you will, too.
Thank you, Madam Chair.
Committee members, thank you very much for your time this morning.
My presentation is going to focus on up-front safeguards. The First Nations Fiscal Management Act is a modern-day equivalent to what provinces and municipalities have enjoyed for a long time.
Chartered banks, when they lend money, lend it based on a collateral approach. The problem with collateral is that it is a post-problem solution. In other words, something occurs to a first nations budget, either through overspending or a default on a loan, and then the collateral comes on.
When the First Nations Fiscal Management Act was created, it was the result of a desire that first nation chiefs, councils, and members set up a solution whereby safeguards would be put in place before problems occurred. My presentation is going to focus on what we've established by way of up-front safeguards, so that intervention is not needed and economic growth can occur.
Our mandate under the First Nations Fiscal Management Act is to create a structure that allows first nations communities from coast to coast to voluntarily put up their hand and get scheduled according to the act. When that occurs, they have to knock on Harold's door first. There's a process before they can become a member and there's a process for acquiring loans. The reason for this is that we borrow as a pool. Right now there are 207 or 211 first nations, depending on how many are pending, and that's fully one-third of the first nations across Canada who say they would like to use this model. The approach is that every first nation that joins has to meet the same high-jump requirements. They have to meet certain financial ratios and economic ratios; they have to have budget, finance, and audit committees; and they have to maintain surpluses, or close to surpluses, as we monitor them each year.
There's a process to becoming a member. This is a holistic approach. We don't just provide a loan and hope it gets repaid. It's a holistic approach to take communities and improve their internal capacity, to monitor them, and to provide safeguards on loans going forward.
We do not work in a vacuum at FNFA. All of our processes are vetted by rating agencies prior to loans going out. You've probably heard of Moody's and Standard & Poor's. The loans are vetted by our own legal counsel, who has to give an opinion on the loans. They are vetted by our banking syndicate's legal counsel. The banking syndicate is the six chartered banks and the capital markets divisions of those banks. The loans are also vetted by investors.
We have a whole process with checks and balances prior to our board's even putting up their hand and having a unanimous vote on whether a loan goes out. That's what I mean by a holistic approach. We make sure everything is okay and then give a loan. We do not take collateral, by the way. We focus on up-front safeguards and work from there. It's a different approach, but it's a modern-day approach.
We have mechanisms to establish safeguards to prevent loan defaults. Our board is made up of chiefs or councillors from seven different provinces, and they must be unanimous in both accepting a member and in approving a loan. Having a unanimous board requirement means that up-front safeguards must be very strong.
We have over 200 first nations. There's very strong support in the west. The idea was centred in the west originally and fluctuated through there. Since 2012 , when first nations were allowed to use their own revenue sources to support loans, growth has been from Alberta eastward. We now operate in 8 out of 10 provinces—we have none in Newfoundland, and none in P.E.I. We have one territory in the Northwest Territories. So it's fairly well distributed.
The acceptance of the First Nations Fiscal Management Act is increasing, not only in terms of numbers—69 in 2012, and 207 at the end of 2016—but also in terms of the rate of increase, which is growing. This is presenting us not only with a happy story but also with challenges on our staff to accommodate as they line up in front of the door.
Page 6 has a breakdown of our loans right across Canada since 2014. The first nations we have lent to have used their own monies. I want to make sure that's clear. These are not monies from Canada that have been leveraged into loan; these are their own-source monies. Where they have needed community priorities to be completed, they have looked at their budgets and worked with us to make sure their own monies can support these loans going forward.
Page 7 is a summary of what they've done with the monies we have lent. As of right now, we have lent $343 million. There's another $77 million pending, and that's in the last two and a half years. There have been 71 new houses built and 30 remediated, and that's with their own monies. They have built a new school rather than wait for Canada to find the cash, pay as you go. They've built wellness centres, recreation centres, administration buildings, paved roads, etc.
With a lot of these communities, if you look at them today, as a result of their own monies being leveraged through the First Nations Fiscal Management Act, they're starting to look like towns. That's the whole goal of this.
The other objective is economic development. Where they're seeing economic projects they can participate in, they are also borrowing for those purposes. We have done five green energy projects: run of river, solar, and wind projects. Mashteuiatsh in Quebec has participated in the largest wind project in Canada, and we lent money for that about four months ago. The projects are not just for infrastructure or buildings, but also for economic development, which then can be leveraged into future loans.
There was also a purchase of land. When we lend for land, there are no restrictions on the community. They can go straight into putting it into reserve status. If a bank lends, they put a collateral against it and it is tied up. It cannot be added to reserve. That's one of the reasons we do not take collateral. There are safeguards in place, but there are also benefits in place.
On page 9, if you ask where the first nations get their monies to leverage, each province has revenue-sharing agreements with the communities within their provincial boundaries. We contacted each of those provinces a number of years ago and asked if they would be willing to work with us to set up a structure for loans that would help prevent loan defaults. Each of those provinces put up their hands and said yes, we will, because the monies will then be spent back in their provinces for their projects.
It's a simple program. Where the first nation used to receive money directly from the provinces, the provinces have agreed to take those monies. The first nation has sent them a letter requesting that they do that and transfer those monies directly into a trust account. That trust account is run by a Canada-wide organization called Computershare, and Computershare does two simple things with the monies. They ask FNFA what is required to pay the loan—this is an upfront safeguard—and we get the money to cover the loan payment. The balance within 48 hours is transferred back to the first nation to spend it however they want under their budget. It is called a revenue intercept approach. It was agreed to by Bay Street and Wall Street; it was agreed to by investors, and it was agreed to by first nations.
Now with regard to the benefit of that, if you go to page 10, these types of revenues that are intercepted can now be leveraged. FNFA sends a letter to each chief and council that outlines, based on each community's revenue streams, what amount they can borrow. That letter is like a line of credit. Chief and council then know under the safeguards upfront that they can spend to meet community priorities up to their borrowing capacity. This allows them not just to do one year at a time, but to do multi-year planning and multi-year projects.
Page 11 is a summary of what this looks like. I have one more page after this. Right now, the provinces—and some little bit from Canada—send $70 million into the trust account. We keep about $11 million of that. The other $59 million goes back to the community to spend how they want, but when you have a coverage ratio of 7.14 times—in other words, seven times more money being intercepted than needed to pay the loan—that upfront safeguard of revenue intercept means no loan defaults.
We have been operating loans for five years now and have never had to call upon Harold's shop for help.
On the last page, we lend at below the bank prime rate. By having these safeguards up front, we do not have a profit motive. Our loans are actually a rates below what the banks' best customers get at prime.
We also have long-term programs that allow the loans to match the maturity of the assets. You have a process whereby the loan is being paid over the asset life. This is a modern-day solution, but one set up to meet the needs of first nations to allow them to grow and also to ensure that there are no problems once the loan is given.
Thank you, Madam Chair.
I think we need to recognize that we have the fastest-growing demographic in the country. Fiscally, we have been in a period of restraint in this country. Funding levels have not kept pace. There hasn't been any economic development.
Many chiefs and councils find themselves stretched to the limit. They face many difficult decisions no different from the kinds of decisions you have to face, and they have to make decisions not in Ottawa, but in their communities. Is it health? Is it housing? What do you do?
There is insufficient transfer funding, absolutely, but more fundamentally, there aren't the incentives and the opportunity to generate own-source revenue, to generate tax revenue.
We have to look at this solution from two lenses. One is, yes, there does need to be an adjustment to transfer payments—there is no question about that—but just as important, we need to deal with issues like additions to reserve. Why does it take forever? Get these lands into reserve and allow communities, particularly many of those that have TLE lands, to put those lands in urban centres to work. We need to be in a position where the concept of bringing taxing jurisdiction into communities is becoming more of a reality in an expanded way. These are pretty fundamental discussions that need to take place. There are many elements to the solution, if I can call it that, and we say yes to increased transfer payments, particularly to invest in the capacity development that's required so that they're in a position to understand how to engage in the economy.
We're in a unique position in the financial management board, because we have five years of financial statements for about 100 first nations in this country. To give the certificate to that first nation so they can go to Steve, we have to issue a financial performance review. We see a lot. In particular, we really need to help communities that have not been exposed to business opportunities before and support them in developing that own-source revenue. That's what I think is the ultimate solution here.
I won't give any names as examples, if that's okay, but we're working with a community in Manitoba, one of the flooded communities. There's a big willingness—and that's one of the critical elements that we see as a key to success, the willingness, the tone at the top from the council, from the elders in the community. We start with that. We start with communicating with the community members as well. It's very important that they be aware and onboard with what this new framework is, this new approach. It's important that they understand that we are a first nations organization run by first nations for first nations. That really is what I think we bring to the table, that we can say things to our clients that other institutions such as INAC cannot say.
We then work with them in starting to build the capacity. We start, as Harold said, with processes, governance structures in place. I'm making sure that everyone understands roles, responsibilities, getting a finance and audit committee in place, getting them the expertise that Steve was talking about. That is how we start and then we work through. It's an internal control framework. It's based on best practices, COSO, the Committee of Sponsoring Organizations, and we work through that. There's training, hands on. We have staff on the ground there working with them very frequently. It goes through that process, so there are certain milestones that have to be achieved. We have a work plan, a capacity development plan. That's how we're doing it.
No. The height he's losing, I'm getting.
We go into those communities and I'm often in front of the membership—the chief and council, and administration. When we talk about Manny being a former chief, I'm a recovered politician from the Squamish Nation. I served in many places in our nation. You have to gain their trust. We have to go in and they have to see us as aboriginal people who have walked in their shoes, and that's how it starts. There's a community here in Ontario that took five years and four visits, and they've just borrowed. St. Theresa Point has borrowed and been certified. We have a community in the Arctic, but you have to go and have to have a presence there. It's not a phone call. You show up and you be there; and you have to gain their trust, and ask them some pretty tough questions. Are you happy with where you are today? If you are, I guess you're going to stay there. If you're not happy—and most people aren't—we say, well, what are you going to do that's going to change it? Are you going to wait for somebody, or are you going to do something yourself? What does section 35 mean?
We can say those things because I'm a status Indian from the Squamish Nation. We lived it. Others cannot. That's the difference. That's why you need first nations' institutions led by first nations so that we can go in and say some tough things, share our experience, and say, we will leave, but we're not going to leave you by yourself. We're going to help you.
We've been very grateful for the support we've received from government to continue to do that. I hope you will see the success of that investment in what we're doing, and continue to make that investment, because we will get everybody eventually.
Thank you, Madam Chair. Good morning.
My name is Harry Lake. I am a partner with BDO Canada. I lead the aboriginal consulting services nationwide for BDO. Before we begin, I want to thank the standing committee for inviting BDO to present today.
As an introduction, BDO is one of Canada's leading accounting and advisory firms in the mid-market with more than 100 offices across Canada. We're leaders in aboriginal consulting and advisory services, of which default management makes up approximately 10% of the aboriginal services we offer.
With me is my colleague, Jacques Marion, who is a partner in BDO's Winnipeg office with more than 20 years working with first nations in the capacity of third party manager, co-manager, and as trusted adviser.
In our presentation today, we're going to cover our perspective on why first nations end up being in default management, the industry that provides default management services, the key success factors that we see for default remediation, and the items we think you should consider when assessing alternative models for default management.
On why first nations end up going into default, first nations operate in what is probably the most complex financial ecosystem in the world. There are unique and complex accounting and reporting requirements for their numerous sources of funding, which necessitate equally complex integrated accounting and reporting systems.
As a result, the skills required to effectively lead in this environment and undertake the associated financial accounting and reporting activities are well beyond what would be required in most other sectors. To give a frame of reference for the skills required, it typically takes BDO more than two years to fully train an experienced CPA to be able to manage first nation agreement accounting and reporting.
In the first nations that are subject to default management, financial management capability issues for the political representatives and band office staff are usually core factors to the financial distress. This can be present as a lack of understanding of the terms and conditions of the program funding agreements when funding decisions are made. Internal controls and protocols are either not established or not followed or enforced as stipulated in the existing policy framework.
First nations under default management are often in remote geographical regions with limited economic opportunities. Without outside sources of revenues, these first nations are constantly forced to make difficult choices with the limited resources provided by the various sources. These simply aren't enough. There simply isn't enough funding to address the band priorities.
Compounding this is that the funding from separate agreements, including CMHC, first nations and Inuit health, employment, and training, provide very little administrative support, which in turn stretches the existing administrative funding provided by INAC.
While in default management, first nations have additional costs—the third party, or expert resource—which are taken from their already-stretched band administration funding. Overall funding is further reduced due to the inability of a first nation to receive outside funding while in intervention. That's specifically geared toward CMHC and housing infrastructure projects.
We thought it might be useful to provide an overview of the first nation default management industry. INAC periodically issues an RFP for third-party management services, to which private sector firms such as BDO respond. The evaluation criteria have been largely based on years of experience undertaking default management services. Selection for the standing offer does not look at past performance of the firm and the success they have had at getting first nations out of third-party management.
INAC regions select the firm that will provide third-party management from the approved pre-qualified MERX vendor list. Several other national firms and a variety of regional local firms provide third-party management.
Recipient-appointed advisory support, co-management is much more wide open. The criterion for being a co-manager is simply an accounting designation. First nations are able to select their own co-manager, and there's little quality control to ensure they are acting in the best interest of the first nation or the crown.
National firms such as ours have an incentive to help first nations out of third-party management and recipient-appointed advisory services. Given the range of services we provide, it is far more advantageous for us to successfully move first nations out of third-party management, and then help them pursue ventures and provide audit and tax services, than it is to provide the short-duration default management services.
The smaller regional local firms don't have the same incentives, as they often have default management services as their sole business line, with some sole operators and proprietors having a single first nation in default management as their only client.
On key success factors for default remediation, the effect of the imposition or enforcing of intervention on the first nation can't be understated, and the degree of willingness of the first nation leadership to participate in the remediation is a key driver of the speed and longevity of success. Successful default remediation involves significant leadership capacity improvements across the areas of federal government, program terms and conditions, reporting, and the broader first nation financial ecosystem, which requires stable and willing leadership.
For the most successful implementation, BDO implements their own cloud-based accounting system, configured to meet federal government reporting requirements for first nations. With both first nations and BDO having access to the financial management and reporting systems, this enables both parties to work together more easily for efficient capacity-building through financial monitoring. In addition, the cloud accounting system allows for remote and more cost-effective on-going monitoring and support to reduce the chance of first nations returning into default management.
In order to improve the approach to default management, we feel that the following items should be considered:
First is a single funding agreement. The federal government needs to simplify the management and administration for first nations by moving to a single funding agreement with a single set of financial and performance requirements. This would dramatically reduce the financial and leadership capacity requirements that are put on often remote first nations and would help reduce the number of first nations that end up in default.
Second is to increase the qualifications of the expert support that's provided. We need to increase the qualifications of organizations providing default management services such as ours beyond the current requirements. This is particularly, though not exclusively, for the expert management support. These qualifications should include access to an appropriately configured cloud accounting solution to allow for efficient and ongoing remote support at low cost. Strengthening the qualifications of the co-managers will help reduce the number of first nations that end up going into third-party management. The federal government should also look at establishing a performance framework for organizations such as ours who provide default management services, and should influence those procuring the default management services to do so based on past performance rather than number of years in a job.
Third is to limit the additional burden on first nations that are already in default. The federal government should look to reduce the punitive nature of default management by having first nations only pay a portion of the default management services from their band funding, with the remaining being paid by the federal government. In addition, given that first nations in default management are accessing expert financial professional services, they should not necessarily lose their access to other available funding, specifically the CMHC funding for housing. Funding for housing should be available on a case-by-case basis, based on the level of debt and the financial capacity of the combined first nation and default management team.
Fourth is to implement a capacity-building program. A structured capacity program for both first nation leaders and band administration should be established to increase and maintain the financial capacity of first nations. This program should not only comprise traditional training curriculum but also on-going support and monitoring. It should be appropriately funded to help bridge what is a substantial capacity gap.
Last is to ensure that all parties involved in default management have a vested interest. We need to ensure that they have a vested interest in resolving the remediation. That could mean structuring deliverable or outcome-based contracts for default management organizations or selecting organizations that have other incentives to support getting first nations out of default.
I want to thank the committee for the opportunity to present.
At this point we'll pass it over to our colleagues at MNP.
We've got some pretty interesting things to talk about.
We're honoured to be here and on the unceded territory of the Algonquin people.
My name is Clayton Norris. I'm the vice-president of aboriginal services with MNP. I'm joined by my colleagues, Robert Campbell and Kenny Ansems. Rob is our national director, and Kenny is our provincial director for British Columbia.
I'm of Cree-Dene descent from Alberta. MNP has over 70 indigenous employees who are part of our team across Canada. What we will reflect today is not only our firm's commitment and perspective from working in the communities but also us as aboriginal people. MNP is a national firm that provides accounting, advisory, and tax services. We've been in business for 60 years. Over the last 25 years, we've been developing a specific practice working with the needs of first nation, Métis, and Inuit communities.
In our journey, we've developed substantial and long-standing relationships that have tremendous value to us as a firm and to our practitioners personally. Our dedication and commitment to the indigenous community has culminated in MNP's being one of the largest providers of professional services in Canada. Two years ago, MNP made a business decision to transition out of providing third-party management services because we felt there was a better way to provide our services and expertise to aboriginal communities. We've looked at alternatives, and we feel there are new approaches that can accomplish more in a prescribed period, create hope, increase commitment levels, build a stronger team, develop capacity, and move communities ahead.
I'm going to ask Robert to continue. He's spent most of his professional career working with aboriginal communities.
Hi, Robert Campbell is my name. I'm from Kinosao Sipi and a proud member of the Cree nation. I am also proud to be a partner at MNP.
I'd like to start by saying that the purpose of the current policy has merit, as it is designed to ensure “continued, uninterrupted provision of programs and services for the health, safety and welfare of Aboriginal community members.” That said, we can all appreciate that well-intended efforts do not always result in a positive outcome.
We understand the root causes that have sent a host of aboriginal people and communities down a very difficult path, and we empathize with them. These conditions were not of their own making or design and are often a direct result of a host of actions taken post-colonization that have harmed, diminished, and marginalized the people. This also continues to speak to the need for reconciliation, and this very discussion is part of that journey.
The aspect of this policy that needs more focus is default prevention. There is limited evidence that early warning signs get noticed. Just sending out the audit review letter and commenting that ratios are declining, with limited follow-up, is not effective. The signs should be detected well in advance, and this unfortunate outcome would not be required if these indicators were properly evaluated. I expect most would agree that a prevention approach is much healthier, as opposed to the reactive nature that exists today.
MNP partnered with a tribal council to examine this more closely, and the path to and from intervention was very clear. There are no secrets, as the indicators are well known. Capacity, policy and procedures, reporting, budgeting, and commitment are all parts of the fundamental consideration.
We need to understand the root causes that have sent a host of aboriginal people and communities down a very difficult path, and we need to continue “supporting demand driven capacity development in Aboriginal communities in a sustainable manner”.
The true solution is a local, membership-driven, and community-supported one. Outside resources can only have a supporting role and need to evolve to simply providing the typical financial and management support required by any other Canadian community. Yet capacity-building also takes resources, and these are limited. The fact that the default prevention and management process is conducted out of the community's existing band support budget is absolutely punishing.
I believe we can all appreciate that these first nations are already suffering and that their finances are in a state of jeopardy, and yet we put them in a more precarious state by putting more financial pressure on them. This also creates resentment towards the provider and funder, who is simply doing a job within the parameters of the policy.
First nations are heavily reliant on the professional and institutional development fund, as it is one of the few mechanisms to support this type of work. It is not even close to sufficient in meeting the needs and demands of first nations across Canada. To make a real difference, there must be different options and more financial and management support.
This committee is exploring whether the current policy has been effective. The current policy speaks of creating “a flexible range of strategies that is as least intrusive as possible”, yet much of this effort has developed into something that is very intrusive and rigid.
We also know that the policy goal “to develop and maintain a co-operative relationship with recipients” can be difficult, given the genesis of the relationship. We see that in the policy, the use of management development plans is “strongly encouraged”, and yet many items in these plans cannot realistically be acted on, given current capacity levels and resources.
In our experience, there have been examples of communities successfully de-escalating from third-party management to self-sufficiency. The key success factor is having leadership and membership understanding and supporting measures to fix the situation. Transparency is important for nation members to understand the current financial situation and the challenges of managing and deciding on very limited resources. This includes understanding the budget process, having and enforcing sound financial policy and procedures, and required reporting for funders, investors, and most importantly nation members. These are the fundamentals that some communities have adopted, and they are now moving forward.
Not every community has the same experience. Because of influences such as geography, political and staff turnover, and lack of governance and financial capacity, a community can linger in a state of required intervention based on the existing policy.
The default management policy should be a temporary measure to ensure the delivery of essential services and programs; however, it can take many years to financially recover. Our intentions are to support and move to de-escalation as quickly as possible to help address their unique situation.
We believe that the financial management capacity of the community is one of the essential building blocks towards health and eventual prosperity. We constantly see that this is not improving in many communities. For support to be effective, it has to rely on the ability of the community as a whole to understand the reality and ramifications of the situation. This must be complemented by acceptance and a commitment to make the changes required to address the problem.
Lastly, it must be supported by a real effort to build capacity. The real measure of the effectiveness of any default prevention and management policy lies in the ability to build capacity. This is the crux of the current problem and what needs to change moving forward. You see, there is often a sentiment that service providers don't build capacity and don't have a desire to build capacity. I can't speak to other providers, I can only speak to our experience. We want to build capacity and we want communities to move forward. MNP would prefer to work with communities that are healthy and looking at more significant projects and programs. The intervention relationship is not healthy nor enjoyable for either party. We do not relish the situation. That is why it often ends negatively and can have lasting effects that reduce our ability to provide more meaningful services in the future.
With capacity-building come process and policy procedures as part of the formula for success. There are all kinds of documentation and best practices for internal controls, and best practices available through all types of groups, such as AFOA Canada and the First Nations Financial Management Board. This is just the first step.
These, of course, are only words on paper unless they are adopted and adhered to, and this is part of the challenge. There's a lot of paper out in the first nations, but none of it has purpose unless the community supports and implements this policy. When provided with up-to-date financial information, self-government rules, and policy that is supported and understood by members, this paper becomes a practical tool to manage and support first nations government programs and services.
In conclusion, the government needs to focus more on default prevention; develop a more realistic plan to assess and address capacity in these communities; and begin funding prevention services out of new money, and not the band support budget, which only further harms these communities. Finally, the government must also commit new money and resources to address capacity-building for aboriginal communities in need.
We want the best for the people. I want the best for my people. I pray that this discussion contributes to the improved health and condition of our communities.
Thank you very much. We'd be happy to answer any questions.
Thank you, Madam Chair, and thank you to the presenters today.
First of all, I want to note that it's very refreshing to see many aboriginal people involved at the professional level. The previous presenter who had the floor, Ernie Daniels, is from the Northwest Territories and was a colleague of mine for many years. I see Clayton here presenting and so many aboriginal people taking part in this discussion who are familiar with our history and the challenges we are up against.
As you know, we now have probably the largest number of indigenous MPs in our history. I think we all agree that we have to look at completing the circle. For too long we have been sitting on the outside. The country moved forward, and we sat on the sidelines.
I spent almost seven years as a band manager, so I've seen the challenges that are faced in a community. The band manager's job description does not exist. You do everything and anything that has come in your direction, from loose dogs to people dying in the community who need support. It's very challenging, given the resources.
I took notice of a number of things that were said, including about default prevention. I know for a fact that in the last 10 years we've seen many cuts at the band council and tribal council level, which have almost taken away any ability from decision-makers to deliver any types of programs or services to move forward, other than to keep the lights on. In many cases, somebody had to be laid off, either the chief or the band manager. Even though there's a lot of talk about how much chiefs make, there are still many chiefs who work for no pay at all, and we should recognize that.
If things are going to change, and we are going to complete the circle and talk about reconciliation, we also have to talk about economic reconciliation. That has to be a big part of where we go. I want, therefore, to ask you to talk about how to raise revenues.
We heard from the previous presenters about taxing people, our own membership, a discussion that often takes place in the land claims or self-governance negotiations. However, royalties have not been mentioned as much as I thought they would be, in terms of where we need to go. We have many resources on our lands. When we signed the peace treaties, we didn't expect to give them all away.
Maybe we could talk about that a little bit as a source of funding for our governance, because we need good governance, but we can't get it unless we have money.