Opening Statement to the Standing Committee on Aboriginal Affairs and Northern Development

Indian and Northern Affairs Canada - Funding Arrangements for First Nations Follow-up
(Chapter 10 - April 1999 Report of the Auditor General)

Thank you, Madam Chair, for the invitation to discuss with the Committee our 1999 follow-up report (Chapter 10) to the November 1996 Chapter 33 regarding funding arrangements between Indian and Northern Affairs Canada and First Nations.

Chapter 10 was deliberated before the Standing Committee on Public Accounts on 8 June 1999. At that time, we discussed opportunities for improving how funding arrangements, involving billions of dollars annually between the Department and funding recipients, were designed, implemented and managed. Also, we raised questions about accountability. The Department responded to the Second Report of the Committee on this subject on 12 April 2000.

Our recommendations in 1996 related to several issues, including the need for the Department to determine the suitability of funding arrangements to mitigate risks and to achieve desired results; to determine together with First Nations how appropriate accountability can be achieved; and to ensure that funding arrangements meet the government's and First Nations' needs.

In its response to the 1996 audit, the Department stated that the new Financial Transfer Arrangement (FTA), then under development, represented a step in the right direction as, among other things, it would strengthen accountability.

In its testimony before the Standing Committee on Public Accounts in December 1996, the Department defined accountability to include the expectation that First Nations would conduct their affairs in accordance with the principles of transparency, disclosure and redress. The Department further indicated that it continually evaluates, with input from First Nations, how it manages funding arrangements and is fully aware of the issues raised by the audit.

The 1999 Follow-up reviewed the Department's progress in implementing the 1996 audit recommendations. We focussed on key areas such as the implementation of the new FTA, the application of First Nations self-assessments, and the handling of allegations reported to the Department by First Nations or their members as an element of accountability.

Our follow-up disclosed that the Department had undertaken several improvement initiatives. But, although initiatives were under way, we remained both puzzled and concerned about the length of time it was taking to resolve issues that have been known to the Department and First Nations for many years.

At the same time, Madam Chair, we appreciate that the issues are not easy to resolve. There are several factors that need to be taken into account, including the appropriateness of the Department's approach and the desire and ability of funding recipients to adopt it as partners with similar objectives. The following examples will elaborate on, and perhaps clarify further our concerns.

The Financial Transfer Arrangement (FTA)

Some 14 years ago, the Department promoted and began to implement the Alternative Funding Arrangement, or AFA, as a more flexible vehicle to address the varied capacity and desire of First Nations to assume control over government-provided funds and program delivery.

The funds are used by First Nations for the delivery of several programs including social assistance, education, infrastructure and housing, in Aboriginal communities across Canada. The Department's primary role is to design and manage funding arrangements that appropriately support program delivery in a manner consistent with devolution and to help First Nations position themselves to assume greater self-government responsibility.

In 1996, the Financial Transfer Arrangement, or FTA, was introduced by the Department to achieve better accountability, better value for money and better opportunity for First Nations to meet community needs. However, the Department failed to come close to meeting its target for the widespread application of this funding arrangement. Less than 20 percent of funding recipients were using FTAs as of January 1999.

The FTA could be a very important tool to help First Nations effectively deliver programs over time, if tailored appropriately. Accordingly, we remain concerned that the intended improvements have been delayed.

The follow-up disclosed several challenges relating to FTA implementation. These include the reluctance of some First Nations to adopt it (for fear that it may result in reduced funding) and the lack of departmental strategies and plans to facilitate FTA implementation.

The Department indicated toward the end of the follow-up that it had slowed the conversion to FTAs so that related issues of First Nations' desire and ability could be addressed. We remain concerned that more time will be needed to resolve issues that were identified at least 14 years ago.

We noted that in December 1998, the Department introduced yet another new model arrangement - the Canada/First Nations Funding Arrangement, or CFNFA - as a possible replacement for, and improvement of, the little-used FTA.

At the time of our follow-up, it was too early to conclude whether the CFNFA approach will be effective. We can only hope that the pattern of experiences with previous funding arrangements does not repeat itself.

The Tailoring of Funding Arrangements

We believe that issues of First Nations' desire and ability must be appropriately addressed as a prerequisite to the successful implementation of any funding arrangement. The need to tailor funding arrangements to the circumstances of individual First Nations was, and continues to be, well recognized by the parties. For example, since 1986, AFA entry assessments for First Nations were required to help determine their eligibility to enter into this arrangement. In 1996, the Department requested that all First Nations prepare a self-assessment of their systems of management and accountability, and identify and act on areas needing improvement. The needed improvements would be included in a development plan as part of the funding arrangement.

However, our 1996 audit disclosed that many of the assessments for First Nations that had entered into AFAs were missing. And, the 1999 follow-up revealed that more than one in three of the required self-assessments had not been completed. We believe, Madam Chair, that despite the difficulties and sensitivities, it would be possible to do better in this important initiative.

Without the use of appropriate assessments, many funding arrangements will be either too restrictive or too flexible relative to the needs of the parties. This would not bode well for the cost-effective delivery of programs and the evolving relationship between First Nations and the federal government.

We further believe that the Department and First Nations will need to re-examine their experience with self-assessments at appropriate intervals to determine their ongoing effectiveness and compatibility with their mutual needs.

Redress/Accountability

With respect to redress and accountability, we observed in 1996 that the Department had published certain principles of accountability, including redress. These principles are included in the terms and conditions of the newer funding arrangements. Effective redress includes providing an opportunity for First Nations and their members to obtain an objective review and resolution of allegations. Strong redress mechanisms, in our view, will enhance accountability of all parties to a funding arrangement.

During the follow-up, the Department reported that it had received over 300 allegations relating to 108 First Nations during the prior two-year period. The allegations covered such matters as social assistance issues, mismanagement of funds and other concerns.

For every allegation the Department must determine the extent of its responsibility for its resolution and how this can be achieved.

Although the Department has an important role in the disposition of allegations, we found that it provided little guidance on how to evaluate them. Consequently, there is a risk that allegations will not be dealt with appropriately, thus adversely affecting equity as well as accountability.

In addition, there was no national reporting system to help manage allegations. The allegation data base was incomplete and unable to provide an accurate overall picture of the full extent of the problems, their causes and their resolution. This, in turn, makes it more difficult to establish and implement effective prevention measures.

In summary, Madam Chair, effective remedial action will require that the Department and First Nations resolve issues relating to the effective matching of funding arrangements, including the Financial Transfer Arrangement to the desires and abilities of First Nations and needs of the Department. And, the approach used in addressing allegations and redress should be revisited. If these issues are not dealt with appropriately and expeditiously, they will become even more difficult to resolve in the future.

The Committee may wish to explore the Department's intentions to take remedial action including the disposition of allegations.

Thank you, Madam Chair. We will be pleased to respond to the Committee's questions.