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

Bill C-7, an Act Respecting Leadership Selection, Administration and Accountability of Indian Bands, and to make related amendments to other Acts

Mr. Chairman, thank you for inviting us to discuss the work of our Office that may be relevant to the review of Bill C-7. With me today are Maria Barrados, Assistant Auditor General, and Jerome Berthelette, Principal, who are responsible for our work on Aboriginal issues.

As you may know, Aboriginal issues are one of five strategic priorities that guide the work of my Office. They are among the most significant and complex challenges facing Canada today. While our work is concentrated on the government programs that influence the social, economic, and environmental challenges of Aboriginal communities, our methodology incorporates the perspectives of the First Nations.

We value the opportunity to appear before this Committee to share our own perspective, based on the audits and studies we have carried out in recent years. We are also providing hand-outs that summarize this information. We understand that the Committee is interested in our views on financial management and accountability.

Mr. Chairman, a long-standing concern of my Office has been better financial management in government. We have developed an approach, or model, that describes the key elements needed for effective financial management.¹ Although our model was designed for federal departments and agencies, we believe its elements are relevant to your deliberations on the financial management provisions of Bill C-7.
____________________
¹ Office of the Auditor General of Canada, Financial Management Capability Model (Publication - April 1999); Report of the Auditor General of Canada to the House of Commons, October 2000, Chapter 13, Assessment of Financial Management Capabilities in Departments.

Financial management is an important part of delivering programs and services and exercising stewardship over the resources provided to fund them.

We recognize that not every organization needs the same capabilities for financial management. However, some basic elements apply to a wide range of organizations, including First Nations. These include

• establishing and communicating a clear vision of the organization's strategic direction,
• establishing a framework to manage and control any risks to the achievement of the organization's objectives,
• managing and protecting the integrity of financial information,
• presenting that information for accountability purposes, and
• managing and directing resources economically and efficiently to achieve objectives.

Ultimately, we believe, the key to effective financial management in an organization is a supportive climate or culture that is reinforced by appropriate rewards, recognition, and sanctions. A supportive climate includes sustained leadership, shared values, and a shared commitment and purpose.

Achieving the financial management objectives of the proposed legislation may take some time. Many First Nations may need to develop stronger financial management capabilities to respond fully to the intent of the legislation.

The majority of First Nations communities (61 percent) have fewer than 500 residents. Many communities (21 percent) are located in isolated and remote areas. In addition, each community has its own culture, traditions, and level of economic development. The financial management capabilities they need vary. Any general framework for all would have to be flexible enough to accommodate these differences while maintaining the basic elements.

In 1996 my Office studied First Nations' perspectives on their accountability relationship with the federal government.² A strong theme that emerged in that study was the need to align the administrative capacity of First Nations with their responsibilities for program delivery so that band councils could be more accountable to their band members. The First Nations also viewed their accountability to the federal government as a two-way relationship, with federal organizations also accountable to them.
____________________
² Report of the Auditor General of Canada to the House of Commons, September 1996, Chapter 13, Study of Accountability Practices from the Perspective of First Nations.

First Nations lack some of the capacities and powers of governance that are available to other governments in Canada; they also lack the same requirements for transparency. Our audit work in Indian and Northern Affairs Canada found a need to improve the mechanisms for complaint and redress as an element of accountability.³ At the same time, the view of First nations that their accountability relationship with the federal government is a reciprocal relationship is an issue that the Department needs to address.
____________________
³ Report of the Auditor General of Canada to the House of Commons, April 1999, Chapter 10, Indian and Northern Affairs Canada, Funding Arrangements for First Nations: Follow-up.

A recent study by my Office found that federal organizations have placed on First Nations a heavy burden of reporting.⁴ In the large volume of reports that the federal government requires annually—at least 168 from each First Nation, there is a good deal of overlap and duplication. Most of these reports are not used effectively by the federal organizations that require them. We concluded that the resources consumed by the reporting system could be put to better use.
____________________
⁴ Report of the Auditor General of Canada to the House of Commons, December 2002, Chapter 1, Streamlining First Nations Reporting to Federal Organizations.

Bill C-7 increases the requirements for band councils to report to their members, but it does not change the reporting requirements that exist in funding agreements between First Nations and federal organizations. Many of the provisions of funding agreements, including requirements for transparency and for audits of financial statements, have been incorporated in this Bill and will have the force of law.

Mr. Chairman, the present reporting system is not sustainable. We recommended that the federal government review the reports it requires from First Nations and drop those that are unnecessary, streamline the body of programs that at present are narrowly defined, and allocate program responsibilities better among federal organizations. The government agreed that such a review is needed in conjunction with its current review of program authorities that is to be completed by 2005.

Several federal organizations provide support to Aboriginal peoples. Four of those organizations provided 95 percent of the federal funding to First Nations in 2001-02: Indian and Northern Affairs Canada (67 percent), Health Canada (19 percent), Human Resources Development Canada (5 percent), and Canada Mortgage and Housing Corporation (4 percent).

The roles and responsibilities of the ministers, their departments, Crown corporations, and other federal entities in helping First Nations achieve good financial management and accountability need to be clear.

Finally, the two-year time frame the Bill provides for implementing financial management and accountability codes may be difficult to achieve for smaller First Nations that lack administrative capacity.

In conclusion, Mr. Chairman, while it is not our role to comment on the government's legislative proposals, in areas where our work has enabled us to develop expertise, we are pleased to share what we have learned. We plan to carry out further audits and studies as part of the priority I have placed on Aboriginal issues, and we would be happy to hear any suggestions that your Committee may have.