AAND Committee Meeting

STANDING COMMITTEE ON ABORIGINAL AFFAIRS AND NORTHERN DEVELOPMENT

COMITÉ PERMANENT DES AFFAIRES AUTOCHTONES ET DU DÉVELOPPEMENT DU GRAND NORD

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, June 7, 2000

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[English]

The Chair (Mrs. Sue Barnes (London West, Lib.)): Order. Hello, everyone.

Pursuant to Standing Order 108(2), we are here for consideration of chapter 10 of the April 1999 report of the Auditor General of Canada.

We have with us today two witnesses from the Office of the Auditor General: Sheila Fraser, Deputy Auditor General, audit operations; and Grant Wilson, principal, audit operations.

Welcome, both of you. People will be joining us as they get away from their other committee activities. Please go ahead, and then we'll commence our first round of questions when you have finished.

Thank you.

Ms. Sheila Fraser (Deputy Auditor General, Audit Operations, Office of the Auditor General of Canada): Thank you, Madam Chair.

We thank you for the invitation to discuss with the committee chapter 10, our 1999 follow-up report 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 June 8, 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. We also raised questions about accountability. The department responded to the second report of the committee on this subject on April 12 of this year.

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 focused on key areas, such as the implementation of the new FTA, the applications 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 underway, we remained both puzzled and concerned about the length of time it was taking to resolve issues that had 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.

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The following examples will elaborate on and perhaps clarify further our concerns.

[Translation]

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 widespread application of this funding arrangement. Less than 20 per cent 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 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 patten of experiences with previous funding arrangements does not repeat itself.

[English]

We believe 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. The 1999 follow-up revealed that more than one in three of the required self-assessments had not been completed. Despite the difficulties and sensitivities, we believe 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.

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We further believe 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.

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 accountabilities of all parties in 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 allegations database was incomplete and unable to provide an accurate overall picture of the full extent of the problems, their causes, and their resolutions. 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 the needs of the department. As well, 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 now be pleased to respond to the committee's questions.

The Chair: Thank you.

We will commence, as always, with our opposition—our opposition parties, not our personal opposition here.

Mr. Derrek Konrad.

Mr. Derrek Konrad (Prince Albert, Canadian Alliance): Thank you.

Thank you for your presentation.

Well, I hardly know where to begin. I guess I would just like to say that occasionally when I read a sentence certain phrases stand out. Your paragraph 19 talks about this not boding well—bridging over the middle part of the sentence—for the evolving relationship. I wonder what implication that has if we simply read that part, never mind “for the cost-effective delivery of programs”, because that's the obvious part. I want to know what you mean by saying “This would not bode well for the...evolving relationship between first nations and the federal government”. What do you mean by that phrase?

Ms. Sheila Fraser: We view these funding arrangements as key documents that outline the relationship between the department and first nations and the various roles and responsibilities that will be assumed by each party. Should these documents be out of date or incomplete, there could be gaps in the relationship that are not addressed properly and misunderstandings between the two parties as to their respective responsibilities.

Mr. Derrek Konrad: I understand that to be in an administrative sense, but relationships are more than administration. They involve attitudes and a willingness to deal with further devolution, whether it's a calling in of certain delegated responsibilities or that type of thing.

Is that what you're thinking is a possible consequence of this failure to fill in the proper forms and get them back and registered?

Ms. Sheila Fraser: We see these documents or these agreements as much more than simply administrative agreements, where they do set out roles and responsibilities of the various parties and have accountability measures built into them. So they cover a much broader spectrum than simply the administration of funds.

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Maybe Mr. Wilson would like to add something.

Mr. Grant Wilson (Principal, Audit Operations, Office of the Auditor General of Canada): Yes, Madam Chairman, the FTA, as we indicate, has a number of reasonable intentions, one of which is to strengthen accountability, and others are to enable first nations to better meet their needs, to establish a stable funding base, and to achieve better value for money.

What we had noticed in 1996 was that there were significant indicators of financial difficulties and discord within first nations, certainly with respect to allegations, but also with respect to the number of first nations that were in financial difficulty or that had financial statements that were qualified or denied. What this means is that it was important for the department and first nations to make sure they have the right financial arrangements, the right relationship, which clearly reflects the capacity and the willingness of each first nation to enter into that relationship. Where it would not provide that, we would see some difficulty in the long term.

Mr. Derrek Konrad: So what would be the result if these people failed to complete their required self-assessment? What should be the proper response of the department—that there will be no block funding? Or what would be the consequence if everything were done by the book?

Mr. Grant Wilson: There are really two issues here, Madam Chair. If the first nation does not complete the self-assessment, there are a number of actions the department could take. Blocking funding is only potentially an interim measure.

Mr. Derrek Konrad: Just to clarify what I mean, I don't mean to block funding and to stop people from obtaining the necessities of life, but the method by which the funding is made available I guess is what I meant. So just bear that in mind as you continue.

Mr. Grant Wilson: Yes, I understand.

As you would appreciate, the FTA is a five-year arrangement. The department and first nations could enter into one-year arrangements in that case. The second issue would be if the arrangements do not reflect very well the capacity of first nations, the first nations could have expectations of the department and of themselves to achieve certain things that they don't have the ability to do, which puts them in a difficult spot. They may end up with deficits and so on, which ultimately can result in remedial management plans, co-management, and even stronger matters, where the affairs of the first nation would be taken over by a third party, which is not really in the interest of either the department or the first nation.

So the best of all worlds is to make sure that whatever funding arrangement you have reflects the capacity of the first nation, enables the first nation to achieve what they're trying to achieve, and satisfies the department that the risks in having first nations administer their programs will be well managed.

Mr. Derrek Konrad: Thank you.

Have I any time left?

The Chair: No. Actually you've gone over about a minute, but that's okay.

[Translation]

Mr. Bachand.

Mr. Claude Bachand (Saint-Jean, BQ): I have a problem, and I don't think I'm the only one who does. For the past two weeks at least, I've been wondering about the direction in which the Aboriginal Affairs Committee is heading. I mustn't be the only one wondering about this because only opposition members seem to be interested in what the committee is doing.

We started out with a letter from the minister, one that I did not entirely agree with, and one that set out a direction for the committee as dictated by the minister. Since then, we've been hearing from one witness after another. I'd like us to continue and to hear from representatives of First Nations. Undoubtedly they were the ones who had to cancel last time, owing to their very hectic schedule. However, I'm just a little discouraged. I have other things to do but to sit hear and listen to people discuss financing methods, the Auditor General's report and the department's position. It all began with departmental officials presenting their position. We, on the other hand, aren't sure where the committee is going. At least I don't have any clear idea. Do you? Are we doing a study or what? Who is scheduled to appear next week? And when the session wraps up, what happens then? We'll have spent three weeks listening to people, and for what?

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I'd like us to reconsider this matter, perhaps within the context of the steering committee. I'm losing interest and I'm close to recommending to my party that members not attend the meetings. I have other things to do with my time. Perhaps I'm being too inflexible, but...

[English]

The Chair: Mr. Bachand, I mean, we have witnesses here. You were here and voted to invite these witnesses, I'll remind you. We also got instructions from this committee to invite other witnesses, which included the first nations, which is what you wanted. I can tell you—or in fact I'll turn it over to the clerk to tell you—all the efforts that have been made over the last month to contact, since we made that decision. It's not been without our efforts. I can tell you that.

So maybe, Mr. Clerk, you can just inform the committee of who we've contacted for our witnesses, because the first nations, the Métis, and the Inuit have all been contacted many times. So let's get that report.

[Translation]

The Clerk of the Committee: Over the past month, Mr. Bachand, I've written to the Assembly of First Nations, to the Inuit Tapirisat of Canada and to the Métis National Council on several occasions. At least two of these organizations, including the Assembly of First Nations, declined the committee's invitation. I understand that the Assembly of First Nations is slated to hold elections in July and apparently, its representatives are having some scheduling problems. However, invitations were duly extended to these three organizations.

Mr. Claude Bachand: They accepted the invitation last time. According to the notice of meeting, they were scheduled to appear. Did they cancel?

The Clerk: Initially, they had agreed to appear, but we were awaiting official confirmation. When I tried to get confirmation, they simply declined.

[English]

The Chair: As your chair, when they accepted, so that you had appropriate notice and not last-minute notice, I instructed the clerk to schedule the meeting and get the translation and get it all set up. Then the cancellation from the AFN came, I believe, the morning of.

The Clerk: Yes.

The Chair: It was the morning of our meeting, so I had to cancel it. That was last week's meeting. I cannot drag before us witnesses we have invited, but the ones who are scheduled.... I believe next week we still have a confirmation from the Inuit.

The Clerk: No.

The Chair: No, they've changed?

The Clerk: Yes.

The Chair: Oh. Well, I thought we had one for next week.

When we got our quorum here, that's what my instructions were from this committee. I have done my work. I've instructed the clerks according to the wishes of this committee, and this is, as I understand now, the last one.

I recognize that there are other committees in draft reports right now. Most of the government members, as you well know, sit on two or three committees, and there are at least two people coming here from other committees as soon as they get off. Those committees are on their draft reports. As you very well know, it's the end of the year.

If this committee wishes to adjourn right now, I'm open to that, if that's what you wish to do. But I want to remind you these are witnesses we also invited, and you were part of that decision-making process. We have our quorum here to hear our witnesses, and I believe we should continue. But if you do not wish to be part of that, that's your alternative on how you act.

I'm sorry for this interruption, but I think we should deal with this.

Mr. Konrad.

Mr. Derrek Konrad: I have a short question. Does this committee not have the power to compel, to subpoena witnesses?

The Chair: I see in the papers that the Senate has gone that route. At this point we have not chosen that as the will of the committee. We were doing studies, and we have not chosen that. Even though it was put to the steering committee and the steering committee made a recommendation to the whole committee of where we should be going, the whole committee did not endorse that. All they endorsed us to do, because it was approaching the end of the year, was to have a number of witnesses before that could help in our briefings.

So I have not pursued it, and I have no intention at this stage, as chair, to subpoena. Quite frankly, I would hate to subpoena somebody and have the attendance we have today.

Thank you.

Mr. Derrek Konrad: That would be up to will of the committee, would it not?

The Chair: That's my opinion as chair to you. And quite frankly, to make that opinion, you'd have to bring nine people into this room, just as I had to get nine people into this room to choose the witnesses we're now hearing.

Thank you.

We're over your time, but Mr. Bachand—

[Translation]

Mr. Claude Bachand: I have no further questions.

[English]

The Chair: Okay.

Mr. Finlay, please.

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Mr. John Finlay (Oxford, Lib.): Thank you, Madam Chair.

I sympathize with Mr. Bachand. I have another engagement too. But I enjoyed the witnesses at our last meeting, Madam Chair, and I enjoyed the witnesses at this meeting too.

The whole area of accountability, etc., is all tied up with something we learned about yesterday, and I would simply ask our witnesses if they might comment on that. It seems to me that until we have some of the governance problems solved and until the first nations, as groups, see themselves as responsible and self-governing, we're going to continue to have problems with how the funding is done.

I note that in 1986 we had—what is it?—the FTA or something, and then in 1996 we had the AFA. The department, I can just imagine, keeps modifying things to hopefully provide more accountability and at the same time allow first nations to be more responsible for their own affairs. It takes a long time to do that. The Government of Canada is not perfect at it yet, and we've been at it for a long time, based on 1,400 years of history.

So I really don't think we need to get all tied up in knots about what is going to happen next month or next year, or even in the next five years. It will happen as people are responsible and feel responsible and accept the kinds of responsibilities of governance we'd like to see them have. But we're not going to be able to force-feed them like geese and expect it to happen. It isn't going to happen that way.

Everything you can do to help Indian Affairs in this is fine. One of the things we have to remember is it's going to take a lot of massaging and so on. If I learned anything from the last meeting, Madam Chair, it was exactly that. The reasons we don't have the accountability we want and the reasons we don't have the economic development we want have very little to do with those things per se. They have to do with how the first nations, the Inuit, and the native peoples feel about themselves.

When we get report after report after report on, say, the co-management agreement in northern Quebec and the Great Whale, and we have native members of that commission come and sit before us and say they have these meetings and discuss these things and nothing happens, they get tired. And I don't blame them.

The department has tried many funding arrangements. Obviously some have worked at certain stages with certain first nations. I have no way of knowing which particular detail is missing, but I do know that until the relationship is established in a way that gives more authority and responsibility to the first nations, it ain't gonna work.

I'd like your comment on that. I may be off base. I don't think so.

The Chair: Ms. Fraser.

Ms. Sheila Fraser: Thank you, Madam Chair.

I would agree that the issue is governance. I would also agree that the particular document that is used is irrelevant. However, these documents are critical, because they do set out the relationship between the department and first nations. We have to recognize that governance is an evolution and that different first nations are at different stages of that evolution, and that obviously one type of agreement is not going to work for all first nations.

I would express, though, our frustration with the fact that this issue has been around for over fourteen years, and progress does seem very slow. We are particularly concerned too with the issue of self-assessments. How can you tailor an agreement to the particular capacity and preparedness of a first nation if you have no means of assessing their preparedness?

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I guess I would agree with many of the comments of the member, but I would still express our frustration that it is taking a very long time and that we believe there are things that can be done to advance this agenda.

Mr. John Finlay: Thank you, Madam Chair.

The Chair: Mr. Konrad and Mr. Iftody.

Mr. Derrek Konrad: Do you have anything, Madam Chair?

The Chair: Actually, no. I'm going to save until the end, thank you.

Mr. Derrek Konrad: All right.

My first question is a short question: Who bears the cost for third-party management—that is, the added costs, as opposed to having the band manage its own money?

Mr. Grant Wilson: This would be both parties. Under the funding arrangement, where a first nation required third-party management the first nation would pay certain costs and incremental costs would be borne by the department, if there were any.

Mr. Derrek Konrad: Okay. When it comes to accountable government around this place, Parliament sets the rate of taxation and pays the price at the polls if it's too high, or pays the price at the polls if the amount collected is right but the delivery is wrong.

When it comes to first nations, it seems to me there is no similar mechanism for accountability individually. Yes, there's accountability for the delivery of programs, but accountability for the actual paying of money to a government that sets its own wages, that develops the programs and all the rest—actually takes the money out of the pockets of the people being governed—is missing. So there's only half the equation there. Given that this is missing, what actual accountability mechanisms can be put in place to replace that missing element in accountability and responsible government?

Mr. Grant Wilson: There are a number of aspects of accountability that exist within the arrangements today. They include, for instance, minimum standards that must be met on particular programs like education, social assistance, and so on—capital, that kind of thing. That is to say, money is provided to first nations under the condition that first nations carry out the program meeting minimum standards. That is the first.

The second is the issue of redress, which we cover off in the chapter—

Mr. Derrek Konrad: Before we go further, can I get you to clarify that a little bit? When these minimum standards are not met, what is the carrot or stick to ensure that the minimum standards are met?

Mr. Grant Wilson: Madam Chair, there would be a number of carrots and sticks, I guess you'd call them, that could be used.

Mr. Derrek Konrad: That are used.

Mr. Grant Wilson: That are used also, but not necessarily in all circumstances. I can't speak for each first nation, of course, but the types of mechanisms used are recovery of funds from moneys that would otherwise go to a program. There's a recovery from the first nation to the department. In other cases there would be instructions to fix a problem. In other cases there have been directives. There are instances of co-management: where a first nation is unable to manage its own affairs, there is a mechanism for a third party to take over.

These are all mechanisms to address the non-fulfilment of obligations. But if you look at the broader picture, the real issue then becomes that if first nations aren't fulfilling the expectations, you have to look at the capacity overall and adjust the terms and conditions of those funding arrangements.

Mr. Derrek Konrad: Do the individual band members feel any of the pain, or is it simply an imposed solution so that the band members know that they are not being well served, if they're not, or are well served if they are? Do they feel any pain or any gain?

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Mr. Grant Wilson: Madam Chair, whether or not they incur pain, I'm not sure, but there are a number of mechanisms for individual band members to hold the membership accountable. Sometimes they are unable to hold membership accountable, and that's where we comment in the chapter that the redress mechanisms by the department are inadequate to ensure that there is proper resolution of allegations. These could be issues relating to poor management or other aspects of that nature.

Certainly we receive and the department receives letters from individual members complaining that in their view things are not going the way they should be going, according to the management of the band.

Mr. Derrek Konrad: Thanks.

The Chair: Mr. Iftody, please.

Mr. David Iftody (Provencher, Lib.): Thank you very much, Madam Chair.

Welcome to our two distinguished guests again.

The last time I bumped into Mr. Wilson, after his presentation here, he was trying to escape Ottawa with his wife down south. His testimony here was so strenuous, overwhelming, and stressful that he sought a quick leave of absence. I wished them well on their trip. I trust you had a good trip. You're back safely and we're back at it again.

Welcome here, both of you.

The whole notion of accountability is a really interesting one. Mr. Konrad, I think, has tried to say this and has said it in a number of ways. It strikes at the very heart of democracy and the Constitution and division of powers and responsibilities and is one that has evolved from those first meetings of the founding fathers of this country to divide up who will do what and how we're accountable, basically, to the Canadian people. So it's an interesting, almost philosophical, notion and one of public policy and political science and constitutional law. And in its final analysis, and perhaps the one you're primarily focused on, it is one of strict accounting practice. But I would ask you to kind of step back for a moment. I was trying to get at this the last time you were here.

We have in this country, if you accept the premise of a constitution, responsibility to first nations people enshrined in section 35. In the same way, within the Constitution we have something called equalization payments and transfers. Some of those transfers are constitutionalized transfers to the provinces. We also engage in a newer activity, in the last ten or twenty years, in terms of transfers, not to provinces but to territories: Nunavut, Northwest, and Yukon. We have another hybrid model even outside of that. So you have, even within our constitutional framework, different kinds of models of transfer of money that of course you're very concerned about.

I guess I'd like some comparison. First of all, do you accept, through the Office of the Auditor General of Canada, that we have a live and living constitutional responsibility to in some measure transfer funds to first nations reserves as part of that ongoing treaty relationship, as it were, enshrined in section 35, in much the same way that we have a constitutional responsibility to transfer funds to the provinces and to the territories?

Those three groups operate under the same rubric of our constitutional responsibility, but I wanted to seek a clarification from the department. Does the Auditor General accept that constitutional responsibility from the federal crown, expressed through the Department of Indian Affairs, to those reserves, an active responsibility to fund those responsibilities?

Ms. Sheila Fraser: Yes, we would recognize that there is a constitutional responsibility. We are certainly not legal experts, so we may be venturing into territory that is somewhat foreign to us. We would say there is a distinction, though, between first nations, territories, and provinces, and one would question whether the responsibility of the department is to provide funds or to provide services.

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In the case of funding of certain provincial activities, it is clearly the responsibility of the province to provide certain services, and the federal government provides funds for that. In many of those cases they're simply moneys that are granted to territories, whereas to the first nations the responsibility—and Grant may want to add something—is to provide services such as education.

Now, with the evolution of the relationship between the department and first nations, part of that responsibility, if you wish, has been delegated to the first nations and the funding given to them. But the department still maintains a responsibility, as we discussed in the last hearing, for education, to ensure there is adequate, proper education given to Indian children. I think there's a distinction that has to be made between first nations and provinces, for instance.

Mr. David Iftody: Just before you go on, Grant, under the myriad of responsibilities and shared residual powers between the provinces—to use an example—and the federal government, in many instances we have no business being involved in section 92 powers of the province. Health care is one. We transfer considerable amounts of money. You have, as it were, in a very odd way, the river flowing two ways. In other words, the provinces are spending money in our areas and we are spending money in their areas.

How would you make a distinction between the Government of Canada having no constitutional responsibility in health at all, yet under tax points and cash transfers it's $31.5 billion per year into an area that you could argue we have no business being in?

Under section 35 of the Constitution, we're spending some $3.5 billion or $4 billion through the Department of Indian Affairs, but we have an express legal constitutional responsbility. Again, I would argue that, given that responsibility and the behaviour of other federal departments—and provincial ones as well—it's not too far a stretch to argue that if we do an unfettered cash transfer on equalization and we don't know where all the money goes, it's not that far removed from an example where we recognize self-government under the Constitution in section 35 and we would provide cash as well as services, or a combination of the two.

Mr. Grant Wilson: Perhaps, Madam Chair, I could elaborate a bit on that.

The point was raised about self-government. I think we look at the relationship between the federal government and first nations on a kind of continuum. If you consider that there are a number of first nations who have self-government arrangements, perhaps because of a comprehensive land claim settlement and then with a self-government agreement on top such as Nisga'a, which clearly defines jurisdiction, there's no question that the responsibility of Canada with respect to certain actions the first nations carry out is to be a funding agent, and that's it.

It's similar, for instance, to the difference in the relationship between the territories and the federal government over years, where ten years ago the relationship was one of a contribution arrangement provided to the territories, and as political evolution continues that relationship has changed from the Department of Indian Affairs providing moneys for certain purposes to the Department of Finance providing moneys to the Yukon, NWT, and Nunavut for the same purpose but with fewer strings attached.

Now, as we see the first nations today, most of the 608 first nations are not yet at a point where they have signed agreements that are self-government agreements. These are contribution arrangements that have terms and conditions attached, that Parliament approves, that have expectations that certain results will be achieved and that moneys will be used for certain purposes. That's why our concern is that there will be a different treatment of accountability in that case from what there would be for transfers of money to provinces.

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The other aspect you raised with respect to provinces is that the provinces will sometimes be involved in federal matters and the federal government will be involved in provincial matters. The Constitution is clear who has jurisdiction, but it doesn't prevent either party from doing what they can get away with, in a sense. If the federal government is involved in education or health, it's because it's to the advantage of the provinces, and vice versa. Those are arrangements more than constitutional issues.

Mr. David Iftody: May I continue, Madam Chair, or am I out of time?

The Chair: Actually, you're out of time. I'm sure there will be another round.

Mr. Konrad and then Mr. O'Reilly.

Mr. Derrek Konrad: Thank you. In number 22 on your report to us, you note that during the follow-up, and and I presume that's the 1999 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.

I have a copy of an invoice here dated April 21, 1997, for just under $300,000. When I look at the accounts payable for the particular band, I see an account payable for $1,000, roughly, for the year ended March 31, 1998. I see in the auditor's report:

The Chief and Council have decided that no additional disclosure will be made in the area of providing budgeted numbers. In this report, the financial statements are not, in our opinion, in accordance with generally accepted accounting principles.

In that same year, INAC transferred $11,567,493 to the Berens River First Nation.

According to the June 4, 1998 audit, DIAND provided $12,865,583. There is the same type of statement in the auditor's report:

The First Nation's management has decided that parts of the year end reporting handbook dated February 1997

—that goes back to the previous two years of your follow-up—

will not be followed this year. Specifically, no additional disclosure will be made in the area of providing budgeted numbers or disclosing detailed salaries, honoria and travel expenses. In these respects, the financial statements are not, in our opinion, in accordance with the February 1997 year end reporting handbook.

Also, that bill did not show up in there. I can keep going back and keep coming up with similar reports, and yet INAC keeps providing funding. For the report dated June 24, 1997, another $7,479,514 was provided, and in their auditor's report it says “In these respects, the financial statements are not, in our opinion, in accordance with the February 1997 year end reporting handbook”.

What do you say to that? It looks as though we're getting nowhere fast. Three years of that kind of statement from the auditors, and money keeps being transferred. I don't know if there were any differences in the way it was handled, but that's quite a record.

Mr. Grant Wilson: That's really exactly the point we're making in the chapter, that we had indicated there were 20% of the first nations who had financial statements that were qualified or denied. This is a substantial number, and our view would be that it's an indication of apparent problems. If the department required, received, assessed, and made plans based on self-assessments, they might very well be better prepared to address those kinds of issues. We'd rather see them do it beforehand than after the fact, because what can you do after the fact but go into some other financial arrangement such as a remedial management plan or a third-party management issue, which I've indicated is not in the best interests of either party.

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Mr. Derrek Konrad: In three years it's a lot of money, over $30 million, and the department doesn't appear to have handle on it. I think it behooves the government to take your reports very seriously and begin to act on these FTAs and other arrangements. It appears to me as well that the government changes its mind about how it's going to handle the things midstream. Before anybody's even figured out the first kind, they're on to another arrangement, which I think creates further confusion. Would you agree with that?

Ms. Sheila Fraser: Yes, we would agree that the introduction of these new documents or agreements is tending to delay the implementation of documented funding arrangements. In fact in one the introduction had actually been slowed down in order to try to address some of the issues. But as I said earlier, I don't think the particular document itself is important. It is important that the arrangement and the relationship be properly documented, be it in any kind of a document.

Mr. Derrek Konrad: Thank you.

The Chair: Mr. O'Reilly, please.

Mr. John O'Reilly (Haliburton—Victoria—Brock, Lib.): I wanted to give my time to David, because he had a follow-up of a question that I was going to ask.

Mr. David Iftody: Yes, thank you very much, John.

I wanted to pursue this a bit more. I don't know if you're responsible for it, but say the funding arrangements that the Government of Canada has with Nunavut.... The majority of the people there are Inuit, first nations people. They are not categorized as a province under section 92. We call them a territory, but we have a financial funding agreement with them. And basically we're not providing the services any more.

Essentially, the modus operandi or raison d'être of that entire process is to allow those people to deliver their own services, under the belief that they can be more effectively delivered at a local level than from Ottawa, which is again the argument we use for the first nations people and I think they use quite effectively. I raised the very painful experience of many first nations people on the whole schooling question and said “We left it to you before, and now it's costing the taxpayer. Churches are going bankrupt and so on and so forth. We tried other ways, and it didn't work.”

What about this relationship between the Government of Canada and Nunavut in the transfers of moneys? Are you aware of the nature of those fiscal relationships, how that's carved out as distinct from first nations? Because you made the comment that in your view they were different from the transfer of money to the provinces, but you didn't comment more precisely about how that's different from the Nunavut group. How would you describe the difference between the Nunavut group and say a first nation tribal council not too far away, say in central British Columbia? How would you make that distinction?

Mr. Grant Wilson: There may in fact not be much of a difference, depending on the tribal council. There are many tribal councils and many first nations who are well managed, have good governance, have all the essential ingredients of democratic societies that we're accustomed to in governments.

The Government of Nunavut is a government. And you're right, it's not a section 92 province; it's a vehicle of the federal government. It also has a legislative assembly. It has an auditor general; we are the auditor of the territorial government. It truly is accountable to the Minister of Indian Affairs and Northern Development, to the Parliament of Canada, through various detailed elements of an accountability framework under the Nunavut Act, which I believe Parliament believes to be a sound framework.

If you take a look at the framework for first nations, the framework is really not as clear, in that you have the Indian Act, which sets out certain responsibilities, and you have the treaty obligations, which, you are correct, set out requirements of the federal government to perform certain things, or to provide funds or to ensure that certain aspects of Indian needs are met. You also have policy under the Appropriation Act for the Department of Indian Affairs, which is approved by Parliament as to how much money, for what purpose, and so on. So there are different mechanisms, there's no question about that. But whether or not the first nations have governance that is as good as some other, I have no doubt that this exists.

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Mr. David Iftody: This is a really important point of departure from the fundamental analysis of this whole thing, because if you accept, as you've said, the premise of Nunavut when they have no constitutional power—it's the creation of an act of Parliament—versus an enshrined constitutional right of first nations, we're both transferring money to similar kinds of groups. One, you're saying the only distinction is the financial detailed arrangements in that act, the Nunavut Act, which, compared with some other tribal councils, is much stronger and more secure.

Let's move then from the point of saying that the transfer is legitimate, is a constitutional transfer, to the next step beyond that, Mr. Wilson, and say that what we really need to be talking about is not whether we have a right or need to do this—we do—but we need arrangements that make it much more acute in terms of that accountability and responsibility for spending that money within a constitutionally judicially recognized self-government arrangement, however you might want to define that.

Once we go to that second envelope and place of thinking, then we can start looking more concretely at ways and means in which we do that. Ms. Fraser mentioned the word “capacity”. There are certain capacities between some southern reserves that are much more advanced than those in the north, for educational and other historic reasons.

Is that—and I want to start off from there as another direction—something we should really be thinking about? If we really, truly want to present to the Canadian people five or ten years from now a clean slate, where we've cleaned up this problem, maybe what we need to do is start looking at those kinds of things from a departmental level to give you the assurances that there are standard practices of accounting and accountability in management that are largely understood within the associations in Canada that are going on at the reserve level, and what we need to be doing is educating people and building that capacity to ensure those safeguards are there.

I say this in conclusion, because you can't go back in the other direction, to undo those constitutional responsibilities that we have to the first nations people. We can't go there, which is where the other party wants to go. I'm saying that if we really want to work at a solution to the problem, we have to start from that point of departure.

Do you agree with that? You're nodding yes.

Ms. Sheila Fraser: Yes, I agree with you. I agree that the issue is capacity or preparedness, however we want to call it. That is why in this chapter we talk about the importance of a self-assessment. Because the government does have a mechanism in place to evaluate that. It's just that it's not rigorous enough in the follow-up and in the development plans, because once you've identified that there is a weakness you have to take measures to increase that capacity.

We're saying that the department has to be more rigorous in evaluating these self-assessments, and then what is the development plan to assist that first nation to take on all of those issues?

I would like to add that it is more than simply financial capacity. It's not just keeping books; it's also running schools and doing social assistance. There are very many varied talents that are needed in order to build capacity.

Mr. Grant Wilson: Madam Chair, I wanted to add that we don't question at all the devolution, that being a mechanism that has been used over the years to transfer both funds and responsibility to first nations to deliver programs. That's not being questioned, but rather to ensure that when that is being done, it's being done on a basis that first nations can accept and perform in a manner that is satisfactory to both first nations and to the Government of Canada.

• 1635

The Chair: Thank you.

I've just been informed that Mr. Konrad wants one more round of questions.

Mr. O'Reilly, do you want to go after that?

Mr. John O'Reilly: Sure.

The Chair: And Mr. Iftody, no...?

Okay. We'll have Mr. Konrad and then Mr. O'Reilly. Please go ahead.

Mr. Derrek Konrad: Thank you, Madam Chair.

In paragraph 5 you state:

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.

Can you explain to me how block funding can really be transparent, where Parliament is able to get a handle on the spending, not overall, but program spending as well?

Mr. Grant Wilson: Madam Chair, the issue of transparency is taken both from the perspective of transparency within first nations, that is, that first nations members understand and are clear what leaders are doing, where moneys are going, and what is being performed, and also obviously with respect to transparency to the department and to Parliament.

I am aware that there is some concern that first nations financial statements are not available generally to the public at large. They are available to the department. It's because of that information being available to the department that the department can react and carry out certain of its functions and make certain decisions.

I'm also aware that the public accounts committee had questioned the availability of that information, that certainly the disposition, the source and application, I'll call it, of federal moneys—again, moneys appropriated by Parliament—the source and application of those moneys within first nations, and had asked why that wouldn't be made publicly available.

The department has committed to finding mechanisms, to finding a way that would be acceptable to the first nations and to parliamentarians for the access to that information, but it would not include the total financial statements of the first nations, which would also include such things as own-source revenues. It would not have that kind of information, but would show, for instance, for the federal Department of Indian Affairs or Health or HRDC or any of the other federal departments, where that money has actually gone and what has been achieved by that. That's what we were talking about in terms of transparency.

Mr. Derrek Konrad: When we're talking about own-source revenue now, would the overall amount be shown? Not that we parliamentarians would need to know every detail, but would the total amounts be shown so that the proper budgets can be made stating what the federal contribution should be? Or how is that to be determined without all the information?

Ms. Sheila Fraser: Madam Chair, the department receives the financial statements of the first nations, which include own-source revenue, but the own-source revenue cannot be made public. That is private information. So Parliament—

Mr. Derrek Konrad: The amount or the source?

Ms. Sheila Fraser: The amount, the source.... There can be no disclosure of own-source revenues.

Mr. Derrek Konrad: So parliamentarians have to take it as an article of faith when the appropriations are made that everything has been done above-board. Is this what is...?

Ms. Sheila Fraser: Well, the department does receive the information—

Mr. Derrek Konrad: But the department is the department. Parliament is not the department and the department is not Parliament.

Ms. Sheila Fraser: I would agree, but I would also, I guess.... For other funding arrangements or other grants and contributions, to private industry, for instance, Parliament would not necessarily get that information either.

The Chair: Mr. Wilson.

Mr. Grant Wilson: But there would be an accountability for the use of moneys appropriated by Parliament, that is, where certain moneys were provided to a first nation, they would indicate where that was in fact being spent and the nature of the results. I should make it clear that this is still under discussion with first nations and has yet to be resolved, but they certainly are taking into account the wishes of the public accounts committee.

• 1640

Mr. Derrek Konrad: I guess part of my concern is that we probably have first nations at all different levels of development. If you don't know what the income is from own-source revenue on a reserve, how do you adjust their payment relative to a reserve that's at the end of the road with no resources? That's part of it.

Mr. Grant Wilson: We did raise the issue in 1996 about allocation; that is, we felt that the department should receive information from all first nations which would include the source of moneys from own-source revenues as well as the expenditure of moneys of that nature—for the very purpose that the department could then make decisions on allocations. We still believe that to be a valid requirement, and the first nations are providing their financial statements.

However, as you've stated, three years ago 20% of the financial statements were qualified, and there is some question as to what constitutes an accounting entity. That also is being worked on with the AFN and the CGA—the Assembly of First Nations and the certified management accountants—in a working group as part of an AFN national program on a financial table, a fiscal table.

They're working on trying to arrive at the kind of information that I think people are wanting to see, certainly at the kind of information that the Department of Indian Affairs will be able to use to better manage their relationship with first nations.

Mr. Derrek Konrad: Thank you.

The Chair: Mr. O'Reilly, the last round of questioning.

Mr. John O'Reilly: Thank you very much, Madam Chair.

I want to thank the witnesses for coming in.

If you've covered this, just let me know. I'll try to be gentle with the Auditor General's department. I know that I have a reputation there sometimes.

I wanted to just deal with some of the mechanisms. You indicate in your paragraph 10.66 that you conducted a survey. You recorded the opinions of the sample. You say in paragraph 10.67 that 38 first nations responded and that 40 responded in 1996.

First of all, I'm questioning what parts of the country were surveyed. How many provinces and territories?

Also, what does this mean? You say:

No audit of the survey responses was performed and, since the opinions provided by the respondents do not necessarily reflect the opinions of those who did not respond

—I guess it wouldn't—

or who were not surveyed, no generalizations can be made.

If this was not used and if it was of no value, why was it carried out, Madam Chair?

Ms. Sheila Fraser: Madam Chair, because we cannot generalize does not mean that there is no value in the survey. We do indicate for the 38 first nations that did respond what their responses were, so it does give an indication. It's just that statistically we can't generalize to the whole population of 600 first nations based on the 38 that responded. Because of the sample being so small, we can't generalize and say that x percent of first nations think this is fine.

Mr. Grant Wilson: Statistically, Madam Chair, as to how we carried out the survey.... First of all, your first question was, where did this go to? It went to all regions within Canada. Where were the responses from? All regions in Canada. They were 38 out of 200-odd surveys, I believe, that were sent out.

Now the reason for us doing this was to seek some general view of what people were thinking there. It was important for us to reflect on that, to at least tell people that there is a view that in fact many people like the FTA and many people like the relationship. But one cannot, from that, based on 38 responses, therefore say that most people like it. What this is really saying—and I know this is “auditorese”—is that of the 38 who responded, the majority liked it. But you can't then say that therefore, of the 600, the majority like it. You cannot make that leap. It's not statistically accurate to do so.

Mr. John O'Reilly: If we did a poll like that, based on those percentages, politically we'd call an election based on the results, so I would disagree with you on that.

• 1645

Voices: Oh, oh!

Mr. John O'Reilly: My concern obviously is what use it is to you if you don't use it in your analysis. You've given me the auditor's.... Unless 100% of the people respond, you don't want to make an opinion because you could be wrong on that one and they'll come out and criticize you. As I said, we could call an election on a poll with that high a number and that high a percentage.

I just can't see the sense of having a survey and then not reporting on it and not using it as part of the statistical analysis. That was my question. If you covered that earlier, that's fine. Thank you very much.

The Chair: No, that wasn't covered.

Mr. O'Reilly, you still have more time if you want. If not, Mr. Iftody has indicated that he wants one small question.

Mr. John O'Reilly: I always concede to the opposition.

Mr. David Iftody: Yes, but you're much more—

The Chair: I thought you two were on the same side.

Mr. John O'Reilly: Well, not always.

Mr. David Iftody: Derrek and I would like to ask another question.

In keeping with our tremendous friendship and ongoing relationship, may I, on behalf of you, ask a final question?

I think this is a very important discussion and work. I was trying with some of my earlier questions to pin down and focus some thinking. From the department's point of view, and certainly from the minister's, no one is saying that we don't need to do a lot more work to focus on it. I think we have to have some basic understanding in terms of what our obligations are. I was trying to sort that out. What are the department's obligations as expressed through that? Certainly in terms of the accountability measures, we all agree that we need to do more.

I would just say that I was at a conference in Saskatoon with your boss, Mr. Desautels, last year. This year I was at a similar conference in Winnipeg, and my feeling was one of a very positive response. The first nations people invited the Auditor General himself to participate in round tables, to sit down and look at common solutions to these problems.

I think it's quite encouraging when somebody sits down and they're not denying that there's a problem. They're saying they want to do better. If it's fair and reasonable and there are incremental levels that we can climb up that ladder to display more, we want to do that. I was very encouraged, Madam Chair, by the expressed wish of the first nations in Saskatchewan and Manitoba in this example to do that. It was very encouraging.

Notwithstanding the debate and the questioning here, the department takes your views and your concerns and report very seriously. We are working. I know my minister is very aware of this. We are working in the department to come up with some measures whereby this would be much more focused.

I know you talked about this before, but are there some concrete, specific examples of some immediate things that the department might do that would facilitate this process along? Do you have just a couple of suggestions in terms of documents or process or practice that would give you a little more comfort?

Ms. Sheila Fraser: I'll ask Mr. Wilson to respond to that. Just before that, I'd like to say that I know the Auditor General is very encouraged by those conferences. We find them very positive. We as an office offer ourselves in any way we can to help in that capacity-building exercise. If there are things we can do to help first nations, we are very interested in exploring those avenues as well.

Mr. Grant Wilson: Madam Chair, in terms of a specific action that the department could do at this point in time, as you know, we had indicated in our follow-up that a number of self-assessments were missing. Since the follow-up, the department has assured us that those numbers are now very high. They're in the 90% range. So things have improved substantially in terms of the receipt of self-assessments.

Our next step then would be to do some testing on some of those self-assessments and work a little more rigorously on the development plans. One of the issues we had raised on the self-assessments was that there was very little checking. We weren't suggesting that the department do a complete up and down and sideways kind of check to make sure the answers were reasonable, but the department has a pretty good idea of who may have problems and who may not have problems and they should do some testing on that. That would be a first critical element in developing a response to the self-assessment.

• 1650

The second issue we had raised was that the development plans were often just a reflection of what the first nations said was a problem. The development plan was to improve governance or to improve such and such, rather than giving a timeframe, a schedule, and a reasonable, step-wise process to arrive at this.

So those are two areas specifically. With respect to the assurance on allegations, the department has done a fair amount of work in terms of setting out a guideline. What they now have to do is to start checking against that guideline. If that one extra step is now doing the checking and the assurances that the department needs, it's not a lot of work for them, but they have to get some assurance that allegations are being resolved and that they're being resolved to the satisfaction of those people who allocate. Those three issues, I think, are things the department can do quite easily and can do now.

Mr. David Iftody: Thank you.

The Chair: It's my job to thank you very much on behalf of all the committee members for coming. We'll see you again probably in another year or so. Thank you.

We're adjourned.