Third-Party Management

Page 8

INAC accountability called into question

The first couple of chapters of the recently released auditor general's report got most of the attention after it was tabled in the House of Commons on Feb. 10, but the last three chapters were equally damning of the Liberal government and its management of taxpayer money.

The $100 million sponsorship scandal dominated question period, and media interest, after Sheila Fraser reported that the Liberal government had funneled millions of dollars to political friends in Quebec for little or no work done for that money.

The shocking nature of the sponsorship scandal in Quebec attracted attention away from the equally shocking mess discovered at Indian and Northern Affairs (INAC).

Her criticism focused on a matter that has been the subject of a lot of complaining by First Nations chiefs over the last number of years-INAC's debt intervention policy.

When First Nations go into debt, the government intervenes. The third step of the government's intervention process is third-party management. It was in this area, where outside managers are called in to operate the financial affairs of the indebted First Nation, that caused the auditor general much concern.

After examining 10 cases in four regions, and visiting one of those regions, she found that the selection of third-party managers did not follow an open and transparent process.

Fraser found "there were no criteria or formal documentation of the selection process and nothing to indicate why one candidate was selected over another."

With all the controversy over the money directed to Liberal friends in Quebec, some observers wondered why it was INAC did not have any of those criteria in place.

Fraser also concluded that INAC did not adequately monitor and assess the performance of third party managers, even though third-party managers in the region examined are responsible for up to $50 million per year.

Fraser found that third-party managers charge between $195,000 and $312,000 per year (which is skimmed directly off the top of any funds directed to First Nations), but First Nations are excluded from the selection process of their managers.

The auditor general discovered that third-party managers are "prohibited from negotiating with creditors to accept a percentage of the debt, or from repaying first the debts bearing the highest interest." In fact, third-party managers were not permitted to pay old debts until the manager had generated a year-end surplus, regardless of the interest those debts were incurring. Some of the First Nations had debts totaling between 22 and 55 per cent of the yearly government funding.

And Fraser found that in the files she examined there was no strategy or plan to successfully bring the intervention to an end.

Third-party managers get paid about 15 per cent of a band's total INAC budget to sign cheques and get the books balanced. Frequently they do it from an office far from the First Nation and rarely visit the community, often only twice-monthly to deliver cheques.

Manitoba regional chief Francis Flett led the fight for a resolution against the intervention policy at the Assembly of First Nations' (AFN) Ottawa Confederacy last December.

Flett said the intervention takes money from First Nations people and puts it in the pockets of outsiders.

"It doesn't really help because they're taking the money right from the communities. It's not new money that they're using. It's just money that's there now that they're using from the First Nations. So it's no big help. It's creating more problems. It's not helping anyone. They've got to change the policy," he said. "Instead of paying $35,000 to $40,000 a month, put someone in there to actually help."

Bev Desjarlais, the NDP member of Parliament for Churchill, Man., was scathing in her criticism of the policy.

"Liberal government imposed third-party management contracts costing First Nations up to $320000 a year are handed out without a tendering process and without the involvement of the First Nations. INAC squandered First Nations' resources without any regard for band members. The government has let First Nations take the fall for being short of funds when in reality in many cases it is the Liberal government's handling of the funds that is the problem."

The national chief of the Assembly of First Nations said, "clearly, accountability and transparency are a two-way street," referring to the last two years of controversy over the First Nations governance act, a federal government-led initiative to improve the accountability of First Nations' governments.

"Taken together," Phil Fontaine said, "the auditor general's findings and recommendations support what First Nations have been saying for a long time.

"The auditor general's report shows that third-party management is not necessarily an indication of problems within First Nations, but instead points to the government's lack of transparency and accountability," said Fontaine. "We endorse the recommendations that First Nations must be involved in designing policies and implementing new approaches, and that training and capacity-building are the best way to address this issue."

Rick Simon, AFN regional chief for Nova Scotia and Newfoundland, said the report also states that the department of Indian Affairs is a bloated bureaucracy that does little to better conditions for First Nation people.

"You've got so many people overseeing miniscule things and it's costing the department a fortune that reflects back on the First Nations regarding the money coming to us," he said.

While politicians may want to make things better, he said, the bureaucrats have their own ideas.

"The bureaucrats are going to block everything that's going to happen because they've got an interest in maintaining their jobs and they're protected by their union," he said. "How do we go beyond that? My suggestion is that the prme minister and the minister of Indian Affairs make it very clear that during the first four to five years in government that Indian Affairs and that public service is going to be cut in half. If they're elected for a second term and chances are they would be, it's time to finish the job. During that time, they should engage the First Nations, using the AFN as the lead, to take control because we're never going to see any better in the future as long as the current structure's in place. It's as simple as that."

And Simon believes Fraser has only scratched the surface of the problem.

"Chances are the auditor general never even sees half. Indian Affairs shows her what makes the First Nations look bad to, I guess, give them the credibility that maintains their jobs. If anything, the auditor general should be engaging the AFN to do a review of DIAND. I'll bet we could tear that organization apart. They would never do it. DIAND would be scared to do it," he said.

While there were 32 First Nations in third-party management when Fraser did her study in 2002, Simon believes the situation is now much worse.

In a published report shortly after the auditor general tabled her report, Union of British Columbia Indian Chiefs President Stewart Phillip said the $300 million debt that First Nations across the country have accumulated says more about the way the department operates than it does about First Nations.

"Me and Stewart Phillip don't agree very often, but I read what he said in the paper, the chronic underfunding, people having to make brutal choices in their communities. I agree with that," Rick Simon said. "We're not $300 million in debt. It's $300 million that they owe us."

Simon said the intervention policy is punitive and unfair and it prevents progress in the development of First Nations.

"There's repercussion to third party management and the government doesn't want to deal with those repercussions. Here in the Atlantic, unless a band has its fiances in order, it's not eligible for housing subsidies. There's no such thing as housing. It's housing subsidies. They provide a subsidy and the band has to borrow the rest of the money from CMHC and it gets ministerial approval and all it's doing is putting the band in more debt. There's good debt and bad debt. In that $300 million, probably 50 per cent and maybe as high as 75 per cent is good debt, meaning as mortgage, long-term on housing, on schools, what you call controlled debt," he said. "This whole issue around third-party management, it just drives the housing crisis to higher proportions and nobody's dealing with that. And there's a trickle-down effect that has to apply to other areas."

Andy Mitchell, the new Indian Affairs minister, had little to say in regards to what direct action the government will take on third party management.

"I thank the auditor general, Sheila Fraser, for her report and look forward to working in collaboration with our partners in implementing her recommendations," he said. "In response to the auditor general's observations regarding third-party management, let me begin by saying that only a small number of First Nations require this level of intervention. I accept the auditor general's finding that there are areas of improvement that can be made in the process. For this reason, I have launched a review of our intervention policies with emphasis on less intrusive and more co-operative ways of helping First Nations maintain their financial health."