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1988 Report of the Auditor General of Canada

Main Points

The administration of Indian Affairs is one of the most complex areas of public administration, involving difficult historical, constitutional, federal-provincial and social issues. (paragraphs 14.1 to 14.9)

The Department of Indian Affairs and Northern Development (DIAND) does not have a clear legislative mandate for funding or delivering Post-Secondary Education Assistance and Social Development services. Thus, roles and responsibilities are unclear and there is no real accountability link between the Department and Parliament for these activities. (14.19 to 14.27)

This absence of a clear legislative mandate has resulted in misunderstanding and uncertainty among Indians about the purpose of these activities and the services to be delivered. (14.28 to 14.31)

The Department requires a clear legislative mandate which defines the responsibilities of Canada with respect to the delivery and funding of services to Indians. Such a mandate would facilitate the negotiation of agreements between Canada, the provinces and Indian bands, and establish the accountability framework that is now missing. (14.32 to 14.35)

The Department has improved its systems and procedures in the areas of Housing and Community Capital Facilities. (14.89, 14.90)

For over 20 years we have reported that the Department cannot assure Parliament that funding provided to bands through contribution agreements and other funding arrangements is used for its intended purposes. (14.95 to 14.98)

There remains a fundamental need for a more practical approach to funding bands, which would include a realistic monitoring role for DIAND. (14.118 to 14.122)

Introduction

Federal Responsibility for Indians

14.1 The mandate for providing services to Indians stems primarily from the Indian Act and the Department of Indian Affairs and Northern Development Act, 1970. The Department administers reserve lands and Indian moneys, and provides for the delivery of basic services (such as education, social assistance, housing and community infrastructure) to status Indian and Inuit communities.

14.2 Registered Indians in Canada numbered 388,000 at 31 December 1986 (about 1.5 percent of the Canadian population). Of these, 264,000 (68 percent) lived on reserve lands.

14.3 There are 592 Indian bands, with an average "on reserve" population of 450. Reserves are dispersed across the country and many are geographically isolated in northern areas with limited economic potential (17 percent have no year-round road access).

14.4 Between 1975-76 and 1986-87 the budget of the Indian Affairs Program increased from $460 million to $1.7 billion. Discounting for inflation, this represents a real growth of 68 percent. By comparison, the registered Indian population increased by 32 percent.

14.5 Several factors can be expected to contribute to a continuing strong demand for federal services to Indians. The annual growth rate of the Indian population - at 2.2 percent - is higher than the rate for all Canadians. Moreover, a 1985 amendment to the Indian Act (Bill C-31), designed to assure equality of treatment to men and women, may reinstate as many as 80,000 to 100,000 people as status Indians.

14.6 Although the current level of federal expenditures for Indians is significant, social indicators show that Indians typically face worse living conditions than other Canadians. For example, life expectancy for Indians at birth is about 10 years shorter than the Canadian average.

14.7 A March 1988 Information Sheet from the Department summarized the situation as follows:

Indian living conditions have improved significantly in the last quarter century. Although much has been accomplished, more remains to be done. Indians are still among the most disadvantaged of all Canadians. Nevertheless, the momentum for change established over the last 25 years is clear and strong.
14.8 In recent years a dramatic change has taken place in the delivery of services to Indian communities. By 1986-87, 64 percent of the Indian Affairs Program expenditures were managed by Indian bands, tribal councils and associations, compared with 39 percent in 1979-80 (see Exhibit 14.1).

Exhibit not available

14.9 The trend toward Indian administration of Indian services is supported by current Department priorities, emphasizing Indian control of the delivery of services and downsizing of Department staff as responsibilities are transferred.

1986 Comprehensive Audit

14.10 Our 1986 Report was highly critical of the management of Indian lands, estates and moneys. In response to our findings, the Department undertook several initiatives. The Minister asked the President of the Treasury Board to conduct a detailed study of the Lands, Revenues and Trusts sector of DIAND. The Department assumed responsibility for Phases II and III of the study in January 1988 and expects to substantially complete Phase II by December 1988. The Lands, Revenues and Trusts sector was strengthened through a reallocation of person-years from elsewhere in the Department, the appointment of two new directors general and the development of officer training programs.

14.11 On 28 March 1988 the Minister of Indian Affairs and Northern Development introduced in the House of Commons Bill C-123 to amend the Indian Act. The proposed amendments are intended to clarify the responsibilities of the Minister with respect to Indian minors' trust accounts and to increase a spouse's preferential share of an estate when a person dies without a will. These proposed amendments deal with issues which were raised in our 1986 audit.

14.12 In response to our findings on elementary and secondary education, the Department stated that it was waiting for a study by the Assembly of First Nations before revising its policies. This study was released in May 1988.

14.13 Regarding comprehensive land claims, the Department's new comprehensive claims policy, approved in December 1986, requires that final agreements be accompanied by implementation plans. The Department plans to issue guidelines in 1988-89 on the procedures to be followed by claims negotiators in developing implementation plans.

14.14 The Department provides regular status reports on its response to our 1986 comprehensive audit to the Standing Committee on Public Accounts, as requested in that Committee's Fourth and Fifth Reports, issued in 1987.

Scope of this Audit

14.15 This year we examined three major activities within Indian Services:

1987-88 Forecast Expenditures

- Post-Secondary Education Assistance

$ 111 million

- Social Development (Social Assistance, Child Welfare, Adult Care)

$ 409 million

- Housing and Community Capital Facilities

$ 309 million

$ 829 million

Source: 1988-89 Estimates, Part III


14.16 In addition to the above activities, we examined, in general, arrangements where funds are transferred to Indian bands to deliver services. In particular, we looked at the use of contribution agreements and alternative funding arrangements.

14.17 To examine services administered by the 592 Indian bands, we selected a representative sample of 30 bands. We then reviewed the Department's procedures for monitoring these transferred responsibilities.

14.18 We relied on the work of the Departmental Audit Branch in areas where their reviews had preceded or were complementary to our examination.

Mandate and Jurisdiction

14.19 In our 1986 Report we commented on the imprecise nature of the Department's mandate with respect to its fiduciary responsibilities regarding reserve lands and Indian moneys. This year we looked at the Department's mandate with respect to Post-Secondary Education Assistance and Social Development. Our objective was to determine whether the Department's mandate in these areas was clearly defined and provided specific authority for these activities.

14.20 Again, we found serious problems with both mandate and authority. Although these activities (or programs, as they are often referred to) have been in existence for a number of years, the Indian Act is silent with respect to the provision of either form of assistance.

14.21 Under the Constitution Act, 1867, Parliament has the power to make laws in relation to Indians and lands reserved for Indians. This power has been interpreted to mean that Parliament may make laws in respect of Indians living on and off reserve if those laws "in substance" are aimed at Indian concerns. Pursuant to this power, the Indian Act provides for the creation of a number of programs addressing Indian concerns on reserves such as Indian estates, education and management of property.

14.22 However, the Act contains no mandate for activities such as Post-Secondary Education Assistance, Child Welfare, Social Assistance, Adult Care or Individual and Family Care. Authority for the Post-Secondary Education Assistance and Child Welfare activities is derived from annual Appropriation Acts only, while authority for the remaining Social Development activities is not specifically granted anywhere in legislation. Exhibit 14.2 shows the legislative mandate for specific Indian services.

Exhibit not available

Consequences of Imprecise Mandate

14.23 We are concerned about programs authorized only by Appropriation Acts because, on several occasions, speakers of the House of Commons have ruled that Appropriation Acts are not to be used to originate programs. In the opinion of the Speaker in 1977,

the government receives from Parliament the authority to act through the passage of legislation and receives the money to finance such authorized action through the passage by Parliament of an appropriation act. A supply item... ought not, therefore, to be used to obtain authority which is the proper subject of legislation...
14.24 Our view has been confirmed by independent legal counsel. Counsel have advised that, although creating spending programs not otherwise authorized by statute through Appropriation Acts is not...

in and of itself, unlawful, the concept of creating major legislative spending programs by means of a short reference in the Estimates appended to annual Appropriation Acts, comes very close to jeopardizing the integrity of the system of Parliamentary control over the spending authority of the Executive. This method of proceeding involves conferring a discretion of indeterminate magnitude upon the Executive without any real accountability to Parliament for the content of such programs (since there are no legislative standards by which such programs can be measured). What is more, the group most affected by the legislation, i.e., the Indian people, are left with little, if any, concrete understanding of their entitlement under such programs. While these factors do not necessarily, in and of themselves, render such programs unlawful, they do not reflect the highest standards of Parliamentary tradition.
Officials of the Office of the Comptroller General informed us that, as a result of the 1977 Speaker's ruling, the Government no longer uses Appropriation Acts to obtain new program authorities.

14.25 Our concern about the Social Assistance and Adult Care and Individual and Family Care activities is more pronounced, as we could find no specific legislative authority for them, even in the Appropriation Acts. The only conclusion to be drawn is that authority for these activities is lacking.

14.26 Through enabling legislation Parliament confers on a Department an obligation to do certain things. In the absence of enabling legislation, as is the case for the above services to Indians, DIAND's obligations are not defined and therefore it cannot be held accountable to Parliament.

14.27 The absence of a clearly defined federal mandate for Social Development activities has resulted in uncertainty regarding the roles and responsibilities of the federal and provincial governments with respect to the delivery and funding of social services to Indians.

14.28 Under the Constitution Act, provincial governments have the power to make laws in relation to the provision of welfare services in their respective provinces. All provinces have enacted laws and developed programs to assist those in need. However, provinces are of the opinion that, although they have jurisdiction in this area, Indians are a federal responsibility and the federal government should therefore fund the delivery of these services, at least to Indians living on reserve.

14.29 The federal government has accepted responsibility for funding social services to Indian communities because of the reluctance of most provinces to do so. The money required to "fill the gap" now amounts to $400 million annually. DIAND funds social services to Indians through myriad agreements with bands, provinces and territories. As a result, there are inconsistencies in services available to Indians, both among and within provinces, and in service and funding standards, reporting requirements and federal-provincial cost-sharing arrangements.

14.30 The following examples illustrate the problems and uncertainties that arise:

Social Assistance: The delivery and funding arrangements for social assistance to Indians vary from province to province. Status Indians leaving their reserves have to meet provincial residency requirements (usually a year) before qualifying for provincial programs. Rules are complicated and subject to interpretation.
Adult Care: The main area of dispute is responsibility for the care of mentally and physically disabled Indians in institutions off reserve. Because of a lack of policy in this area, funding of adult care services is inconsistent both among and within provinces.
The consequences of these situations are uncertainty for the governments involved and for Indian people.

14.31 The imprecise nature of these arrangements has precipitated disputes between the Department and the provinces regarding funding responsibility for certain social services. As of 31 March 1988, claims against the federal government were more than $70 million.

14.32 The lack of clearly defined mandates for Social Development and Post-Secondary Education services has been a contributing factor to serious problems noted in these sections of the chapter. Until the parameters of the Social Development and Post-Secondary Education activities and the roles and responsibilities of the Department are well defined, it will be very difficult to properly manage and account for them. In our opinion, the type of direction required can best be achieved through entrenching such activities in substantive legislation.

14.33 A legislative mandate would provide the foundation for the Department's policies regarding Indian services and for its accountability to Parliament. Most importantly, it would help Indian people understand what services and benefits they have a right to. In the case of Social Development activities, a legislative mandate would facilitate defining and formalizing the responsibilities of Canada, the provinces and territories and Indian bands in delivering and funding these services.

14.34 We recognize the difficulties in enacting legislation relating to Indian Affairs, and the length of time required to do so. Interim initiatives are therefore essential and, we believe, practical. As described in the remainder of this chapter, they include developing policy, defining delivery and funding responsibilities and the role of bands, and telling Parliament the results achieved.

14.35 The Department of Indian Affairs and Northern Development should seek a clear legislative mandate for funding and delivering services to Indians in the areas of Post-Secondary Education Assistance and Social Development.

Post-Secondary Education Assistance

14.36 In October 1977 Treasury Board approved the Post-Secondary Education Assistance (PSEA) program. The purpose of the program, as stated in Circular E-12, is to "encourage Registered Canadian Indians and Inuit to acquire university and professional qualifications so that they become economically self-sufficient and may realize their individual potential for contributions to the Indian community and Canadian society."

14.37 Students funded through the program receive assistance, in the form of a grant, for tuition fees, books and supplies. Full-time students are eligible for additional assistance to cover living expenses for themselves and their children. Except for certain services, such as shelter allowance, the level of assistance does not depend on the student's income or on the income of his or her parents or spouse.

14.38 The estimated enrolment for the program in 1977 was 3,300 students. In 1987-88 there were 14,447 students being assisted at a forecast cost of $111 million.

Program Management

14.39 About 40 percent of assistance is delivered by the Department's regional and district offices; bands and tribal councils deliver the remaining 60 percent.

14.40 Department-administered PSEA. When the Department delivered the assistance, we found that practices differed from one region to the next. As a result, there is no assurance that students in similar situations will receive a level of funding consistent with Circular E-12. For example, assistance for commuting is available in Ontario and Alberta but is provided only in special circumstances in Quebec and Saskatchewan; students in a one-week course were funded in Ontario while in British Columbia the practice is not to assist students registered in courses of less than a year. These differences have been known to headquarters for some time but action has not been taken to achieve more consistency and fairness.

14.41 In addition, in the 70 individual student files we examined in three regions, we found many errors. There were inaccurate payments, funding for ineligible students and courses, and lack of documentation to support the payment of shelter and child care allowances. Also, there was incomplete historical information on individual students to ensure, for example, that the time limit for assistance was not exceeded.

14.42 Band-administered PSEA. For the band-administered portion of PSEA, we reviewed the Department's procedures for monitoring transferred responsibilities to the 17 bands in our 30-band sample who either administered the related contribution agreement or were members of a tribal council that did.

14.43 We noted variations in the conditions placed on bands under these contribution agreements. For example, in some districts, adherence to Circular E-12 is required, while in others it is not. Consequently, the Department has no assurance that band members are receiving the assistance they are eligible for according to Circular E-12.

14.44 We also noted wide variations in the manner in which the Department exercised its responsibility for monitoring these agreements. Monitoring practices varied from region to region, ranging from periodic visits to band offices in Alberta and British Columbia to virtually no visits in Manitoba.

14.45 In summary, DIAND has not defined clearly whether bands and tribal councils, in taking charge of PSEA for their members, are assuming a management role (with the authority to change the rules) or only an administrative role (applying the program rules as defined by the Department). To ensure that PSEA is properly administered, the Department must provide bands with a clear and consistent policy framework. To date this has not been done.

Budgeting

14.46 Since inception, the budget for PSEA has been adjusted as necessary to meet student demand. The Department did not attempt to project its annual financial needs accurately, relying instead on supplementary funding. As a result, the total funding available for PSEA was never known with certainty by regional staff and the bands at the beginning of a year.

14.47 For example, in the 1986-87 Main Estimates the budget for PSEA was $69 million. To provide for the actual cost of the activity in that year, an additional $17 million was obtained through Supplementary Estimates and another $10 million was reallocated from other activities.

14.48 In 1987-88 the Department imposed a fixed budget for PSEA and adjusted program operations to ensure that the expenditures would not exceed that amount. This meant that, once the current year budget had been committed, remaining applications for financial assistance were deferred to future years. As a result, students had to seek alternative sources of support or postpone their education plans.

Accountability and Management Information

14.49 PSEA is authorized only through annual Appropriation Acts and therefore lacks a clearly defined legislative mandate. As a result, the direction of the activity has been left largely to the discretion of the Department. The Department's accountability to Parliament and to the public, beyond standard financial reporting, is not clear. At no time, however, has the Department sought to clarify its mandate from, or accountability to, Parliament for Post-Secondary Education Assistance.

14.50 In the absence of a clear mandate, the objectives of PSEA have shifted over time from encouragement to acquire university and professional qualifications to encouragement to participate in a variety of post-secondary courses of study. Consequently, the Department has had difficulty in developing indicators to measure either the achievement of program objectives or performance. The participation rate - the number of participating students of a defined age over the total population of that same age group - is the only performance indicator in place.

14.51 According to DIAND, in 1985-86 the participation rate of Inuit and Indians between the ages of 19 and 24 was less than one-third that of all Canadians (7.1 percent compared to 24.5 percent). However, it should be noted that PSEA has encouraged mature students to return to school; nearly 50 percent of the students assisted under the program are older than 25.

14.52 Good information is needed for managers to monitor results of PSEA. However, the Department does not systematically collect or publish information on graduation rates and other relevant statistics. This concerns us because these statistics could be used in managing PSEA and in determining its future direction. Moreover, these statistics would provide valuable information to Parliament in Part III of the Estimates. While the Department has made several attempts to develop and implement an information system to meet these basic needs, it has not yet succeeded in doing so.

14.53 For the Post-secondary Education Assistance program the Department of Indian Affairs and Northern Development should:

(a) where assistance is Department-administered

- ensure consistency with program policies;

- maintain proper documentation and accurate, up-to-date information on individual applicants;

(b) where assistance is band-administered

- define the role and responsibilities of bands and ensure consistency with those policies;

- specify in the terms and conditions of contribution agreements the operational statistics that bands should provide to the Department; and

(c) in both cases

- maintain relevant, basic program information such as graduation rates, number of graduates by field of study and employment statistics.

Social Development

14.54 The Social Development activity provides financial assistance and welfare services to eligible Indians living on reserve. The position of the Department is that status Indians living off reserve should qualify for and receive assistance and services from their communities and provinces on the same basis as other residents.

14.55 The total cost of the Social Development activity was forecast at $409 million for 1987-88. This includes payments of approximately $50 million for social services to status Indians living off reserve who have not met provincial residency requirements for assistance.

14.56 Our examination covered three areas: Social Assistance, Child Welfare and Adult Care. Exhibit 14.3 shows specific services provided, methods of delivery and funding arrangements. Exhibit 14.4 shows expenditure trends.

Exhibit not available

A. Social Assistance

14.57 Social Assistance provides funds to single persons and heads of families to meet basic needs such as food, clothing and shelter as well as certain special needs such as essential furniture and appliances. The Department generally uses provincial eligibility criteria and payment rates for this program.

14.58 Given the economic conditions on many reserves, the percentage of the on-reserve Indian population receiving Social Assistance is much higher than the rate for all Canadians (44 percent compared with 8 percent in 1986-87). Forecast expenditures were $304 million for 1987-88.

14.59 Social Assistance administration includes assessing eligibility, computing payment and issuing cheques to entitled recipients. Some counselling services are also provided. On reserve, 80 percent of bands administer their own programs with funding provided by DIAND through contribution agreements. The balance of the on-reserve assistance is administered by DIAND or, in certain cases, by the province.

Budgeting
14.60 Budgeting for Social Assistance begins with an estimate by district offices of needs, by band, for the coming year. The information is then consolidated, forming the Social Assistance database. This is reviewed and challenged by the regional and headquarters levels of the Department before it is presented to Treasury Board for review and approval of an amount for DIAND's Main Estimates. For many years, the Main Estimates amount has been far below the actual costs of Social Assistance, forcing the Department to approach Parliament for Supplementary Estimates later in the fiscal year.

14.61 We reviewed the budgeting process and found that, in the aggregate, the estimate made by district offices was quite accurate (within three percent) when compared to actual costs for the past three fiscal years. However, these initial estimates were reduced at the regional, headquarters and Treasury Board levels before a Main Estimates amount was approved.

14.62 Moreover, before allocating approved funds, headquarters and the regions often reserved a portion for contingencies. Consequently, the amount allocated to each band at the start of the fiscal year was usually well below the previous year's actual costs.

14.63 The result is that Department managers and band administrators do not use their Social Assistance budgets for planning and control purposes because they are not realistic. Bands expect, and are entitled, to be fully reimbursed for the actual costs of Social Assistance paid to their on-reserve members.

14.64 For 1988-89, we were informed that the Department has stopped this practice of reserving funds. All Social Development program dollars are to be included in a band's initial budget allocation.

Band-administered Social Assistance

14.65 In reviewing Social Assistance for the 30 bands in our representative sample, we examined the arrangements under which the program was administered by bands authorized to do so.

14.66 Program delivery. From our review of documentation in field offices, we found:

    - no evidence of individual band members complaining to Department officials that they had been denied Social Assistance benefits to which they were entitled;
    - only isolated errors with respect to the determination of eligibility and entitlement; and
    - only minor adjustments from Department verification of monthly reimbursement claims submitted by the bands.
14.67 We concluded that the bands in our sample administered Social Assistance in accordance with basic program requirements. On one occasion when a problem did occur, the Department responded quickly to ensure that regular payments continued.

14.68 Program review. The Department monitors the delivery of Social Assistance by bands to ensure that the terms and conditions of contribution agreements are adhered to. The periodic program review effort also offers an opportunity to provide training and support to band welfare administrators. For bands in our sample, we examined the process for conducting these program reviews, as well as the reports prepared.

14.69 We found that objectives for program reviews were not well defined and little information was available to Department staff on how they were to be carried out. No reporting standards existed and the historical record of results was not well documented. Overall, the program review effort was poorly planned and conducted. With program transfers to bands such a high priority, the Department has chosen not to emphasize program or compliance reviews at this time.

Department-administered Social Assistance
14.70 In 1986-87, the Department administered $65 million in Social Assistance payments to individuals and families. These payments were made to Indians whose bands do not administer a Social Assistance program, or to those who did not meet provincial residency requirements.

14.71 Recent internal audit reports on Department-administered Social Assistance have found problems with the lack of an appropriate segregation of duties in assessing eligibility, computing payment and issuing cheques in some offices. This, combined with the lack of compensating controls such as case rotation and supervisory review, has created the opportunity for incorrect payments of assistance to occur.

B. Child Welfare

14.72 Through the Child Welfare program, DIAND provides funding for the delivery of child welfare services to Indian children and parents residing on reserves. Services funded include protection, adoption, family support, counselling, day-care and homemaker services.

14.73 Increases in federal spending on Indian child welfare over the past decade are due to the reluctance of most provinces to develop or expand services on reserve. Also, many Indian communities were gaining access to these essential social services for the first time. In recent years, bands have sought to provide more culturally appropriate services to their members (both on and off reserve). Indian-operated child welfare agencies now service 32 percent of all bands. Moreover, 23 percent of bands receive funding from DIAND to deliver non-statutory child and family services.

14.74 In 1987, there were approximately 140,000 Indian children aged 18 and under. Of these, 102,000 (73 percent) lived on reserve. Approximately 6.4 percent were in care outside the homes of their parents. The Department's Child Welfare costs were forecast at $78 million for 1987-88.

Service Delivery
14.75 Because of Canada's special relationship with Indian people, the federal government (through the Minister of Indian Affairs and Northern Development) has accepted responsibility for ensuring that Indian children and families have access to child welfare services. To this end, DIAND reimburses provincial and territorial governments and accredited child care agencies (both Indian and provincially operated) for the cost of child welfare services to Indian children and parents residing on reserve.

14.76 Arrangements vary by province, and in some provinces Indians are not entitled to a whole range of services that may be available to Indians in another province. In Saskatchewan, for example, no preventive services, which Indians view as the most valuable, are available to Indians because they are not part of that province's service package. This is a direct result of federal recognition of provincial jurisdiction and of adhering to provincial standards for child welfare. In addition, because Child Welfare agreements with individual bands within a province vary, all bands in that province may not be entitled to the same range of services or the same level of funding.

Program Management
14.77 There is no real policy base for DIAND's Child Welfare program. Since its inception in the 1950s, the program has been largely reactive. Arrangements with provinces, bands and tribal councils have come about as a result of the demands of these groups rather than as part of a comprehensive Child Welfare policy or program. The Department recognizes in its Child Welfare Program Circular that "formal agreements are necessary for channelling, controlling, administering and monitoring child welfare services to Indian people". Agreements have been developed individually in different regions of the country and with different groups within regions. This has resulted in a complex network for service delivery and in 308 agreements which cover approximately 55 percent of all bands.

14.78 The lack of policy and procedures has meant that services covered, service and funding standards, reporting requirements, and the structures of federal-provincial cost-sharing arrangements all vary from province to province. This complex series of arrangements has made overall management of the program very difficult, if not impossible. In our opinion, many of these management difficulties can be traced back to the lack of a clear legislative mandate for the Child Welfare program.

14.79 Most important, the Indian population is unsure what services it is entitled to and who should deliver and fund them. An April 1988 DIAND Communiqué on Indian Child Welfare states:

There is no mutual understanding of the roles and responsibilities of Indian communities, provinces and the federal government. This gets in the way of resolving such issues as program design and management, standards, accountability and the working relationship among service agencies on reserve and those off reserve.
14.80 In response to Indian dissatisfaction with provincial services and increasing demands by bands to establish and operate their own child welfare agencies and programs, the Department set up a Task Force in June 1986 to address child welfare service delivery issues. The Task Force prepared useful program information such as an inventory of existing services and delivery arrangements. Unfortunately, the study delayed important decisions on Indian Child Welfare for almost two years because a moratorium was placed on the negotiation of new agreements with bands.

14.81 We found Indian child welfare to be an area of great complexity and sensitivity. In the past decade many changes have taken place in the delivery arrangements for child welfare services as bands have begun administering these services. It is critical that future changes and anticipated growth in child welfare services be well managed within an appropriate policy and program framework.

C. Adult Care

14.82 Adult care has been described as the "sleeping giant" of the Social Development field because of the demographics of the Indian population and the growing demand for on-reserve services. Adult care expenditures were forecast at $19 million for 1987-88. They are split between homemaker care (46 percent), institutional care (52 percent) and foster care (2 percent).

14.83 Adult care services include homemaker services, meals and assistance with household tasks, and some supervision or nursing care for those in foster homes or institutions. The activity is directed primarily toward the aged and the mentally and physically disabled. Bands deliver homemaker and some institutional services on reserve.

14.84 We found serious problems in the planning and management of the Adult Care program:

    - There was no planning function within the program at either the headquarters or regional level. Regions respond to specific initiatives and requests by bands, provinces and the Medical Services Branch of the Department of National Health and Welfare. However, the responses are ad hoc and unsupported by headquarters policy or program direction.
    - Adult care services are not delivered on the basis of a clear policy or on an assessment of needs.
    - In two regions we visited, billings for services from provincial and private institutions were not adequately reviewed before payment. Moreover, most services were provided free of charge, disregarding the requirement to assess the financial means of recipients.
14.85 The Department recognized that it lacked basic information on actual field policies and practices and therefore completed its Adult Care Inventory Study in 1987. The study identified numerous inconsistencies in adult care service levels and costs across the country.

14.86 The Department has chosen to give low priority to adult care services relative to other Social Development activities. The consequences of this decision are evident from our findings.

14.87 For its Social Development programs, the Department of Indian Affairs and Northern Development should:

    - develop comprehensive policy statements for each program area to provide an appropriate base for transferring responsibilities to bands, tribal councils and Indian child welfare agencies;
    - prepare accurate projections of expenditures for Main Estimates and allocate funding to bands based on those projections;
    - maintain up-to-date basic program information such as that prepared for the Child Welfare Task Force and Adult Care Inventory Analysis; and
    - direct program management efforts to ensuring that field practices are consistent with existing directives and procedures.

Housing and Community Capital Facilities

14.88 We reviewed capital expenditures for on-reserve housing and for community capital facilities (water, sanitation, electrification and roads systems, fire protection facilities and special services such as flood and erosion control). We also examined ongoing expenditures for operating and maintaining these capital assets. Total expenditures for these activities were forecast at $309 million in 1987-88; this excludes education facilities, which we reviewed in our 1986 audit.

14.89 In our 1978 Report we noted serious weaknesses in the acquisition process for capital projects (five school projects). Since then the Department has improved its systems and procedures in the capital program and is continuing its efforts to make them more efficient.

14.90 The community capital projects that we reviewed were carried out in accordance with headquarters guidelines and instructions manuals, which follow standard government requirements. In addition, the Department has a reasonable basis for allocating operations and maintenance funds to the bands. In making improvements the Department has recognized, in the planning and allocation of capital expenditures, the limitations on funding and resources available.

Funding Arrangements for Indian Services

14.91 The mechanisms used to provide funding to Indian bands, organizations and others, and the amounts involved, are shown in Exhibit 14.5. Specific Treasury Board requirements must be observed in the use of each mechanism, and a funding arrangement between the parties is usually necessary. Past studies have shown that funding arrangements with bands are complex and create a significant administrative burden for both Department and band managers.

Exhibit not available

14.92 The most common of these mechanisms is the contribution agreement, which has specific terms and conditions attached to it, including a statement of purpose and allowable expenditures, and a requirement for an accounting of expenditures and an audit. In 1987-88 the Department provided 750 organizations with $1.3 billion through more than 8,000 contribution agreements (including amendments).

The Funding Process

14.93 We reviewed the 1987-88 funding arrangements in place for our representative sample of 30 bands. We identified three distinct phases of the funding process for examination: first, the negotiation of an agreement; second, the implementation of that agreement; and third, the accountability review, for which we examined the most recent financial statements.

14.94 Negotiation. In the first phase of the funding process, we found that the major issue was funding levels, which were generally not finalized until several months into the fiscal year. In most cases, however, interim agreements were in place at the beginning of the fiscal year. The agreements that we examined, with minor exceptions, were properly approved and met Treasury Board requirements.

14.95 Implementation. The Department's conduct of the second phase of the funding process has been a concern of our Office over the past 20 years. We have reported continuing instances of non-compliance with contribution requirements.

14.96 This has taken two main forms: funds have been released to bands before complete documentation requirements have been satisfied; and Department staff have not monitored band operations sufficiently to ascertain whether funds are being spent only for the purposes intended and in accordance with the contribution agreement.

14.97 We found little improvement in these areas. The Financial Administration Act requires that Department managers certify that performance has been in accordance with the contribution agreement for each payment made. We found that managers commonly make payments to bands without such assurance. Program managers and financial managers told us they were very uncomfortable about authorizing many payments.

14.98 Because of planned downsizing of field staff, managers were also concerned about being able to monitor, in a meaningful way, program performance in Post-secondary Education, Social Development and Housing and Community Infrastructure programs under contribution agreements.

14.99 Review. All funding mechanisms require that financial statements, in a form prescribed by the Department, be provided as evidence of satisfactory program and financial management. They are to be audited by public accounting firms and provided to the Department within 90 days of the fiscal year end.

14.100 Treasury Board requires that the Department provide assurance that funds have been used for the purposes intended and that only allowable expenditures have been charged. Although each contribution agreement includes a requirement for audit, the Department does not receive this assurance through the audit process, and the external audit opinion is silent on this issue.

14.101 The Department's policy is to have audited financial statements reviewed by district and regional audit committees. The Department does not assess program performance in these reviews, since the financial statements do not contain operational statistics.

14.102 For the sample bands, we found the reviews to be deficient. They concentrated too much on accounting issues and cash management concerns, and not enough on the cause of financial difficulties.

14.103 Also, review of the audited financial statements was rarely completed in time to be useful. A conservative estimate of the time it takes to finalize the review is six months after the fiscal year-end. It is a particular concern that, on average, more than 50 days pass after the Department receives the statements.

14.104 The Funding Management Officer (FMO) plays a key role in the contributions management process and in the analysis of band financial information. These officers participate in both the negotiation of funding agreements and in the accountability exercise at the end; often they are the only continuous link in the process.

14.105 We found that many FMOs lacked proper qualifications and that their training opportunities were poor. In locations where we did find the accountability review process working well, we also found capable and motivated FMOs who were supported by their district and regional management.

14.106 As responsibilities are transferred to bands, situations arise where regions require special financial expertise. Examples are: analysis of financial statements of large bands, preparation of Financial Management Plans (FMPs) for bands in difficulty, and analysis of major band investments such as land leases. Regions need access to special financial expertise to support the work of the Funding Management Officer.

Band Deficits

14.107 Department managers do not adequately consider financial risk in implementing funding agreements. The alarming growth in band deficits indicates that many bands are having financial difficulty. As of March 1987, 45 percent of all recipients were in a deficit position, with a total working capital debt of $49 million. The Department considered 20 percent of recipients to have "serious deficits", where the organization's ability to deliver essential community services was impaired.

14.108 We found that DIAND managers have tended to view band deficits as a cash management problem. Their reaction occurs long after the fact and usually takes the form of using capital funds (most often funds for housing) to reduce the deficits.

14.109 The findings of a recent audit in one region by the Departmental Audit Branch illustrate the use of capital funds to reduce deficits. For 24 bands in the region with Financial Management Plans, $2.8 million in capital funds was used for debt reduction in the FMPs. From 1986 to 1988, 69 houses were to be foregone for this purpose. We concluded that using capital funds, for the most part for planned housing units, to reduce band debt is accepted practice in the region.

Alternative Funding Arrangements (AFAs)

14.110 In June 1986, the Treasury Board approved DIAND's proposal to enter into AFA agreements with bands which met specified eligibility criteria. The objective of introducing these new arrangements was to transfer responsibility for the design of programs and the establishment of priorities to Indian councils who are accountable to their membership for the management of resources and the development of their communities. Overall, there are fewer administrative constraints on a band's delivery of services under an AFA.

14.111 By March 1988, 6 bands and 1 tribal council (13 bands) had signed AFA agreements, and another 18 bands had entered the negotiation process.

14.112 We have two concerns with AFAs. The first is the lack of specific legislation to support and clarify the new role of the Department and the bands under these agreements. An AFA emphasizes a band's accountability to its members, instead of to the Department, as is required under a contribution agreement. Control over how funds are spent is largely in the hands of the band council.

14.113 This raises an important question: What responsibility remains with the Minister after transferring the responsibility for program delivery to a band under an AFA?

14.114 The answer is unclear, in the absence of express legislative authority to define the terms and conditions of such transfers. Specific legislation would help clarify the situation for Indian people, bands and tribal councils, and third party interests.

14.115 Our second concern is with the actual delegation of authority by the Minister to the band council. While the Minister is free to delegate administrative responsibility, he cannot delegate a policy role.

14.116 The AFA agreements we examined do not make this distinction clear. The word "policy" is used in connection with certain band activities. It is quite possible that some confusion exists on the precise nature and limitations of a band's policy role.

14.117 Related to this last concern is a more fundamental issue. For a band to design and operate a program within the Department's broad policy parameters, a clear statement of that policy must exist. For several of the programs being transferred under AFA agreements, such policies do not exist. Accountability relationships are clearly at risk in these circumstances.

Need for Improved Management

14.118 Department and band managers share an equal concern for good financial management. However, we found that the contribution arrangements contain inherent constraints to good management. These constraints include:

    - too many agreements with too many special terms and conditions, creating an administrative burden for recipient organizations and the Department;
    - rigid requirements for the Department to certify program performance by the band before contribution payments for ongoing programs and services can be made; and
    - restrictions on accounting for band surpluses and deficits that do not permit a reasonable level of discretion to be exercised.
14.119 Given the complexity of many contribution agreements, Department and band managers have often ignored detailed terms and conditions in order to get on with the job and deliver programs. We concluded that managers must react to an unrealistic set of requirements with respect to many funding arrangements. The rigidity of the contribution mechanism, as it is used, can act as a disincentive to good management at both the band and Department levels. Predictably, the arrangements have also caused friction between the two groups.

14.120 AFAs developed by the Department are intended to give bands greater flexibility in using funds. They may remove many of the administrative burdens and constraints to good management that we found in the existing funding arrangements.

14.121 For all funding arrangements with Indian bands and organizations, the Department should:

    - develop a financial policy framework for field officers that encourages good management of funding arrangements and eliminates existing constraints;
    - define the purpose of, and risk associated with, funding provided to each type of recipient, and choose the funding mechanism best suited to that purpose and risk; and
    - ensure that Funding Management Officers are well qualified and trained and that regions have access to special financial expertise to deal with complex band financial matters.
14.122 The Department should seek a clear legislative mandate for funding bands under AFAs. This would help ensure that DIAND's responsibilities are clear, and that the delegation, indemnification and accountability features of AFAs are valid and effective.