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1991 Report of the Auditor General of Canada

Main Points

14.1 Inadequate accountability for funding. Seventy-two percent ($1.9 billion) of the $2.6 billion budget of the Department of Indian Affairs and Northern Development (DIAND) for the provision of goods and services to the Indian peoples is self-administered by bands or tribal councils. DIAND is answerable to Parliament for these funds, but it does not have assurance in all cases that they are used for the purpose intended or managed with due regard for economy, efficiency and effectiveness (paragraphs 14.15 to 14.20).

14.2 Housing dependency and backlog. Status Indians residing on reserves are not eligible for housing assistance available to other Canadians from provincial and municipal governments. Furthermore, the Indian Act deters them from securing funds from private financial institutions or providing personal equity investment in on-reserve housing. Consequently, they depend entirely on the federal government for housing assistance. Although DIAND's policy is to provide support for adequate housing, the Department has not clarified whether this provision is a benefit or a right, as claimed by the Indian organizations (14.21 to 14.31).

14.3 DIAND estimates that it would cost up to $840 million to clear the existing backlog of 10,000 to 11,000 housing units. DIAND has no strategic plan to resolve this critical problem (14.32 to 14.33).

14.4 1985 amendments to the Indian Act (Bill C-31). DIAND estimates it will cost over $2 billion during the next ten years to implement Bill C-31. The costs are for government commitments to meet increased demands for housing, education, and health and dental care for new status registrants (14.34 to 14.41).

14.5 Specific claims. The Indian Act and Indian treaties require DIAND to manage reserve lands and band funds. The alleged mismanagement of these assets has resulted in about 600 specific claims against the Department. In spite of federal commitments to improve the process, over half of the claims received during the past 20 years were still in process in fall 1990. We believe that stronger commitments by all parties to expedite the process are needed if desired reductions in processing times are to be achieved (14.53 to 14.75).

14.6 Since 1976, DIAND has contributed about $50 million to Indian associations or bands to conduct claims research. DIAND does not know to what extent these research funds have been used for their intended purpose (14.76 to 14.78).

14.7 Towards the end of our audit, the government announced that new initiatives would be taken to address native issues, including specific claims (14.94).

General Background

14.8 The Department of Indian Affairs and Northern Development (DIAND) administers, in whole or in part, 46 statutes to fulfil the lawful obligations of the federal government to aboriginal people arising from treaties, the Indian Act and other legislation. DIAND is responsible for administering Indian reserve lands and providing for the delivery of basic services to status Indian and Inuit communities. DIAND also negotiates the settlement of accepted claims relating to aboriginal title not dealt with by treaty or other means and to non-fulfilment of government obligations.

14.9 Between the years 1981 and 1989, the status Indian population grew at a rate three times faster than the Canadian population as a whole. This has resulted in an Indian population that is very young. In 1989, the status Indian population was approximately 466,000. Slightly more than 50 percent were under 25 years of age, compared to less than 36 percent of the Canadian population as a whole. This growth has placed heavy demands on Indian communities and the federal government to provide education, housing, employment, and other services.

14.10 At the time of our audit, there were 601 registered Indian bands. Almost two thirds had a population of less than 500. The remoteness and small size of many Indian reserves drastically limit the opportunities available to Indians and affect the nature and cost of services provided to them.

14.11 Status Indians, as Canadian citizens, benefit from all universally available federal programs, such as Family Allowance, Old Age Security and Unemployment Insurance. In addition to these programs, status Indians who live on reserves (60 percent of the total Indian population) receive federal services such as education, health and dental care, social assistance, housing, community infrastructure and economic development. Furthermore, status Indians living on reserves generally do not pay income tax, provincial sales tax, property tax or goods and services tax.

14.12 Exhibit 14.1 shows federal expenditures for aboriginal people from 1984 to 1991. The amount budgeted for 1991-92 is over $4 billion. Indian needs will continue to grow over the years as a result of demographic and other factors. Although we are not expressing an opinion on the appropriateness of this amount, it is significant by any measure. Nevertheless, the standard of living in most native communities remains considerably lower than the national average.

14.13 Both Indians and the federal government acknowledge the need to define the relationship between the "First Nations" and Canadian society in terms of constitutional rights and aboriginal title. Ongoing complex negotiations are anticipated for a number of years. However, important initiatives are urgently required if improvements in socio-economic conditions are to be met with assurance that government funds are used effectively.

Audit Objectives and Scope

14.14 The objectives and scope of our audit were to examine and assess:

  • whether there is appropriate accountability for the $2.6 billion spent by DIAND on the Indian and Inuit Affairs program;
  • the adequacy of DIAND's procedures for providing support to individuals and bands in obtaining adequate housing;
  • the adequacy of the planning for, and implementation of, the 1985 amendments to the Indian Act (Bill C-31);
  • the adequacy of the specific claims process and results; and
  • the extent to which DIAND verifies the completeness and accuracy of production reports by third-party leaseholders of Indian oil and gas resources.

Accountability

Background

14.15 DIAND spent $2.6 billion in 1990-91 on providing services to Indian people. For a number of years, the Department has been transferring the administrative authority and responsibility for the delivery of services to Indian bands and tribal councils. Funding administered by Indians in 1989-90 amounted to $1.9 billion, which was 72 percent of total DIAND program expenditures. This reflects the willingness of the government and Indian groups to encourage Indian autonomy. Exhibit 14.2 shows the trend for the past six years.

14.16 DIAND uses various vehicles to transfer funds to Indian bands and tribal councils for delivering services. Funds are appropriated by Parliament to achieve specified program results, while Indian communities are being provided with flexibility to redefine programs and reallocate resources. Alternative Funding Arrangements and Flexible Transfer Payments are significant vehicles used by DIAND to provide bands or tribal councils with lump-sum payments to deliver Indian programs. The bands can design and implement their own policies in such areas as welfare, education and economic development.

14.17 We acknowledge the concept of allowing bands to modify federally funded programs so that they will be more appropriate to their communities' needs. However, under the legislation currently in place, the Department still retains ultimate accountability for the way in which these funds are spent and the results they produce.

14.18 According to DIAND, the Minister's accountability to Parliament remains intact for these funding arrangements with bands or tribal councils. They are not unconditional transfer payments. They have a specific purpose, which must be accounted for.

Observations and Recommendations

DIAND lacks accountability framework
14.19 In prior years, we commented on DIAND's accountability regime and observed that improvements were needed. While eligible Indians should be provided with the level and quality of services to which they are entitled, every effort should be made to ensure that the funds devoted to this purpose are used effectively. This requires a proper accountability framework within the Indian community and adequate controls in DIAND to provide assurance of fairness and due regard for economy, efficiency and effectiveness. We found that DIAND's funding arrangements with bands and tribal councils still lack this accountability framework. In some cases, DIAND does not know how well bands are exercising their stewardship over public funds and has no procedures to ensure that bands are accountable for the spending of such funds.

14.20 DIAND should improve its accountability framework to include, as a minimum, the following requirements in administering payments to bands and tribal councils:

  • timely submission of annual audited financial statements by bands and tribal councils;
  • timely submission of activity and financial reports with acceptance of monitoring as a criterion of eligibility; and
  • evaluation of funding arrangements respecting the quality and level of services provided to band members.
Department's response: DIAND has introduced a number of new funding mechanisms which provide bands with progressively increasing authority. The amount of authority transferred depends on the nature of the program being funded, the management capacity of a given band and the band's desire to manage its own affairs. Coupled with the transfer of authority DIAND is reducing its monitoring and control of bands and emphasizing the importance of accountability by Indian councils to their own constituents.

DIAND accepts and is prepared to manage the business risk inherent in this transfer process. From time to time some bands will encounter difficulty in delivering programs or in submitting reports within the time period required by the Department for purposes of reporting to Parliament.

The Department acknowledges that such circumstances cause deficiencies in the accountability framework. However these problems are not of such a nature as to distort the Department's representation to Parliament.

The Department will continue to work with bands to address such deficiencies as may arise.

Housing

Background

14.21 The stated objective of DIAND's housing activity is "to provide support to individuals and bands in obtaining adequate housing by providing subsidies towards the construction and renovation of houses on reserves as well as training, management and technical assistance to bands." This housing is to be consistent with recognized National Building Code standards.

14.22 In addition to servicing building lots and guaranteeing housing loans, the Department currently provides subsidies of roughly 50 percent of the construction costs, which range from $19,000 to $46,000 per unit, depending on remoteness and local construction rates. Renovation subsidies averaging $6,000 are also provided. In addition, bands may apply for assistance from the Canada Mortgage and Housing Corporation for community projects and for individual loans for the construction of new houses or the renovation of existing ones.

14.23 The legislative authority for housing subsidies is derived from the annual appropriations. In 1989-90, total expenditures were $105.2 million for the construction of 2,746 houses and the renovation of 4,151 existing units.

14.24 In 1985, the Program Evaluation Branch of DIAND completed an on-reserve housing program evaluation. The study found that, although new on-reserve housing is constructed to meet National Building Code standards, much of the older housing is among the poorest in Canada. In terms of three major criteria -- physical condition, crowding, and access to basic facilities and amenities -- only 27.3 percent of on-reserve housing was found to be "completely adequate".

14.25 Both this evaluation and a discussion paper published by DIAND in 1990, entitled "Laying the Foundations of a New On-Reserve Housing Program", estimated a backlog of about 10,000 housing units.

Observations and Recommendations

Clarification of commitments and responsibilities is essential
14.26 Indian organizations have stated that their people have a right to adequate housing from the Government of Canada. They believe the government has an obligation that flows from a combination of treaty rights, basic aboriginal rights, and the Constitution.

14.27 Part III of the Estimates does not indicate whether DIAND's responsibility for housing subsidies represents a right or a benefit to the Indians. Nor does it specify the extent of DIAND's commitments in this regard. DIAND's 1990 discussion paper called for a clear statement of policies and commitments regarding provision of housing to First Nations. The current level of funding has remained unchanged since 1983. Each year, $92.9 million is allocated toward the construction of 2,400 houses and the renovation of 3,000 units.

14.28 Status Indians not living on reserves are entitled to receive basic housing assistance from their provincial and/or municipal governments. For status Indians living on reserves, this assistance is not available.

14.29 Inadequate and overcrowded housing, among other things, can contribute to social and health problems, such as sickness, marriage breakdown, alcoholism and child abuse. The financial results can be measured in terms of the higher cost of health care, social assistance benefits, policing and penitentiary services. Solving the housing problems on reserves could reduce the cost of health services and social assistance by improving social and health standards.

14.30 Furthermore, the federal Indian Act makes it difficult for Indian people to secure financing for on-reserve housing from lending institutions. Indian land and assets cannot be seized even when a loan is in default. Even the Central Mortgage and Housing Corporation requires a guarantee from the Minister of DIAND before it will provide loans for on-reserve housing. Private investors have no legal recourse in the event of default of payment. This has prevented development of free-market financing for on-reserve housing. Virtually no private risk capital flows into Indian housing.

14.31 A further constraint to adequate housing is that band members are reluctant to provide their own equity in on-reserve housing. The land tenure system under the Indian Act limits the right of bequest, lease or sale. The Crown has title to the land, and most houses are "owned" by the band and controlled by band councils. Accordingly, status Indians on reserves have no alternative but to depend on DIAND for adequate housing.

DIAND needs solution to housing backlog
14.32 At March 1989, there were 58,758 housing units and 446 special services housing units (for senior citizens, etc.) on reserves. The annual supply of houses on reserves is not able to meet the normal replacement demand. DIAND estimates that satisfying the backlog of 10,000 to 11,000 housing units would cost up to $840 million in current dollars. We found that DIAND has no plan for solving this critical problem.

14.33 To address the backlog of on-reserve housing, DIAND should redirect its existing resources. Alternatively, DIAND should look for a new approach to permit and encourage private capital investment in the on-reserve housing market.

Department's response: The Department agrees with the issues raised in this section; however, it proposes an alternative approach to resolving the issues.

Our policy is based upon meeting social objectives and providing access to adequate, suitable and affordable housing. This is currently being achieved through a shared responsibility between the Department and Indian people and their communities. The Department is fully cognizant of the complex issues involved with on-reserve housing. To this end, the Department is consulting with aboriginal leaders across the country to develop a responsive policy framework and a co-operative approach to finding solutions.

1985 Amendments to the Indian Act (Bill C-31)

Background

14.34 In 1985, Parliament passed a series of amendments to the Indian Act known as Bill C-31. The objectives of the Bill were to remove discriminatory provisions from the Indian Act; to restore status and membership rights; and to give the bands control over their membership.

14.35 Prior to 1985, the Indian Act accorded status to any woman marrying a status Indian, whereas an Indian woman marrying a non-status man lost her own status and rights. Also, under the Act, the children of mixed marriages where the father was Indian automatically passed their status on to the next generation, but not where the mother was Indian. The major provision of Bill C-31 is to restore status to these women and to grant status to the children of Indian women and non-Indian men.

14.36 Another issue was the determination of band membership. Up to 1985, only the Registrar, a DIAND official, could make band membership decisions. At 30 June 1990, 232 of the 596 bands in Canada (39 percent) had taken this step towards Indian self-government. The Department still decides membership for bands that have not developed their own membership codes. Some bands have delayed developing membership codes because they fear legal action by applicants who have been rejected.

Observations and Recommendations

Implementation of Bill C-31 will cost over $2 billion
14.37 By 1990, about 80,000 Indians had gained status, adding 25 percent to the previous population of 358,000. This was 48 percent more than the number predicted by DIAND prior to 1985. DIAND estimated that its own costs for services to Indians and those of the Medical Services Branch of the Department of National Health and Welfare would approximate $300 million. In 1989, the Department revised its registration estimates to 86,453 and secured additional funding of about $900 million. Its total commitment reached over $1 billion, and the implementation period was extended from 1990 to 1994. The Department also estimates an additional $1 billion in costs for the next four-year period, not including National Health and Welfare medical services of up to $150 million per year.

14.38 Both the one-time and ongoing costs of C-31 are high. The greatest expenses pertain to housing, schools, and increased infrastructure for the people returning to reserves. The Department estimates that 21 percent of Indians gaining or regaining status want to return to the reserve, along with the 8 percent of new registrants who already live there, but they may be constrained by a lack of housing, band membership codes and band residency bylaws restricting the access of band members to the reserve.

14.39 Based on DIAND's predicted growth in the C-31 population, about 24,000 Indians and 20,800 non-Indian dependants will want to begin living on reserves within the next five years. Using an average of 3.4 persons per family, some 13,000 units will be needed to house them. Up to January 1991, the Department had constructed or renovated some 3,600 homes across the country for C-31 returnees. The Department plans to build 985 houses for C-31 returnees each year up to 1993-94. This will not be enough. Ontario alone has a defined need for 2,146 units for C-31 returnees. At an average of $50,000, including infrastructure, these units would cost more than $107 million.

14.40 Despite the government's assertion that no band would suffer as a result of Bill C-31, DIAND did not, at the time of our audit, have a financial plan to identify how and when the existing and future housing shortfall would be met. Furthermore, although DIAND was aware that some reserves could not physically accommodate the requirements for more housing, it did not put forward any possible solutions to this problem.

14.41 Some C-31 registrants have gained status but have not been accepted by a band. Two Indian organizations estimate that 9 out of 10 C-31 registrants in Alberta have no band membership. Some bands have introduced restrictive membership codes that effectively block C-31 people from joining the band. One example is a code that requires a period of on- reserve residency, yet allows only band members to live there. This usually occurs with wealthy bands that fear dilution of the band wealth and disruption of the existing band power structures.

Membership data is required for program planning and funding
14.42 Section 10 of the Indian Act enables bands to assume control of their membership and maintain band lists. As of June 1990, 39 percent of the bands controlled their membership lists, comprising approximately 188,000 people.

14.43 The transfer of these responsibilities to many bands means that DIAND no longer maintains, or has access to, a single comprehensive source of data on band membership and on-reserve population. DIAND has acknowledged that some bands are not able to maintain current, accurate and complete band lists. We noted that DIAND has not provided these bands with guidelines and training for adequate data maintenance. Nor does it have a quality control system in place to monitor the quality of the residency data in the Indian Register.

14.44 Without sound population statistics, DIAND's ability to justify funding requirements to Parliament may be jeopardized. Other federal departments, such as National Health and Welfare, and provincial governments also need accurate demographic information for program planning and funding.

14.45 The Department should, in collaboration with the Indian bands, develop and maintain a population information system that meets the needs of all stakeholders.

Department's response: The Department is aware of the need for an improved information base and progress is being made in this area through the activities of DIAND's Quantitative Analysis Socio-Demographic Research Directorate.

Bands successfully administer government-funded programs
14.46 DIAND indicated that certain bands and tribal councils are making notable progress in the self-administration of services for their members. They have achieved impressive results, using their own resources in concert with government funding.

14.47 The Nicola Valley Bands in British Columbia, the Paul Band in Alberta, and the Southeast Tribal Council in Manitoba illustrate what can be achieved in the way of socio-economic development and successful management of financial resources. We did not perform an audit of these cases, but relied on the perceptions of the Indian Chiefs and members of the tribal councils.

14.48 During the 1970s, these communities had little in the way of basic amenities, such as roads, schools and housing with running water and power. School attendance and educational attainment were very low, and a combination of poor job skills and lack of economic opportunities led to severely depressed levels of employment and income. Social problems were exacerbated by these factors.

14.49 Over the past 15 years, the situation in all of the above respects has improved. These tribal council and band administrations have provided the necessary leadership to improve community life from an economic, social, health, personal development and cultural standpoint.

14.50 The tribal councils and bands studied have given priority to implementing responsible financial administration. The scale of their financial operations has grown to impressive levels, with the creation of various enterprises in addition to the administration of programs inherited from DIAND. According to a tribal council, the devolution of responsibility by DIAND has improved the efficient and effective use of government funds. DIAND officials expressed considerable praise for the financial performance of these administrations.

14.51 The factors that appear to have contributed significantly to their success include:

  • a strong management capacity to develop clear goals and objectives;
  • a sound leadership from Chief and Council and community support in the establishment of plans and priorities;
  • effective financial management systems;
  • a competitive process in filling band employment positions; and
  • a high priority for education, management and human resource development.
14.52 The reserves involved are not rich in natural resources, and many are somewhat remote in their location. Thus, the factors that contributed to the success of these bands could do the same for other bands. However, they would not necessarily apply to all bands and tribal councils because some do not yet have the management capability or the economic resources to be self-sufficient.

Specific Claims

Background

14.53 The settling of specific claims is listed as a priority in DIAND's 1990-91 Estimates. For that fiscal year, the operating budget of the Specific Claims Branch (SCB) was $2.3 million. The federal value of settled claims from the mid-1970s to December 1990 has exceeded $100 million.

14.54 The mandate of the SCB is summarized in its published policy in force at the time of our audit. This policy, issued in 1982, states that "the Government of Canada is committed to resolving specific claims (against the government) in a fair and equitable manner." The need to address obligations to Indians has been acknowledged by successive governments over the past several decades.

14.55 Specific claims are those relating to lawful obligations as determined by the government. Typically, these obligations relate to issues stemming from alleged government non-compliance with treaties and legislation affecting Indians and their lands and other assets. Claims include allegations of improper surrender of reserve lands; lack of compensation for lands taken; failure of the government to provide promised ammunition and livestock; and failure to protect the environment, which is crucial to the Indian way of life. Also included are cases where the federal government is accused of having mismanaged Indian assets.

14.56 Specific claims differ from comprehensive claims, which are based on claimed aboriginal title to land and the traditional occupancy and use of such land, including hunting, fishing and trapping. We reported on comprehensive claims in 1990.

14.57 DIAND has internal guidelines and general criteria for specific claims preparation, review and compensation. It has documented policies and procedures, as well as an information system to report on claims inventory and disposition.

14.58 The Department of Justice (DOJ) reviews each claim to determine if, in its opinion, the claim has merit under the policy of meeting "lawful" obligations. DOJ analyzes the legal issues in a claim and advises DIAND on the basis for accepting or rejecting the claim and for assessing compensation. When requested to by DIAND, it may participate in negotiations with the bands. DOJ's involvement directly affects the speed, quality and cost of a claim and its results.

14.59 Other federal departments, such as National Defence, are sometimes party to a claim when damages to Indian property are alleged to have been caused by their operations. Similarly, the resolution of claims can be significantly affected by the involvement of provincial governments, particularly where Crown land or other resources are under provincial jurisdiction.

14.60 Following are the major steps in the claims process.

  • An Indian band researches, prepares, documents and submits a claim.
  • DIAND counter-researches the claim.
  • DOJ provides legal opinions to DIAND on the validity of the claim.
  • Negotiations are conducted to assign values and determine compensation.
  • An approved settlement agreement is reached.
  • The agreement is implemented as authorized by all parties to the claim.
14.61 Settlement compensation may take the form of cash, land adjustment or other arrangement. Written agreements between DIAND, the claimants and other parties are approved by band members and by the Minister of DIAND, Treasury Board and Governor in Council, as applicable.

Audit Objective and Scope

14.62 Our audit included a review of the claims process and results in terms of timing and validation of claims, establishment of compensation, reporting of claims, and related matters.

14.63 We therefore reviewed the SCB mandate, policies, program results, procedures, and reporting. We also examined 17 cases, selected randomly within certain categories. These included settled claims, rejected claims and claims in process. No projection of the sample results to the entire inventory of claims is intended. However, our findings disclosed a pattern of issues within this sample.

Observations and Recommendations

Claims practices need re-assessment
14.64 Independence. The SCB and the claims process it administers are not independent from government. Accordingly, the SCB plays several roles because it must evaluate the issues from various perspectives - of Indians, government, and the public - but always with the knowledge that its claim evaluations will directly affect costs to the government.

14.65 From the claimants' perspective, the federal government has a conflict of interest in settling claims because it both sets and applies the criteria for claim evaluation and controls the negotiation process and funding. From a government perspective, DIAND has the authority and responsibility to act in the best interest of the Indian peoples while maintaining its accountability to the Canadian public for the funds used in the process.

14.66 Claims policy. In 1969, the Government of Canada stated as public policy that its lawful obligations to Indians, including the fulfilment of treaty entitlements, must be recognized. Its 1982 published policy, entitled "Outstanding Business - A Native Claims Policy", provides the current framework for processing specific claims.

14.67 This policy acknowledges that, for the sake of justice, equity and prosperity, claims must be settled without further delay. It also notes that progress in resolving claims has not met the expectations of the government or Indian claimants.

14.68 Our review of how this policy is being implemented raises concerns in the context of government pronouncements on needed improvements. For example, we noted that, despite the government's assertion of fairness, significant claims relating to events prior to Confederation are generally disqualified from consideration by DIAND. DIAND's reason for such exclusion is that, except in specific instances, pre-Confederation claims are not, in its opinion, obligations of the Government of Canada.

14.69 We note that the 1982 Charter of Rights (section 25) protects aboriginal, treaty or other rights pertaining to the aboriginal peoples, including rights that have been recognized by the Royal Proclamation of 7 October 1763.

14.70 We noted instances where DOJ delayed providing its legal opinion to DIAND on the validity of claims, pending the outcome of certain court cases. While we acknowledge the necessity in certain cases to await court decisions, DIAND could not readily determine if the application of court judgments to negotiating principles resulted in "better" settlements for all parties and, as such, justified the delays.

14.71 Disposition of claims. According to the SCB, about 600 claims have been received since inception of the claims process in the early 1970s. When the current claims policy was introduced in 1982, about 61 percent of the claims received up to that time had not been resolved. In 1990, at the time of our audit, 57 percent of all claims were still under review or negotiation. Eight percent of all claims had been settled and agreed upon by the claimant and DIAND, while 35 percent had been rejected or otherwise disposed of. Exhibit 14.3 provides details.

14.72 If the rate of claims intake and disposal of the past two decades continues, the Department could have a similar backlog 20 years from now. We believe this would be inconsistent with government commitments to improve the process.

14.73 Claims submissions. DIAND does not circulate detailed guidelines to the bands on how to complete a claim. Consequently, the quality and quantity of information provided by the bands to support their allegations may be inadequate for proper consideration of the claims. Long research periods may then be needed by DIAND to establish basic facts. This contributes to delays, frustrations and costs in the settlement process.

14.74 Planning and control. There is no planning and control framework for claims. For example, the three major parties to any claim (Indian bands, DOJ and DIAND) do not commit themselves in a written joint undertaking at the beginning of the process to achieve specific results within their respective responsibilities and within a specific time frame. Such a framework could include target milestones for certain phases in the claims process, such as research and validation. Without this, accountability for satisfactory results is elusive, and settlements may be slow and difficult to achieve.

14.75 We also noted that, although DOJ and DIAND work together in the claims process, there are no formal, documented terms of reference between these departments to establish their respective roles, responsibilities and levels of service. Our audit revealed that DOJ and DIAND do not always interpret their roles in the same way, which causes uncertainties in the process.

14.76 Research funding. Since 1976, DIAND has contributed about $50 million to Indian associations or bands to conduct claims research on behalf of claimants. DIAND's recent budgets for research contributions have approximated $5 million annually.

14.77 The contribution arrangements require recipients to provide DIAND with detailed progress reports that show the extent of research performed and the results obtained. However, none of the recipients, in a random sample of seven contribution arrangements, provided sufficient information in their reports to DIAND for assessment of compliance with this requirement.

14.78 Another condition requires recipients to have an audit performed of their financial statements. However, there is no requirement for an audit of compliance with the terms and conditions of the contribution arrangements. Although audit reports on the financial statements were provided to DIAND, these reports did not express an opinion on whether or not the research funds provided by DIAND were used for the intended purpose.

14.79 Management information and reporting. Management information gathered by DIAND does not provide a basis for adequate control over the claims settlement process. Neither does it encourage accountability for results. For example, summary information is not always compiled to identify delays or other problems at the various stages in the process. Targets are not generally used to keep the cases moving, and actual time spent on each case is not captured. The use of such information could help identify potential for improvements in processing efficiency. As well, external reporting by DIAND in Part III of the Estimates is minimal. For example, the reported results of the claims process are not directly linked to costs, settlement values and time frames, and comparative trends are not disclosed.

14.80 DIAND financial records, used for Public Accounts reporting, list 194 cases in litigation as at 31 March 1990. Of these, 73 comprise a total claim of about $7.7 billion against the government. The other 121 do not specify a dollar amount.

14.81 Because DIAND identifies some claimants by the band name and some by the name of an individual, it cannot readily determine whether unresolved specific claims are properly included in the Public Accounts. Consequently, we are concerned that information provided to Parliament by DIAND may not be complete.

14.82 Time required to decide a claim. The need to accelerate the resolution of claims has been expressed by DIAND for many years and was confirmed by the Prime Minister in April 1991.

14.83 In our audit sample of 17 cases:

  • Nine cases were settled in an average time of 7 years.
  • Four cases were rejected in an average time of 4 years.
  • Three cases were still in process after an average time of 11 years, and one had been referred to another branch of the Department.
14.84 DIAND estimates that it generally takes an average of seven years to process a case. Based on our review of individual cases, we believe that stronger commitments by all parties to expedite the process are needed if the desired reduction in processing times is to be achieved.

14.85 Validating claims and determining compensation. Disagreements between DIAND and the claimant bands may involve many issues: for example, valuation of livestock promised under treaty but not delivered; responsibility for paying consultants hired by Indians to help establish their claims; legal interpretations as to what constitutes a proper land surrender; use of appraisals; determination of acceptable costs for reinstating land after government damage; and general "legal" value of the claim.

14.86 We noted that DIAND and DOJ officials have expressed concerns over how compensation is being determined. In some cases, these concerns were rooted in the dilemma of legal rights vs. moral rights. We believe that DIAND and DOJ need to develop and implement a policy and written guidelines on how these issues should be addressed in order to best meet the federal government's commitment to resolve claims in a fair and equitable manner.

14.87 Settlement compensation. A significant factor in the implementation of settlement agreements is the treatment of compensation. There have been differences of opinion between DIAND and the bands on how to distribute compensation.

14.88 DIAND's treatment of compensation for assets of a capital nature, generally land or land resources, is governed by the Indian Act, which restricts Indian access to the funds generated by such assets.

14.89 Although most land settlements relate to loss of land and assets, we found a variety of compensation distribution arrangements. These included payments to an Indian corporation, payments to a band's capital account and payments to a band's revenue account. Bands have argued that these moneys are strictly for restitution and should therefore not be subject to capital rules. We would encourage DIAND to develop written criteria and apply a consistent policy for distribution of compensation. DIAND may wish to consider proposing amendments to the Indian Act in this regard.

14.90 Key factors influencing claims results. Ultimately, the resolution and disposal of claims are subject to:

  • an establishment in fact that "wrongs" have been committed through action or inaction;
  • an effective negotiating process conducted in good faith and with co-operation among all parties;
  • an appropriate determination of compensation (by cash or other assets);
  • the application of due care and sound judgment throughout the settlement process;
  • an appropriate implementation of settlement agreements; and
  • a demonstrated political will to resolve long-standing issues.
14.91 Because of the substantial complexities and human factors inherent in the above and in the case illustrations that follow, the difficulties encountered by claimants and the government are not surprising.

14.92 DIAND and the government should reassess the fundamental concepts and practices for settling claims, including:

  • the objectivity and independence of Specific Claims Branch;
  • the application of policies for acceptance and valuation of a claim, including definitions of and criteria for determining "fairness" and "lawful obligation";
  • the obligations and roles of other federal departments and their working arrangements with DIAND in the disposition of claims;
  • the respective responsibilities of the federal and provincial governments in considering and resolving claims;
  • the need to know how research funding for Indian associations is being used; and
  • the consistency and appropriateness of compensation settlements.
14.93 We believe that appropriate consideration of these matters by DIAND, DOJ and claimants and implementation of remedial action where applicable would constitute significant steps in improving the process and the results.

14.94 In April 1991, the government announced a major initiative in an attempt to address specific claims issues. It includes a specific claims commission; a fast-tracking process for dealing with claims of $500,000 or less; increased ministerial authority to approve settlement payments; and the consideration of pre-Confederation claims.

Case Illustrations

14.95 The following cases, selected from our sample of 17 claims, illustrate some of the issues and difficulties in the claims process as discussed in this chapter. No judgment is made here on the merit or final outcome of these cases.

Case 1
14.96 This band initially submitted its claim to DIAND in 1974 alleging, among other things, that its surrender of land to the Crown in 1901 was invalid.

14.97 The band later filed its claim in Federal Court, contending that the surrender was contrary to the intent of their treaty, to the disadvantage of the band. After further delays, the band submitted an amended claim to DIAND, which included allegations of fraud in the surrender of the land and its subsequent sale and purchase by third parties.

14.98 The alleged acts of fraud related to the establishment of a phony land syndicate to acquire reserve lands; the forgery of names on various documents; the failure of government officials to disclose the true value of reserve lands; the purchase of reserve lands by government officials through the use of secret agents; and other matters.

14.99 According to both the claimant and the government, a 1915 report of a Royal Commission investigation into the disposal of Dominion lands after 1896 suggested there were irregularities in the sales of the subject lands.

14.100 Although the government rejected the allegations concerning the validity of the surrender, it acknowledged, some 70 years after the Royal Commission report, that government officials had manipulated the disposal of the reserve land for their personal benefit.

14.101 The claimants sought compensation exceeding $100 million for loss of their land, resources and other damages. Nevertheless, they confirmed that "the basis for calculating much of the claimed compensation is unusual". In 1986, they settled for approximately $19 million.

14.102 DIAND files showed that there had been considerable deliberation in determining compensation. However, we found insufficient documented analysis to support over $7 million of the settlement.

Case 2
14.103 This claim was submitted in 1976, alleging an improper surrender of land in 1909. The band asked for the return of land and $12 million in damages for loss of its use.

14.104 Citing DIAND's lack of a decision, the band filed its claim in court in 1977 and increased its court claim to over $175 million. In response, the government filed a statement of defence in court.

14.105 About six years later, the band agreed to enter into settlement discussions with the government. We noted that DOJ questioned the validity of the claim in 1983 because it was not convinced that the government had breached its statutory obligations. However, in 1984, DOJ concluded that the surrender did not meet the requirements of the 1906 Indian Act.

14.106 Accordingly, DOJ recommended compensation of $2.5 million, covering the present value of lands not returned and compensation for loss of land use, minus the revenue generated on behalf of the band by the surrendered lands. A proposed ex gratia payment of $500,000 was included, apparently in lieu of costs and interest.

14.107 In 1984, the band proposed a counter-offer of approximately $5 million, representing the replacement value of the surrendered lands and costs. For purposes of settlement, DOJ recommended acceptance of this offer. DIAND agreed, and the band ratified the settlement in 1987.

Case 3
14.108 This band presented its claim for about $5 million in 1982, alleging that DIAND had not fulfilled its trust responsibilities. The requested compensation covered lost interest and other damages regarding DIAND's apparent failure to obtain and collect a proper return from the sale of surrendered land in 1903.

14.109 In 1986, DIAND notified the band that its claim had been rejected because DOJ considered the terms of the land sale "not unreasonable".

14.110 We noted, however, that DIAND questioned the legal arguments used to reject the band's claim. For example, DIAND was concerned that its inadequate collection of money from the sale of land and other actions may not have been in the best interests of the band.

Case 4
14.111 This claim for land and financial compensation (unspecified) was submitted to the Government of Canada and a provincial government in 1977. It alleged that the governments failed to maintain Indian reserve land as required by treaty and provincial legislation passed in 1914.

14.112 According to the claimants, both governments, since the early 1900s, permitted public settlement on Indian reserve land, and the most valuable parts of the claimed area have been developed as farm, tourist and recreation properties. Some of the claimed land is located in a provincial park.

14.113 Over the years, disagreements continued between the provincial and the federal governments on several issues relating to their respective responsibilities for resolving the claim. The disagreements included misunderstandings and difficulties relating to land surveys, Indian land entitlements, and authority to settle or dispose of the claimed land.

14.114 In 1978, a senior DIAND official recommended the establishment of a specific negotiating time frame acceptable to all parties in order to encourage federal-provincial agreement and expedite the settlement. Nevertheless, no deadlines were established, and the case lingered.

14.115 We noted that DOJ considered the evidence ambiguous and inconclusive and consequently believed there was a degree of uncertainty as to the validity of the claim. However, according to the bands, the claim was being assessed with "no discounting for doubt".

14.116 In 1988, the governments offered a settlement of about $2 million, to be borne equally by Canada and the province, but the bands did not subject this offer to their ratification process because their own settlement proposal was, in their view, "brushed aside" by the government.

14.117 In April 1991, DIAND advised us that no settlement had been reached.

DIAND's response: The Department agrees with the issues identified in this report.

The Prime Minister announced revisions to the claims policy in April 1991. Changes include directions to resolve pre-Confederation claims; a fast-track process to deal separately with claims valued at less than $500,000; increased ministerial authority to approve settlements up to $7,000,000; an Indian Specific Claims Commission to independently review the grounds for acceptance of claims and the principles applicable to value claimants' losses; and a Joint Indian-Canada Working Group to review claims policy and process issues. Also there have been some administrative initiatives undertaken to clarify and improve organizational and control processes.

Further, the issues cited in this section are being reassessed with the assistance of the Joint Indian-Canada Working Group. Several initiatives have already been taken, including the establishment of the Indian Specific Claims Commission to review claim decisions, the definition and description of the criteria for presentation and acceptance of claims, increased accountability for claims funding, and consistent determination of claims compensation. The allotment of federal-provincial responsibilities is being dealt with whenever major opportunities arise.

In response to the Auditor General's comment regarding research funding, it should be noted that, as a result of a program initiative, work is now under way to review the funding process with particular emphasis on more efficient reporting and monitoring mechanisms.

In respect to the Public Accounts, the Department has instituted procedures to ensure that specific claims information included in the Public Accounts will be complete starting with 1990-91.

Department of Justice's response: To the extent of its involvement, DOJ agrees with the audit findings and recommendations on specific claims.

Indian Oil and Gas Canada Production Assurance

Background

14.118 The mandate of Indian Oil and Gas Canada (IOGC), part of DIAND's Economic Development Sector, is to implement the Department's fiduciary responsibility in leasing Indian reserve lands for the development of resources and the collection of royalties through the authority framework provided by the Indian Oil and Gas Act and related regulations.

14.119 IOGC activities include negotiating, issuing and managing oil and gas permits and leases, and verifying oil and gas production, pricing and royalty calculations.

14.120 Private sector companies enter into agreements with IOGC to extract oil and gas from Indian reserve lands. The resulting revenues are a major source of Indian moneys under DIAND's fiduciary responsibility. In 1989, oil and gas revenues approximated $60 million.

Audit Objective and Scope

14.121 Since royalties are determined largely according to the production of Indian oil and gas reported by third-party leaseholders, we sought to determine if IOGC had adequate assurance that leaseholders were reporting their production completely and accurately. We therefore reviewed IOGC policies and practices for obtaining assurance of reported production. We did not attempt to detect errors in the amounts reported by third parties.

Observations and Recommendations

14.122 IOGC states that it obtains assurance primarily by analyzing production reports from oil and gas producers, performing site inspections and audits of producers' records, and relying on the production and reporting regulatory framework and measurement standards administered by provincial bodies such as the Energy Resources Conservation Board (ERCB) of Alberta. (References to the ERCB in this chapter should not be construed as a criticism of its work.)

14.123 IOGC also asserts that the nature of the oil and gas industry in Canada, particularly the interest of joint venture partners in resource exploitation, reduces the risk of errors in production reporting.

IOGC has limited evidence of production assurance
14.124 At the time of our audit, there were considerable gaps in IOGC documentation for the sources of assurance described in paragraph 14.122. For example, IOGC had not appropriately documented its policy and strategy for oil and gas production monitoring; the extent and results of its analyses of production reports received from third parties; the completion and disposition of its audits of producers' records; and the basis for and validity of its reliance on the work of the ERCB.

14.125 IOGC's assurance is affected by the risk of inadequate reporting by the numerous oil and gas wells, batteries (gathering points), companies and operators, and its assessment of necessary site inspections, cyclical reviews and priorities for the surveillance of measuring devices, the review of operating procedures and the audit of production records.

14.126 The Indian Oil and Gas Regulations provide for government inspections of operator facilities and records. IOGC acknowledges the need for such inspections to help determine, among other things, the adequacy of production reporting. In 1988, IOGC initiated a program of inspections and field audits. As of December 1990, a small number of inspections and audits were completed, with both positive and negative findings. However, the absence of a well-defined monitoring policy and strategy means there is no required level of assurance against which to measure these results.

14.127 With respect to reliance on the ERCB, we found that IOGC did not co-ordinate its monitoring practices with those of the Board. It did not assess the ERCB's monitoring plans and reports to determine whether its coverage, methodology and results were adequate for IOGC purposes. IOGC acknowledged that the vast majority of wells in Alberta do not have an Indian band interest and therefore the ERCB's monitoring objectives would have limited relevance to Indian oil and gas. We noted that it is IOGC's policy to strengthen communications with the ERCB to their mutual benefit.

14.128 We are concerned that IOGC and the Indian bands will remain vulnerable to possible misreporting of oil and gas production until the documentation standards applied by IOGC are sufficiently improved to provide the assurance it needs.

14.129 IOGC should appropriately document its production assurance relating to royalties. This assurance should be supported by an oil and gas monitoring policy that includes a strategy for all inspection and auditing activities.

14.130 IOGC should ensure that a formal audit report is issued for every audit and that the disposition of all audit findings is appropriately documented.

Department's response: DIAND agrees with the recommendations.

IOGC has carried out a broad-based program, both in respect to inspection of field operations and through paper trail reviews of company compliance with production reporting requirements. All reporting discrepancies have been addressed and appropriate corrective action taken.

Procedures are being put in place to ensure that both monitoring policy and the disposition of audit findings are appropriately documented.