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1996 September Report of the Auditor General of Canada

Foreword

This study represents a different approach to this topic on the part of the Office. It is not an audit and therefore it does not conclude against a specific set of criteria. We have used studies in the past to draw Parliament's attention to a variety of issues.

This study focusses on the perspectives of one set of the parties involved, the First Nations. It is aimed at improving our understanding and encouraging the pursuit of solutions. The Office intends to build on this understanding and to take into consideration the lessons learned for future audits and studies dealing with the relationship between First Nations and government.

The approach used was to capture the views of selected First Nations and to explore the basis for a common understanding of the issues. This approach required that we present not only the views of these First Nations on the accountability issues faced by their leaders and program managers but also, to provide as context, their views on the environment in which the relationship operates. This environment is highly politicized and contentious. The views on this broad framework (presented on shaded paper) are those of the participating First Nations and not necessarily those of the Office.

Main Points

13.2 This study focusses on the perspectives of one set of the parties in such a relationship, the First Nations. It is aimed at improving our understanding and encouraging the pursuit of solutions. The Office intends to build on this understanding and to take into consideration the lessons learned for future audits and studies dealing with the relationship between First Nations and government.

13.3 This study is based on interviews with nine First Nations and one Tribal Council that Indian and Northern Affairs Canada considered to be well managed. Although there is a broad legal framework that governs First Nations' dealings with the federal government, and First Nations have obligations to their own communities, the discussion focussed on First Nations' day-to-day interaction with government departments. Management practices of First Nations and of government that participants felt could be improved were discussed at length.

13.4 Participants recognized the importance of effective accountability and articulated a clear sense of essential accountability factors. For example, participants felt that it is essential that both First Nations and government have clear and commonly held objectives, that audit meet the needs of their communities as well as of government, and that the focus be on results as opposed to process. Taken together, these factors fit within most definitions of accountability. In an area as complex and contentious as this, it is encouraging to see that these First Nations hold views that appear, to some degree, to be consistent with such definitions.

13.5 However, participants strongly emphasized a two-way perspective as an essential ingredient of accountability. Much of what we heard spoke of accountability among partners or equals. Generally, accountability in government is viewed as a hierarchical relationship involving a delegator, who assigns responsibility to another - a delegate. It is evident that there is a significant difference between this concept and the one that participants felt would better suit their needs.

13.6 While participants felt the current situation was unsatisfactory, many were optimistic and felt that progress could be made. They recognized that both they and government officials work under difficult and uncertain circumstances. This study represents one step toward encouraging improved dialogue with government and First Nations as they develop practical approaches to strengthening and clarifying accountability relationships.

Introduction

An Evolving Relationship

13.8 The evolution of Indian and Northern Affairs from direct service delivery to funding agency can be seen as having taken place in three general stages. Until the late 1950s, the federal government delivered most programs and services to First Nations. By the late 1970s, First Nations were administering government programs and following program circulars detailing terms, conditions, processes and reporting requirements designed by Indian and Northern Affairs. By the late 1980s, new funding arrangements had been developed, including alternative funding (AFAs), comprehensive funding (CFAs), and self-government funding - each with different types of arrangements, delegation of responsibility, control and reporting. The situation in the 1990s continues to evolve, with increasing emphasis on program devolution and self-government initiatives.

13.9 Funding arrangements in the area of health have also evolved. Health Canada is progressing with the transfer of control of health services to Indians and Inuit. To date, over 100 agreements have been signed.

13.10 As this devolution has progressed, we have reported to Parliament the difficulty that government departments have experienced in fulfilling their accountability obligations. Our concern with accountability stems from our role as auditors providing assurance to Parliament that responsibilities conferred and moneys provided have been used properly and wisely.

13.11 In its accountability to Parliament, government is expected to report on activities undertaken and results achieved. Similarly, accountability relationships within government support the ministers' obligation to report to Parliament. These relationships often become more complicated where third parties are used to carry out activities for which government remains responsible. For example, First Nations are carrying out an increasing range of activities for which legislated authority and related responsibility remain with government.

13.12 As funding arrangements have changed, so too have accountability relationships. When federal departments were engaged in direct program delivery, they were accountable for the results achieved and the moneys spent. This accountability was to Parliament, through the respective minister. As moves were made to devolve responsibility to First Nations, efforts were also made to promote local accountability.

13.13 Considerable effort has been made by government to improve the funding agreements and reporting structures to better reflect this evolving relationship with First Nations. Yet difficulties remain. This study represents a different approach on the part of the Office to addressing these long-standing issues. We conducted several audits that reported on government's role in this relationship. Subsequently, we attempted to describe the views of selected First Nations on their relationship with government. This work in turn has produced a discussion of factors that these First Nations believe are important in establishing and maintaining effective accountability.

Objectives and Scope

• to provide views of selected First Nations on the accountability relationship with government, including -
  • identifying important factors in the relationship,
  • discussing what they entail and why they are viewed as important, and
  • assessing how the relationship is working;
• to explore the basis for a common understanding of the issue, including whether a basis exists for a multipurpose accountability framework that meets the needs of First Nations, government and Parliament.

13.16 In an effort to explore the views of Aboriginal peoples, we focussed largely on First Nations, thereby obtaining the views only of some status, on-reserve Indians. Our sample included nine First Nations and one Tribal Council comprising several First Nations. It was not statistically based; however, it was sufficiently representative to be illustrative of First Nations that are considered well managed. The sample included First Nations from each region, with the exception of the Territories, and included small, large, isolated and urban communities. It was drawn from a list of 50 First Nations that Indian and Northern Affairs viewed as being well managed.

13.17 Our analysis was initially based on the views expressed by participants from these nine First Nations and one Tribal Council. We then formed a committee composed of participants from five of these organizations to provide advice on the presentation of the findings and on the context necessary to interpret the findings.

13.18 This study was intended to be exploratory in nature and to enhance understanding of this area. We see the study as a first step in encouraging dialogue with government and First Nations as they develop practical approaches to strengthening accountability relationships. A brief outline of the approach and methodology is contained at the end of the study in About the Study .

Context

13.20 Throughout all of our interviews, it was clear that people felt strongly that current funding levels were insufficient. Many people believed that the Crown was not fulfilling its obligations, including treaty obligations to First Nations. However, this was not the main area of discussion. Having made these points, people tended to move on and discuss today's relationships in a manner that was candid, pragmatic, constructive and focussed on the day-to-day responsibilities that they had as leaders in First Nations communities.

13.21 First Nations must deal with different aspects of accountability. There is a broad legal framework that governs their dealings with the federal government. There is also the day-to-day practice, in which government departments and individual First Nations seek to meet their objectives while meeting their respective obligations. For First Nations, these include obligations to meet requirements determined by government and also by their communities.

13.22 This broader framework includes existing legislation and continues to evolve through discussions on self-government and land claims settlements in addition to discussion among the parties on the interpretation of existing treaties. Much of this interaction takes place at a political level, and few issues are resolved quickly.

13.23 In this somewhat uncertain environment, managers in each party have had to develop workable practices that help them meet their respective obligations. Most of the discussion related to this study focussed on these management practices, and on areas that participants felt could be improved more quickly.

13.24 There was some general commentary, however, on the current framework and political environment. The following summary of participants' views on this broad framework provides a useful backdrop against which discussion on specific management practices can be better understood. These views, presented on shaded paper, are those of the participating First Nations and not necessarily those of the Office.

The Broad Framework

13.26 Participants in the study felt that the federal government's obligations to First Nations should not have been assumed by the provinces without proper consultation and consent. Concern was expressed that in cases where the federal government had entered into such arrangements, these arrangements were not sufficiently transparent. In some cases, First Nations were not sure exactly what had been agreed to, and felt very strongly about this. Although some accepted that they had to deal with the provinces on matters relating to the delivery of programs and services, there was reluctance to deal with provinces on a political level.

13.27 Some felt that Indian and Northern Affairs often had conflicting responsibilities - for protecting not only the interests of First Nations, but also the interests of the government of the day.

13.28 There was sensitivity to any
form of accountability suggesting that First Nations are in any way subservient
to government departments. Some thought that federal government transfers to First Nations represent a right, for which they are accountable to the community, but for which no accountability to the federal government is required. However, most participants recognized that Parliament has a role and requires information to fulfill that role.

13.29 There was a hope expressed by some that a relationship with Parliament would be maintained that would not require First Nations to report to government departments. There was also recognition that, with over 600 diverse First Nations, this would present practical difficulties. The form this relationship would ultimately take, or what the accountability implications would be, was not clear.

13.30 Some participants believe that funding arrangements in the future may look more and more like transfer payments and that these may be similar to those arrangements that provinces have with the federal government. However, provinces have Provincial Auditors General and it was not clear from our discussions who will audit these arrangements with First Nations and provide the interested parties (including Parliament) with the assurance they require.

13.31 It was also not clear how Parliament would know whether the quality of health, education or living conditions is improving in First Nations, especially if only attest audits of financial statements are required. However, participants appeared willing to explore ways in which arrangements could be adapted to ensure that the needs of Parliament were met.

13.32 One topic that emerged in virtually all of our discussions was that of devolution. Devolution is currently a subject of political discussions between First Nations and the federal government. Participants believed that the degree of devolution and the pace with which it occurs will influence the form of and expectations for accountability.

Findings

Internal Accountability

13.34 Most First Nations talked about the importance of good communication between the Council and membership. Council meetings were often described as open to membership, with individuals welcome to express opinions. One First Nation mentioned that at least 4 and as many as 14 meetings are held annually. The value of such meetings is illustrated by the following statement made by one manager:

Communication is important. Any changes to policy or procedures that the Council wants to make are put before the band membership.

13.35 Some special Council meetings are also set up to discuss specific topics such as the approval of the budget and the financial audit. Annual audit reports are often made available to members at an annual meeting. One manager pointed out that a letter explaining the financial statements in non-accounting terms is sent to each member of the community.

13.36 In addition, some First Nations set up committees and consult the community at various stages of projects. One individual commented:

Economic development projects have boards of directors and management committees that include members of the community. This is to ensure that projects are carried out wisely and that community consensus is maintained.

13.37 A number of participants mentioned that getting community buy-in to the various programs and decisions was important. First Nations have to attain and maintain trust between those who deliver programs and those who are recipients. Individuals interviewed felt that once administrators could establish that they were credible and sincere, membership would make the effort to work with them. That is also seen as enhancing accountability between membership and the Council.

13.38 Overall, when internal accountability was discussed, it was mostly in terms of communication and interaction between Council and administration, and members of the community. However, these discussions in our interviews were brief and the larger part focussed on the relationship between the particular First Nation organization and government organizations.

Practices That Result from the Interaction of First Nations Organizations and Government

Clear objectives

13.41 People saw this as a two-way issue. They felt that First Nations do not understand the objectives that government departments and agencies are working toward. At the same time, they thought that the objectives of individual First Nations were not well understood by government departments. It was the view of the participants that it is essential that both First Nations and government have, in a broad sense, clear and commonly held objectives.

13.42 Virtually all people felt it was necessary to have communities involved in identifying needs and to have programs designed accordingly. They thought that programs would be more relevant if this were the case. It was also felt that planning should start with the First Nations, who would identify and prioritize their needs. This would then feed into the government's planning process. One person stressed:

Planning should start with the First Nations and be based on First Nations' needs and priorities. The plans should then go to the government for negotiation and be included in the government's planning process.

13.43 They felt that this approach would strengthen the link between the needs of the community and the design of the programs being delivered.

13.44 In one case, a First Nation program manager outlined to us the following characteristics of a well-organized program, stating that such a program would:

• be run by Native people;
• be geared toward the needs of the community (this is key), with an effort made to determine community needs;
• involve networking and co-operation - a sense of working together rather than the babysitting approach; and
• have the funding known up front, so managers would not have to wait to find out the level of funding available.

13.46 Most felt that each party's objectives not only were not well understood but were, in some cases, quite different. This was particularly the case with regard to devolution. The First Nations' objective was described as putting more control of programs and resources into the hands of First Nations.

13.47 However, there was a strong feeling that the government's objective in devolution was simply to reduce expenditures and that, in effect, First Nations were "being set up to fail". This was often described as "dump and run". One individual stated:

The government has associated downsizing with devolution.

This sentiment was also felt by another, who said:

Downsizing, not delegation, has driven the government's actions.

13.48 Participants thought that it was important for objectives to be agreed upon by both parties at a broad level. They also saw a need, once objectives were established, for flexibility on how they were to be achieved.

Audit

13.50 Some were already taking steps on their own to try to provide more meaningful information to the community, including one manager who expressed:

The audit should be more than just a collection of statistics. For example, the audit should look at whether funds have been spent most advantageously.

13.51 Some saw the potential value of audit to the community - that there were benefits for the community in knowing more about how and where funds were being spent. One manager observed:

The Band Council wants to report to the members of the community. We see the annual audit and opinion as a step in the right direction. We are looking at reviewing the First Nation's operations from a value-for-money perspective.

13.52 In this case, we were told that the community was about to begin doing value-for-money audits in an effort to meet the demand to know not only where funds were spent but what it was getting in return. In this sense, audit was seen as a valuable accountability tool within the community.

Reporting

13.54 While accepting that the government wanted certain types of information, they did not understand why some information was necessary, or what was done with that information. People generally felt that these reports and audits served the needs of the federal government more than they served the needs of First Nations and their membership. One manager asserted:

I believe that no one understands the First Nations' financial statements. The First Nation had to send a letter to each member of the community to explain the financial statements in non-accounting terms.

13.55 There appear to be two reasons for the participants' dissatisfaction with the current approach. In part, there is a sense that the reporting requirements are imposed upon them. In addition, the accountability regime does not appear to provide information that enhances accountability between First Nations and their membership.

Transparency

Government departments should be accountable to First Nations in terms of funding formulas and policies that dictate what they do and do not do. At present, this is not transparent, which makes it difficult for us to explain to our membership why some things cannot be done.

13.57 From their perspective, participants thought that decisions made by government departments should, where they affect First Nations, be more transparent.

Focus on results rather than process

13.59 One person interviewed stressed:

We would like accountability, and it should be focussed on results.

Another stated:

All parties should agree on the results to be achieved. In accounting for results, both parties would measure whether objectives had been achieved.

Yet another person asserted:

We want to focus on results rather than rules. We want to improve results, rather than argue about changing the rules.

13.60 There was a feeling that accountability would be improved if there were an increased focus on results, in addition to a simplification of the processes required. These views were expressed about a number of programs, such as education and economic development.

Aligning responsibility and capacity

13.62 Participants said that the authority to administer programs began to be devolved several years ago, and that they had begun to acquire the necessary skills. However, some felt that the devolution process had left them with fewer resources than the government had used to administer these same programs.

13.63 They felt that they had to deliver the same service with fewer financial, human and physical resources. In addition, they felt that the transfer of responsibilities needed to be accompanied by training. Some mentioned that First Nations staff often had to learn on the job, without the benefit of training or guidance. The concern was raised that there is a need to maintain a balance between responsibility and resources available.

13.64 People saw a strong administrative capacity as a building block toward exercising greater responsibilities. They appeared to take this issue very seriously and many were continuing to try to improve their administrative capabilities. In many cases, they had encouraged employees to attain professional qualifications. Administrators and managers had obtained, or were in the process of obtaining, university degrees or professional accounting designations. Where these skills were not available within the community, they had been obtained through external hiring.

Toward a Common Understanding

13.66 These First Nations recognize the importance of effective accountability, and have articulated a clear sense of the essential accountability factors. Yet the overall view of the participants is that, in practice, these factors are not working well for them. They feel that they don't sufficiently help First Nations meet their own accountability obligations.

13.67 One reason for this may be found, in part, through closer consideration of the views on these factors as they were described by the participants. In describing each of the factors, participants have strongly emphasized a two-way perspective as an essential ingredient. They see transparency, for example, as working both ways: government should be transparent to First Nations just as First Nations activities should be transparent to government. In the case of audit, they feel that audit reports need to be of value to First Nations and their membership as well as to government.

13.68 This emphasis was quite strong throughout all the discussions on all of the factors. It is not enough, they felt, for First Nations' objectives to be clear and understood by government; but government's objectives with regard to programming directed at First Nations should also be clear and understood.

13.69 In fact, the discussion on objectives seems to suggest something more than just sharing information: it suggests that there should be a common purpose shared by First Nations and government. This, in itself, sheds some light on how First Nations view not only elements of their relationship with government but the very relationship itself.

13.70 Much of what we heard spoke of accountability among partners or equals. There was considerable discussion about sharing information and, indeed, sharing objectives. There was a strong preference for an accountability framework that would be of equal value and benefit to each party.

13.71 However, accountability in government is usually viewed as a hierarchical concept. The existing framework, based on legislation, often suggests a superior and a subordinate, a delegator and a delegate.

13.72 It is evident that there is a significant difference between this concept and the one that participants felt would better suit their needs. The existing framework evolved in order to enhance accountability to Parliament as government grew in size and complexity. It was born from the practical needs of ministers to retain responsibility for a very large set of activities and therefore was based on delegation.

13.73 Participants told us that government did not invent accountability, and that it was practised by First Nations in their own way, prior to contact. Their concept of accountability originated, they said, from a need to build consensus, through broad participation and consultation. In many cases, participants told us that they continue to try to manage programs in this way.

Conclusion

13.75 However, is this participatory or shared accountability of which the participants speak irreconcilable with what they find within government? Participants don't believe that it is. The discussion identifies a number of areas where participants' views suggested that there is a sense of importance that is common to both parties, and common language and concepts are beginning to emerge. This can be seen as an important first step, and a basis from which progress can be made.

13.76 As the creation of duplicate processes tends to be burdensome and expensive, participants think that there is room for incremental progress between individual First Nations and government through ensuring that existing processes and practices meet the needs of both parties.

13.77 For example, as agreements come up for renewal, participants think that those elements that work only for government could be adjusted such that they also support First Nations' obligations to their membership. Further, reporting requirements could be modified to meet the needs of each party. Program objectives could also be redesigned in order to ensure that they meet the needs and obligations of each party.

13.78 Opportunities for both parties to reach common solutions may increase, helped in part by changes currently taking place and affecting both parties. First Nations believe that they are continuing to strengthen their management and administrative capacity. Government continues to encourage public servants to improve services through innovative and creative changes to programming. In addition, government is now considering alternative partnership options for the delivery of various programs and examining different types of accountability structures such as horizontal or shared accountability structures.

13.79 Participants feel the current situation is unsatisfactory, yet many are optimistic, and feel that progress could be made. They recognize that both they and government officials work under difficult and uncertain circumstances. Some of the participants have already begun to take initiatives to improve their understanding of how government works, and what constraints officials currently face.

13.80 This study does not contain specific recommendations; instead it discusses the issues from the perspective of selected First Nations. The views presented suggest that, while differences remain, there is also room for encouragement. These First Nations were willing to discuss accountability and have expressed a desire to help make it work for all parties. This study represents one step toward encouraging improved dialogue with government and First Nations as they develop practical approaches to strengthening accountability relationships. The Office intends to build on the understanding gained from this study and take into consideration the lessons learned for future audits and studies dealing with the relationship between First Nations and government.

Departmental comments: Indian and Northern Affairs Canada finds the Auditor General's observations and the First Nations' views expressed in the study both encouraging and helpful. The Department looks forward to pursuing the dialogue with First Nations on practical approaches to be considered to strengthen our respective accountability regimes to our mutual benefit. The information presented in the study will assist the Department in pursuing discussions with First Nations.

About the Study

Objectives

• to provide views of selected First Nations on the accountability relationship with government, including -
• identifying important factors in the relationship,
• discussing what they entail and why they are viewed as important, and
• assessing how the relationship is working;
• to explore the basis for a common understanding of the issue, including whether a basis exists for a multipurpose accountability framework that meets the needs of First Nations, government and Parliament.
  

Approach and Methodology

Preliminary work. An extensive literature review of material dealing with issues related to First Nations was conducted. Indian and Northern Affairs officials were interviewed with a view to having them identify well-managed First Nations organizations. An analysis of 50 First Nations organizations was completed by reviewing documentation on each organization and interviewing the Indian and Northern Affairs officials who interacted with these organizations.

Field work. The list of First Nations willing to participate in the study was finalized (a total of nine First Nations and one Tribal Council). This list included First Nations from each region except the Territories. It included more remote First Nations as well as those closer to urban centres, and smaller as well as larger First Nations. It also included First Nations that have different types of funding arrangements with government. The study team undertook field visits, which included extensive interviews with First Nations representatives, to obtain their perspectives on accountability issues. For most First Nations, discussions were with Chief and Council, in addition to First Nations administrators and program managers. The interviews were always conducted by at least two members of the study team and were designed to be open-ended because the team's objective was to obtain participants' opinions on accountability issues. The participants were encouraged to discuss a broad range of issues with regard to their relationship with the federal government.

Analysis. Consolidated interview notes and a list of factors affecting accountability were developed for each First Nation. Confirmation that these factors represented an accurate account of the discussion was sought from the participants. Detailed analyses based on the interview notes, lists of factors affecting accountability, observations from the field visits, and documentation provided by the First Nations were undertaken. A draft report, summarizing the findings, was completed.

Reporting. A working group, made up of participants from five of the organizations, was formed to provide extensive comments on successive study drafts. As well, participants from these five organizations attended a one-day workshop with the Auditor General and the study team to discuss the contents of the study report. Concurrence on the final report was obtained from these First Nations.

Study Team

For information, please contact Ronnie Campbell, the responsible auditor.