Good morning, Madam Chair, and members of the committee. Thank you for the invitation to come before you. It's good to be back here. I have my colleagues with me in order to provide support or respond to your questions on this very important issue.
Let me begin by saying that the study is very timely. As you will no doubt hear from other witnesses who come before you, the default prevention and management policy and its provisions—particularly those related to third party management—have encountered many challenges and a fair share of critical comments over the years. As such, they have been, and continue to be, areas of serious preoccupation and ongoing concern for the department.
Having said that, I would like to note that the default prevention and management policy, or DPMP, articulates a useful framework to, first, ensure that situations of defaults are addressed as early as possible through graduated means whereby only the level of intervention necessary is used; second, support first nations' efforts to prevent, identify, and address their own default; and third, help first nations manage their way out of defaults towards long-term sustainability in delivery of programs and services to their citizens.
Before going any further, I should inform you that I have to define the notion of default in the default prevention and management policy. Default is a condition that may include one or more of the following triggers: first, the health, safety, or welfare of the citizens is at risk, and this may be caused by floods, fire, a breakdown in service delivery, or sudden developments that cause citizens to go without essential services; second, the first nations government fails in its key obligations under the funding agreement, which may include the refusal to sign the funding agreement, leaving its citizens without essential services and the department with no legal means to transfer money to these citizens; third, an adverse auditor's opinion on the first nations' annual audited financial statements, which denotes a lack of confidence demonstrated by the auditor of the first nations community; and fourth, the first nations' financial position deteriorates so as to place management of public funds or delivery of funded programs and services at risk.
In my remaining time in my remarks, I will focus mainly on some of the key challenges we have encountered with the DPMP. I will also touch on issues we are dealing with, and on the efforts we in the department—working closely with first nations and indigenous representative organizations—are making to try to address these concerns. The objective of these efforts is to help first nations to exit defaults as quickly as possible and in better shape, avoid future defaults, and build increased capacity for them to manage their affairs sustainably, accountably, and for the benefit of their citizens.
The policy came out originally in 2008 and was reviewed and subsequently updated in November 2013. This is the basis of the policy we're working with today, although it is now subject to review as part of the minister's signing an MOU with the Assembly of First Nations, AFN, whereby we are looking at a new fiscal relationship. One of the elements of this is the default prevention and management policy. We are very excited by the committee's study because we'd like to take advantage of your good work for that ongoing technical exercise.
The principal objective of the policy is to maintain continuity in the delivery of federally funded programs and services to first nations citizens while the first nation is in default. This policy aligns with the Treasury Board transfer payment policy, which ensures that when a government ministry transfers funds to a recipient, regardless of whether it's a first nation or any other organization, there is a duty imposed on the government ministry to evaluate the risk profile of recipients of government financial transfers and manage these transfers accordingly, based on the risk profile. It's under that Treasury Board transfer payment policy that we have developed our default prevention and management policy as a subset of how we manage those funds on behalf of Canadians.
What we're trying to do with that policy is establish a principle that first nations citizens should be held harmless and protected from the failings of their governors or administrators or from circumstances over which they have no control.
Together with Health Canada, which represents the majority of aboriginal spending, we have tried to work collaboratively on a number of fronts to support the management of grants and contributions. We use joint approaches on general risk assessment, default identification, and remediation so that, as much as possible, they are joint actions of engagement with the community.
While everybody is very familiar with this phrase, “third party management”, that's not what the default prevention and management policy is all about. There are a number of pillars associated with this policy. The first one is default prevention, and that's avoiding the situation to begin with. The objective here is to avoid defaults by being proactive and working with the department. What we try to do, according to the Treasury Board transfer payment policy, is evaluate the risk situation, or in a more positive way, the health situation and the well-being of the community. We have established a number of indicators to assess the risk profile or the health and well-being of that community. We use, for example, something called the general assessment score or methodology to do that monitoring and to see whether there are any warning signs. If we see any warning signs, then we engage with the first nation to see whether we can get them back to where they should be, in terms of a better score, to avoid the default in the first place.
If we are not successful in those efforts in working with the first nation to avoid default, we go to pillar two, which is the default management itself. We apply a risk-based default assessment tool, a risk rating on the degree of the default. As I said before, with the default prevention and management policy, when you get into default management, that does not necessarily mean we automatically go to third party management. That is the most interventionist element, and we try to avoid that.
There are various levels of intervention or engagement with the first nation that we try to exercise before imposing third party management. For example, we try to do what is called a recipient. At the first level, a very light one, we ask the first nations community to develop a management action plan to get them out of the default. On their own, they develop a plan to get themselves out of the default. At the second level we then say, “You need some help. You need an adviser to get you out of the default. You can even appoint the adviser you want.” The first nation contracts an adviser to assist them in the implementation of this management action plan to get them out of the default. These advisers are paid out of the band support funding.
The last, and the one you may hear the most criticism about, is the most interventionist, and that is called third party funding agreement management. This is where we engage and we contract a third party manager who we choose to manage the funding agreement that we have between us and the first nation.
