Evidence of meeting #50 for Indigenous and Northern Affairs in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was communities.
A recording is available from Parliament.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
Thank you very much. This has been a very enlightening conversation. I really have appreciated the testimony and the presentations.
The questions we've asked, in not just this study but in many studies, are really around jurisdiction, long-term stable funding, community-driven priorities. You've hit on something here, in particular on the economic piece of it.
You have 211 communities. Many of the communities we see are still wrestling with the jurisdictional piece, aren't they? Most of them are fighting to get the rights to their own jurisdiction. I can see that one of the challenges of getting to that full exercise of jurisdiction is the distrust of finally getting your jurisdiction and now having to give it over to FMA.
How have you been able to deal with that conundrum of wanting your jurisdiction but then giving this economic piece of it over to FMA? From that, how do we bring in those 400-plus other communities that aren't involved right now, feeding off the success that you've already achieved?
Chief Commissioner and Chief Executive Officer, First Nations Tax Commission
I'll start.
The jurisdiction lies with the communities. All we are doing as the Mohawk saying goes, is “clearing the path”. The ultimate jurisdiction is within the communities, with their own jurisdiction.
We facilitate it. That's why these institutions were created. It's optional legislation. We're not forcing this on anyone to participate.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
The challenge, though, is that once they do participate, they're embedded within it and have to follow the guidelines. I understand it, but because of the levels of distrust that exist today among everyone—because as you said, they've been frozen in time and shut out.... We've tried to rip their cultural and historical souls out of them completely, and now we're finally moving towards reconciliation and then are going to offload that.... Do you know what I'm saying?
Chief Commissioner and Chief Executive Officer, First Nations Tax Commission
It's the same argument that Canada became a federation. Essentially, that is correct. What we hope to achieve is to have more communities participating, because we become stronger, ultimately, when more communities join.
Executive Chair, First Nations Financial Management Board
The financial management board. If it's taxation, he's the first one in. He always likes to say he was six foot six when he started.
Executive Chair, First Nations Financial Management Board
No. The height he's losing, I'm getting.
We go into those communities and I'm often in front of the membership—the chief and council, and administration. When we talk about Manny being a former chief, I'm a recovered politician from the Squamish Nation. I served in many places in our nation. You have to gain their trust. We have to go in and they have to see us as aboriginal people who have walked in their shoes, and that's how it starts. There's a community here in Ontario that took five years and four visits, and they've just borrowed. St. Theresa Point has borrowed and been certified. We have a community in the Arctic, but you have to go and have to have a presence there. It's not a phone call. You show up and you be there; and you have to gain their trust, and ask them some pretty tough questions. Are you happy with where you are today? If you are, I guess you're going to stay there. If you're not happy—and most people aren't—we say, well, what are you going to do that's going to change it? Are you going to wait for somebody, or are you going to do something yourself? What does section 35 mean?
We can say those things because I'm a status Indian from the Squamish Nation. We lived it. Others cannot. That's the difference. That's why you need first nations' institutions led by first nations so that we can go in and say some tough things, share our experience, and say, we will leave, but we're not going to leave you by yourself. We're going to help you.
We've been very grateful for the support we've received from government to continue to do that. I hope you will see the success of that investment in what we're doing, and continue to make that investment, because we will get everybody eventually.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
As you're making that investment, are you finding in these 100-plus communities that now have the financial capacity we've been talking about that it is a case of build it, and they will follow? They will come. Are you finding this is becoming a reality, just like osmosis, as a result of their being involved in this?
Executive Chair, First Nations Financial Management Board
Yes. What's really amazing to us at the moment is that we always saw the financial management board as a follow-on institution to the tax commission and the financial authority, but the communities are now coming to us first. We now have, I would say, one-third of our communities coming to us, scheduled to the act. They want to go to the tax commission, they want to borrow, but they know that they don't have their financial house in order and are coming to us first, and starting to get themselves organized. I think that's the change.
Chief Commissioner and Chief Executive Officer, First Nations Tax Commission
We're able to develop standards and regulations that individual communities don't have the resources to do. As you know, they change and fluctuate so often that they get a bigger bang for the buck working with the institutions. It's making sure that there are trained personnel to be able to take on the responsibilities, making sure that there are standards and regulations they will be able to deal with on a daily basis.
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
What I love about this is the governance driven by first nations. It's driven by you, created by you, run by you, and to me that is what is needed.
How do we—
Liberal
Mike Bossio Liberal Hastings—Lennox and Addington, ON
Oh, crap.
This has been initiated and has been successful, but how do we get now to the next level? Where do you take the success next, beyond the financial level towards health, education, housing, etc.? Do you know what I'm saying? You've created the impetus, the catalyst.
Chief Commissioner and Chief Executive Officer, First Nations Tax Commission
I believe we have to create a first nations infrastructure institute. That's critically important for housing, for sewer development, and potable water.
Liberal
The Chair Liberal MaryAnn Mihychuk
Okay.
We've run out of time, unfortunately. We're engaged on this and would like to spend more time with you, but we do have another panel, and we have obligations to wrap up. I'm so sorry that we have to cut off the debate.
I do encourage you to continue to submit your comments through the website. We're very interested, obviously, in bringing forward good recommendations to the government and to Canadians on an issue that is very important to your communities and to us as parliamentarians.
Meegwetch. I appreciate your attendance, and I wish you all the best. Thank you very much.
We'll take a short break, and then reconvene with the second panel.
Liberal
The Chair Liberal MaryAnn Mihychuk
Welcome, everybody.
We have two groups, Meyers Norris Penny, MNP LLP. I think that's what it is called. Somebody was asking, what is MNP? You're very prominent in Manitoba, so that was an easy answer to give. We also have BDO Canada, along with representatives from both organizations.
Thank you for taking the time to travel. We appreciate it and your expertise working with our communities in some very challenging situations. We're looking forward to your submissions,
We're looking at default prevention management and ways to improve the system. We're going to start with 10-minute presentations. I understand that the opening remarks will first come from BDO. I have Harry Lake and Jacques Marion.
Harry Lake Partner, Consulting, BDO Canada
Thank you, Madam Chair. Good morning.
My name is Harry Lake. I am a partner with BDO Canada. I lead the aboriginal consulting services nationwide for BDO. Before we begin, I want to thank the standing committee for inviting BDO to present today.
As an introduction, BDO is one of Canada's leading accounting and advisory firms in the mid-market with more than 100 offices across Canada. We're leaders in aboriginal consulting and advisory services, of which default management makes up approximately 10% of the aboriginal services we offer.
With me is my colleague, Jacques Marion, who is a partner in BDO's Winnipeg office with more than 20 years working with first nations in the capacity of third party manager, co-manager, and as trusted adviser.
In our presentation today, we're going to cover our perspective on why first nations end up being in default management, the industry that provides default management services, the key success factors that we see for default remediation, and the items we think you should consider when assessing alternative models for default management.
Jacques Marion Partner, Consulting, BDO Canada
On why first nations end up going into default, first nations operate in what is probably the most complex financial ecosystem in the world. There are unique and complex accounting and reporting requirements for their numerous sources of funding, which necessitate equally complex integrated accounting and reporting systems.
As a result, the skills required to effectively lead in this environment and undertake the associated financial accounting and reporting activities are well beyond what would be required in most other sectors. To give a frame of reference for the skills required, it typically takes BDO more than two years to fully train an experienced CPA to be able to manage first nation agreement accounting and reporting.
In the first nations that are subject to default management, financial management capability issues for the political representatives and band office staff are usually core factors to the financial distress. This can be present as a lack of understanding of the terms and conditions of the program funding agreements when funding decisions are made. Internal controls and protocols are either not established or not followed or enforced as stipulated in the existing policy framework.
First nations under default management are often in remote geographical regions with limited economic opportunities. Without outside sources of revenues, these first nations are constantly forced to make difficult choices with the limited resources provided by the various sources. These simply aren't enough. There simply isn't enough funding to address the band priorities.
Compounding this is that the funding from separate agreements, including CMHC, first nations and Inuit health, employment, and training, provide very little administrative support, which in turn stretches the existing administrative funding provided by INAC.
While in default management, first nations have additional costs—the third party, or expert resource—which are taken from their already-stretched band administration funding. Overall funding is further reduced due to the inability of a first nation to receive outside funding while in intervention. That's specifically geared toward CMHC and housing infrastructure projects.
We thought it might be useful to provide an overview of the first nation default management industry. INAC periodically issues an RFP for third-party management services, to which private sector firms such as BDO respond. The evaluation criteria have been largely based on years of experience undertaking default management services. Selection for the standing offer does not look at past performance of the firm and the success they have had at getting first nations out of third-party management.
INAC regions select the firm that will provide third-party management from the approved pre-qualified MERX vendor list. Several other national firms and a variety of regional local firms provide third-party management.
Recipient-appointed advisory support, co-management is much more wide open. The criterion for being a co-manager is simply an accounting designation. First nations are able to select their own co-manager, and there's little quality control to ensure they are acting in the best interest of the first nation or the crown.
National firms such as ours have an incentive to help first nations out of third-party management and recipient-appointed advisory services. Given the range of services we provide, it is far more advantageous for us to successfully move first nations out of third-party management, and then help them pursue ventures and provide audit and tax services, than it is to provide the short-duration default management services.
The smaller regional local firms don't have the same incentives, as they often have default management services as their sole business line, with some sole operators and proprietors having a single first nation in default management as their only client.
On key success factors for default remediation, the effect of the imposition or enforcing of intervention on the first nation can't be understated, and the degree of willingness of the first nation leadership to participate in the remediation is a key driver of the speed and longevity of success. Successful default remediation involves significant leadership capacity improvements across the areas of federal government, program terms and conditions, reporting, and the broader first nation financial ecosystem, which requires stable and willing leadership.
For the most successful implementation, BDO implements their own cloud-based accounting system, configured to meet federal government reporting requirements for first nations. With both first nations and BDO having access to the financial management and reporting systems, this enables both parties to work together more easily for efficient capacity-building through financial monitoring. In addition, the cloud accounting system allows for remote and more cost-effective on-going monitoring and support to reduce the chance of first nations returning into default management.
Partner, Consulting, BDO Canada
In order to improve the approach to default management, we feel that the following items should be considered:
First is a single funding agreement. The federal government needs to simplify the management and administration for first nations by moving to a single funding agreement with a single set of financial and performance requirements. This would dramatically reduce the financial and leadership capacity requirements that are put on often remote first nations and would help reduce the number of first nations that end up in default.
Second is to increase the qualifications of the expert support that's provided. We need to increase the qualifications of organizations providing default management services such as ours beyond the current requirements. This is particularly, though not exclusively, for the expert management support. These qualifications should include access to an appropriately configured cloud accounting solution to allow for efficient and ongoing remote support at low cost. Strengthening the qualifications of the co-managers will help reduce the number of first nations that end up going into third-party management. The federal government should also look at establishing a performance framework for organizations such as ours who provide default management services, and should influence those procuring the default management services to do so based on past performance rather than number of years in a job.
Third is to limit the additional burden on first nations that are already in default. The federal government should look to reduce the punitive nature of default management by having first nations only pay a portion of the default management services from their band funding, with the remaining being paid by the federal government. In addition, given that first nations in default management are accessing expert financial professional services, they should not necessarily lose their access to other available funding, specifically the CMHC funding for housing. Funding for housing should be available on a case-by-case basis, based on the level of debt and the financial capacity of the combined first nation and default management team.
Fourth is to implement a capacity-building program. A structured capacity program for both first nation leaders and band administration should be established to increase and maintain the financial capacity of first nations. This program should not only comprise traditional training curriculum but also on-going support and monitoring. It should be appropriately funded to help bridge what is a substantial capacity gap.
Last is to ensure that all parties involved in default management have a vested interest. We need to ensure that they have a vested interest in resolving the remediation. That could mean structuring deliverable or outcome-based contracts for default management organizations or selecting organizations that have other incentives to support getting first nations out of default.
I want to thank the committee for the opportunity to present.
At this point we'll pass it over to our colleagues at MNP.
Liberal
The Chair Liberal MaryAnn Mihychuk
Thank you.
We'll turn it over to you, and you can decide how to split your time.
You get 10 minutes to present.
Clayton Norris Vice-President, Aboriginal Services, MNP LLP
Thank you.
Good morning. Thank you for the invitation to present to the committee this morning. It's an accounting morning, so I hope everybody has had a few cups of coffee.