Research publications

Contents

Any substantive changes in this Legislative Summary that have been made since the preceding issue are indicated in bold print.

• 1 Background
  
  • 1.1 General Considerations
  • 1.2 Current Legal Requirements
  • 1.3 Current Policy-Based Requirements
  • 1.4 Findings and Recommendations of the Auditor General of Canada
  • 1.5 Recent Initiatives
• 2 Description and Analysis
  
  • 2.1 Interpretation (Clause 2)
  • 2.2 Purpose and Application (Clauses 3-4)
  • 2.3 Financial Statements and Schedule of Remuneration (Clauses 5-6)
  • 2.4 Disclosure (Clauses 7-9)
  • 2.5 Court Remedies and Administrative Measures (Clauses 10-13)
• 3 Commentary
• Notes

Bill C-27, An Act to Enhance the Financial Accountability and Transparency of First Nations (short title: the First Nations Financial Transparency Act), was introduced and received first reading in the House of Commons on 23 November 2011.1 Bill C 27 was referred to the House of Commons Standing Committee on Aboriginal Affairs and Northern Development on 21 June 2012. The committee considered witness testimony from 15 October to 5 November 2012. Following clause-by-clause consideration, the bill was reported back to the House, with amendments, on 7 November 2012.

The proposed legislation, which applies to over 600 First Nations communities defined as “Indian bands” under the Indian Act,2 provides a legislative basis for the preparation and public disclosure of First Nations’ audited consolidated financial statements and of remuneration, including salaries and expenses, that a First Nation or any entity that it controls pays to its elected officials. The bill also requires the publication of this information on a website maintained by or for the First Nation, and on the website of Aboriginal Affairs and Northern Development Canada (AANDC). Additional provisions of the legislation allow for the application of court remedies and administrative measures to enforce compliance with its requirements.

1 Background

1.1 General Considerations

While First Nations receive funding from several federal organizations, the majority of federal funding is administered by AANDC. In 2011–2012, Parliament approved approximately $7.4 billion in appropriations to AANDC to support the provision of such services to First Nations communities as education, housing, social support and community infrastructure.3 Currently, First Nations manage over 85% of the funds provided for these services through AANDC’s programs budget.

First Nations and the federal government are both subject to various policy-based and legal requirements regarding the management and expenditure of federal public funds.

• Through decisions of the band council, management of council affairs, delivery of programs and services, and disclosure of annual financial statements, First Nations generally are accountable to their community membership for the use of public resources.
• Through various federal reporting requirements, First Nations are also accountable to AANDC for the federal public funds they receive.
• In turn, through the annual audit cycle and program reports, AANDC is answerable to Parliament and the Canadian public.

AANDC’s expenditures are listed in the Public Accounts of Canada, as are contribution agreements signed with First Nations.

1.2 Current Legal Requirements

First Nations bands are subject to certain financial disclosure requirements under the Indian Act 4 and related statutes and regulations. In particular, section 69 of the Indian Act provides that the Governor in Council may, by order, permit a First Nations band to “control, manage, and expend” its revenue, and may issue regulations giving effect to that permission. Accordingly, the Indian Bands Revenue Moneys Regulations require, in part, that a band’s financial statements be audited annually, and that the auditor’s report be posted “in conspicuous places on the Band Reserve for examination by members of the Band.” 5

Federal access to information and privacy legislation set additional statutory rules respecting the disclosure of First Nations bands’ financial information. The relevant provisions are, primarily, sections 19 and 20 of the Access to Information Act.6

Section 19 of the Access to Information Act generally prohibits government institutions from disclosing any “personal information” within the meaning of the Privacy Act.7 The Federal Court has ruled that the names of persons who had provided credit to or received a loan from a First Nations band, and the job descriptions and salaries of certain band positions, are “personal information” as defined under the Privacy Act.8

Section 20(1)(b) of the Access to Information Act prohibits a government institution from disclosing financial information provided to it by a third party who consistently treats this information as confidential. In Montana Band of Indians v. Canada (Minister of Indian and Northern Affairs),9 the Federal Court held that First Nations’ financial statements are confidential information within the meaning of section 20(1)(b) of the Access to Information Act, and therefore are not subject to public disclosure. However, in Sawridge Band v. Canada (Minister of Indian Affairs and Northern Development),10 the Federal Court of Appeal held that these financial statements are not confidential vis-à-vis the members of the First Nations band, since band members may review their own band’s financial statements under the Indian Bands Revenue Moneys Regulations.11

1.3 Current Policy-Based Requirements

The majority of funding arrangements between Canada and First Nations are in the form of fixed-term contribution agreements, under which First Nations must satisfy certain conditions to ensure the continued payment of federal funds. Requirements for financial reporting are also set out in AANDC’s Year-End Financial Reporting Handbook.12

Under the Year-End Financial Reporting Handbook, First Nations must submit to AANDC annual audited consolidated financial statements for the public funds provided to them. These include salaries, honoraria and travel expenses for all elected, appointed and senior unelected band officials. The latter includes unelected positions such as those of executive director, band manager, senior program director and manager. First Nations are also required to release these statements to their membership. In particular:

• section 6.4.1 requires First Nations to disclose, both to their members and to AANDC, compensation earned or accrued by elected, appointed and unelected senior officials; and
• section 6.4.2 stipulates that the amounts of remuneration paid, earned or accrued by elected and appointed officials to be disclosed “must be from all sources within the recipient’s financial reporting entity including amounts from, but not limited to, economic development and other types of business corporations.” 13

Reporting and disclosure requirements are further set out in various provisions of First Nations funding agreements, which must be read in conjunction with the Year-End Financial Reporting Handbook. Specifically, AANDC’s Comprehensive Funding Arrangement National Model for Use with First Nations and Tribal Councils for 2010–2011 stipulates the following:14

• Section 2.4.3 provides that Council must prepare consolidated financial statements, to be audited by an independent auditor, and delivered to the Minister within 120 days of the Council’s fiscal year end.
• Section 3.1 provides that Council must make available the consolidated audited financial statements, including the auditor’s report, to First Nations members upon their request.
• Section 4.4 provides that where a Council fails to make its audited financial statements available to its members, the Minister may do so.
• Section 2.2.3 provides that the Minister may withhold funds otherwise payable under the agreement if the Council fails to provide to the Minister the audited financial statements required under the agreement.

In 2008, AANDC advised funding recipients that, effective 1 July 2008, funding arrangements would be amended to include audit clauses. According to AANDC, these audit clauses will enable it to “conduct risk-based audits of funding arrangements to ensure contributions are used for the provision of intended programs and services and that First Nations have the appropriate management, financial, and administrative controls in place.” 15

When a First Nation community is unable to meet the terms and conditions set out in funding agreements, AANDC may intervene to address this deficiency. AANDC’s policy on intervention sets out instances that trigger departmental interventions.16 Depending on the nature and gravity of the situation, remedial management plans usually fall into one of three categories: recipient-managed plans; co-management; and third-party management. Currently, AANDC is developing a new intervention policy, which is intended to shift the focus away from departmental intervention toward prevention and ongoing sustainability by the funding recipient in order to avoid a default situation.17

1.4 Findings and Recommendations of the Auditor General of Canada

Several reports of the Auditor General of Canada have commented on accountability for First Nations funding. Notably, in 1996, the Auditor General released Indian and Northern Affairs Canada – Funding Arrangements for First Nations.18 In a 1999 follow-up report to the 1996 audit, the Auditor General found that AANDC needed to implement appropriate redress mechanisms to resolve allegations of wrongdoing, including complaints and disputes related to funding arrangements.19

A December 2002 report of the Auditor General, entitled Streamlining First Nations Reporting to Federal Organizations, described existing federal reporting requirements as a “significant burden” on First Nations communities.20 It estimated that an average of 168 reports – 200 in some communities – are required annually by the principal federal bodies that provide funding to First Nations for the delivery of various programs and services. The report suggested, amongother things, that federal departments and agencies better coordinate their reporting requirements by streamlining their program authorities, thereby reducing the number of audits and reports required of First Nations.

In a December 2006 status report on the management of programs for First Nations, the Auditor General found that meaningful action by the federal government was still needed to “reduce the unnecessary reporting burden placed on First Nations communities.” Noting that AANDC alone obtains more than 60,000 reports a year from over 600 First Nations, the report concluded that the resources devoted to the current reporting system could be better used to provide direct support to communities.21

1.5 Recent Initiatives

First Nations leaders and the federal government have undertaken initiatives in recent years to strengthen the financial management and accountability capacity of First Nations governments and organizations.

In 2002, in response to the 1999 Auditor General’s report and the follow-up report of the House of Commons Standing Committee on Public Accounts,22 AANDC implemented its policy on Allegations and Complaints.23 Related measures include:

• the appointment of a national Allegations and Complaints Coordinator, as well as regional coordinators to manage the flow of allegations and complaints;
• the establishment of a national data base to record complaints of wrongdoing; and
• the production of a statistical report on activities relating to allegations and complaints.24

In 2005, the Assembly of First Nations (AFN), in collaboration with the Government of Canada, established the Accountability for Results Initiative to improve accountability mechanisms as well as results achieved for policies, programs and services directed at First Nations citizens. A key element of this initiative centred on the fundamental nature of the accountability framework, and recast it as a shared responsibility between First Nations and the Government of Canada. Specifically, the initiative called for:

• capacity building aimed at creating an effective First Nations public service;
• institution building aimed at providing First Nations with the facilities to govern; and
• results-based management, based on the five principles for accountability identified by the Auditor General of Canada.25

Although the Accountability for Results Initiative ended in 2007, the Assembly of First Nations suggests that it can continue to provide a foundation for moving forward on a renewed accountability framework. 26

The AFN has endorsed by resolution other measures to enhance financial accountability for First Nations. In particular, proposals for the establishment of a First Nations auditor general and ombudsman to examine administrative and financial irregularities in First Nations communities were formally adopted in 2006 by the AFN and Chiefs-in-Assembly.27

In December 2010, Resolution no. 50/2010 was endorsed at the AFN Special Chiefs Assembly. The resolution reaffirms the commitment of First Nations chiefs to maintaining transparent and accountable decision-making structures in their communities. It calls on First Nations chiefs to:

• “lead by example” and provide clear and timely access to audits and public accounts;
• publicly disclose salaries, honoraria and travel expenses for Chief and Council; and
• ensure that information about community finances and decision-making is easily accessible and available online where applicable.28

Various legislative initiatives aimed at enhancing, among other things, the effectiveness of First Nations fiscal management, have also been recently proposed.

• Private Member’s Bill C-575, an Act respecting the accountability and enhanced financial transparency of elected officials of First Nations communities (short title: First Nations Financial Transparency Act),29 was introduced and received first reading in the House of Commons on 1 October 2010. The bill received second reading and was referred to committee on 2 March 2011,30 but it died on the Order Paper when the federal election was called on 26 March 2011.
  
  The stated purpose of Bill C-575 was to “enhance the financial accountability and transparency of First Nations by ensuring the public disclosure of the remuneration paid by a first nation, directly or indirectly, to its chief and councillors.” The bill required the public disclosure, on an annual basis, of the “remuneration” and “reimbursement of expenses” 31 paid to First Nations chiefs and councillors through federal grants, contributions and allowances. The bill further required that a Schedule of Remuneration containing this information be included in First Nations bands’ audited financial statements and publicly disclosed within 120 days of the close of each fiscal year.
  
  Other clauses in the bill included an enforcement provision empowering the Minister of Indian Affairs and Northern Development or any member of a First Nation to “apply to a superior court for an order regarding the enforcement of the provisions.” The bill exempted the Schedule of Remuneration and its public disclosure from federal access to information and privacy legislation.
• Bill C-7, an Act respecting leadership selection, administration and accountability of Indian bands, and to make related amendment to other Acts,32 was introduced in the House of Commons in October 2002. The proposed legislation set out requirements related to “governance” codes in matters of leadership selection, administration of government and financial accountability. First Nations communities would have been required to either adopt codes containing prescribed rules in these areas or, should any of the codes not be developed, become subject to a default regulatory regime in relation to that subject matter.
  
  Bill C-7 set out minimum standards for any “financial management and accountability” code adopted by any band. They included:
  
  • rules for preparation and adoption of an annual budget;
  • controlled expenditure of and signing authority for band funds;
  • internal controls for deposits and asset management;
  • various loan-related matters;
  • salaries of council members and band employees;
  • debt and debt management, as well as deficit management; and
  • procedures for amending the code.
  
  Bill C-7 was the subject of many meetings of the House of Commons Standing Committee on Aboriginal Affairs, Northern Development and Natural Resources, but it was not debated further after its introduction in the House of Commons. It died on the Order Paper with the prorogation of Parliament on 12 November 2003.
• In 2001, a private Member’s bill (Bill C-399) was introduced in the House of Commons that would have established a First Nations Auditor General and First Nations Ombudsman to assist with administrative and financial problems.33

2 Description and Analysis

Bill C-27, as amended, consists of 13 clauses. Several of the provisions in the bill reiterate existing legal requirements and provide a legislative basis for various existing policy-based requirements on First Nations’ financial reporting and disclosure. The bill also substantially reintroduces the measures contained in the previously mentioned Bill C-575, the First Nations Financial Transparency Act. The new legislation expands on the previous bill, however, by requiring the reporting of information from First Nations-controlled entities, and requiring the public disclosure and publication on the Internet of all reported financial information. The following review considers significant features of the legislation.

2.1 Interpretation (Clause 2)

Clause 2(1), as amended (now clause 2 owing to the deletion of clause 2(2) – see below), defines the following terms as they are used in the bill: “consolidated financial statements,”“council,” “entity,” “expenses,” “First Nation,” “member,” “Minister,” and “remuneration.”

The definition of “consolidated financial statements” was amended to include the stipulation that the financial statements of a First Nation be prepared in accordance with generally accepted accounting principles. Further, the financial statements of a First Nation, and any entities that are required by those principles to be consolidated in those statements, are to be presented as those of a single economic entity, as if the First Nation were a government reporting on its financial information.

As a result of the amendment to the definition of “consolidated financial statements,” clause 2(2) – which provided for the establishment of certain criteria to determine whether an entity is controlled by a First Nation – is deleted, as these criteria are already outlined under generally accepted accounting principles.

The definition of “entity” in the bill covers corporations, as well as partnerships, joint ventures and all other unincorporated associations and organizations.

The definition of “remuneration” was amended to clarify that the reimbursement of expenses is not included within that definition. Accordingly, a separate definition for “expenses” was added during committee clause-by-clause consideration of the bill. Consequential amendments to clauses 3, 5, 6 and 7 were adopted to ensure consistency throughout the bill.

2.2 Purpose and Application (Clauses 3-4)

Clause 3 states that the purpose of the legislation is to enhance the financial accountability and transparency of First Nations by requiring the preparation and public disclosure of certain financial statements and information, consisting of audited consolidated financial statements, as well as schedules of remuneration paid and expenses reimbursed by a First Nation or by an entity whose statements are required to be consolidated to its chief and councillors. Such remuneration includes any salaries, wages, etc., 34 paid to chiefs and councillors in their capacity as elected officials and in any other capacity.

Clause 4 clarifies that the new Act applies in every First Nation’s financial year subsequent to its coming into force.

2.3 Financial Statements and Schedule of Remuneration (Clauses 5-6)

Clause 5(1) requires that a First Nation prepare consolidated financial statements annually and in accordance with generally accepted accounting principles, with primary reference to the Canadian Institute of Chartered Accountants’ Public Sector Accounting Handbook. Clause 5(2) requires that these consolidated financial statements be audited by an independent and accredited accountant, in accordance with the generally accepted auditing standards of the Canadian Institute of Chartered Accountants.

Clause 6(1) requires that each First Nations band annually prepare a schedule of remuneration and expenses. No format for the schedule of remuneration is specified, but its contents must include the remuneration paid by a First Nation, or an entity controlled by the First Nation, to its own chief and councillors.

Clause 6(2) specifies that the schedule of remuneration and expenses is a separate document from the First Nations band’s consolidated financial statements. Clause 6(3) requires that an independent auditor’s report or review engagement report accompany the schedule of remuneration.

2.4 Disclosure (Clauses 7-9)

Clause 7(1) requires that a First Nation, on request by any of its members, provide the member with copies of any of the following:

• its audited consolidated financial statements;
• the schedule of remuneration and expenses;
• the auditor’s written report respecting its consolidated financial statements; and
• the auditor’s report or review engagement report respecting the schedule of remuneration.

Clause 7(2) requires that the First Nation provide the copies to the member “without delay” and, in particular, if the request is received by the First Nation within 120 days of the close of the financial year in question, that the First Nation provide the copies within those 120 days. Clause 7(3) specifies that any fee charged by the First Nation must not exceed the cost of providing the copies.

Clause 8(1) requires that a First Nation publish on the Internet its annual consolidated financial statements, schedule of remuneration and expenses, and the respective documents prepared by the independent auditor. These documents may be published on a website of the First Nation or any other website, but must be published within 120 days after the close of the financial year. Clause 8(2) requires that these documents remain publicly available on the Internet for 10 years. Clause 8(3) specifies that publishing these documents on the Internet does not discharge the duty of a First Nation, set out in clause 7, to provide copies of these documents to its members on request.

Clause 9 requires that the Minister of Indian Affairs and Northern Development also publish the same documents (i.e., those specified under clause 7(1)) on the website of the Department of Indian Affairs and Northern Development “without delay,” once the First Nation has provided these documents to the Minister or they have been published in accordance with clause 8(1).

2.5 Court Remedies and Administrative Measures (Clauses 10-13)

Clauses 10 and 11 provide that if a First Nation does not furnish the documents as required under sections 7 and 8, respectively, a member of that First Nation or the Minister may apply to a superior court for an order requiring compliance with the relevant section, and within any period prescribed by the court. Clause 12 specifies that such an application for a court order must be made following the expiry of the 120 days after the close of the financial year.

In the event of a breach by a First Nation of any duty imposed under sections 5 to 8 of the Act, clause 13(1) empowers the Minister of Indian Affairs and Northern Development to take one or more of the three following administrative actions:

• require the council of the First Nation to develop an action plan to remedy the breach;
• withhold moneys payable to a First Nation as a grant or contribution under a current agreement with the First Nation; or
• terminate any current agreement respecting any grant or contribution moneys payable to the First Nation.

Clause 13(2) provides that any amount withheld under section 13(1)(b) will be deemed to meet the legal definition of debt as per section 37.1 of the Financial Administration Act.35

3 Commentary

Widely divergent views have been expressed on the need to implement more transparent financial arrangements and improve financial accountability for First Nations in the way proposed under Bill C-27.

From the perspective of AANDC, the legislation forms part of the federal government’s commitment in the 2011 Speech from the Throne to “support transparency for First Nations communities by requiring their chiefs and councillors to publish their salaries and expenses.” 36 While the legislation will not significantly alter the current reporting procedures of First Nations, AANDC submits that it will, in effect, lead to reductions in the overall reporting requirements surrounding funding agreements between First Nations and the federal government. Further, the legislation will improve the climate for private sector investment which may, in turn, lead to greater economic development opportunities for First Nations.37

Many First Nations leaders have expressed an opposing view of Bill C-27.38 Most have argued that the bill is unnecessary given current legal and policy-based financial reporting and disclosure requirements, and have called for an alternative approach to transparency and accountability that has the potential to strengthen the relationship between First Nations and the federal government.

AFN National Chief Shawn A-in-chut Atleo reiterated the commitment to the principles of accountability and transparency expressed in the December 2010 resolution, and called on the federal government to “work together [with First Nations] … to address the real issues and achieve real change based on need.” 39

The Federation of Saskatchewan Indian Nations also expressed support for accountability and transparency measures in principle, but reiterated its view that such measures should show “how much money actually reaches the communities,” and include the establishment of a First Nation Auditor General’s Office.40

The Association of Iroquois and Allied Indians called the legislation a “diversionary tactic … to refocus the Canadian general public away from the real substantive issues facing First Nations,” and reiterated the association’s commitment “to engage the federal government to resolve the substantive issues that our peoples face daily.” 41

Assembly of Manitoba Chiefs Grand Chief Derek Nepinak called the bill an indication of “colonialism and paternalism,” and questioned the legality of the requirement to publish information on the remuneration paid by First Nations-controlled entities.42

The legislation has attracted emphatic support from some non-Aboriginal organizations. Colin Craig of the Canadian Taxpayers Federation welcomed the bill’s expanded disclosure requirements on band-owned entities, and stated that the bill “will help band members separate the good apples from the bad ones and will help taxpayers understand how their money is being spent on reserves.” 43

The Fraser Institute also released an article arguing that Bill C-27 may be compared to other financial reporting and disclosure laws in the private sector, and that “[w]hat such laws do, whether vis-à-vis business or First Nation governments, is require that shareholders and residents be given transparency and actual hard numbers.” 44

Notes

*  Notice: For clarity of exposition, the legislative proposals set out in the bill described in this Legislative Summary are stated as if they had already been adopted or were in force. It is important to note, however, that bills may be amended during their consideration by the House of Commons and Senate, and have no force or effect unless and until they are passed by both houses of Parliament, receive Royal Assent, and come into force. [ Return to text ]