First Nations programs and services are delivered through funding agreements signed by both Aboriginal Affairs and Northern Development Canada (AANDC) and the recipient. These agreements are legally binding and contain specific terms and conditions, including the actions Canada may take in the event that a default occurs.
Generally speaking, a default occurs when:
The Default Prevention and Management Policy (DPMP) was put in place in the summer of 2011 in response to recommendations of an internal audit, an evaluation of AANDC's Intervention Policy and discussions with First Nation governments and financial experts. The findings of the departmental audit and evaluation are available on the Department's website.
This policy was developed in collaboration with the Aboriginal Financial Officers Association and First Nation governments, and was reviewed and vetted by the External Audit Committee of the Department.
The DPMP focuses on prevention, management and sustainability in order to reduce the number of communities in default status and the duration of the default. It includes default management processes intended to ensure the delivery of departmentally funded programs and services while a First Nation recipient is in default.
The DPMP came into effect in June 2011, replacing the Intervention Policy. It exists to support community capacity development so that communities continue to increase their ability to self-manage and thereby preventing default and default recurrence. The department reports on three levels of default management:
When deciding what measures to take, the Department weighs risks and circumstances associated with the default, the degree of co-operation between the recipient and the Department, and the willingness and ability of the recipient to remedy the default.
Depending on the scale of involvement by the Department, a recommendation indicating the level of default management required will be approved by a Funding Services Manager, a regional Transfer Payment Management Committee, or by a Program or Regional Director General.
The decision to intervene is not taken lightly. Appointment of a Third-Party Manager is used as a last resort to ensure the continued delivery of programs and services to community members.
First Nations who are in default are regularly re-assessed to determine whether their level of default management should be escalated or de-escalated. As a result, the number of First Nations under default management and their level of default management fluctuate over time.
More information on the Default Prevention and Management Policy is available on the Department's website.