Frequently Asked Questions – Default Prevention and Management Policy
Q1. How does the Default Prevention and Management Policy work?
The Default Prevention and Management Policy (DPMP) will support the delivery of programs and services through a three-part approach:
- Default Prevention: Through ongoing recipient monitoring and other strategies, Aboriginal Affairs and Northern Development Canada (AANDC) will assist recipients, where possible, in their efforts to prevent circumstances that may lead to defaults.
- Default Management: Departmental tools and resources will be used to identify and help the recipient manage their default situation. The process includes monitoring the situation, requiring the recipient to develop a Management Action Plan or, as a last resort, escalating levels of default management.
- Sustainability: Where feasible, AANDC will work with the recipient to support capacity development, identify available resources to help re-establish sustainable program and service delivery, and prevent the recurrence of circumstances that could lead to future defaults.
Q2. Why is AANDC implementing the DPMP?
The DPMP responds to recommendations of an internal audit, an evaluation of AANDC's Intervention Policy and discussions with First Nation governments and financial experts. The policy focuses on prevention, management and sustainability in order to reduce the number of communities in default status and the duration of defaults when they occur.
Q3. How has AANDC engaged recipients in developing this policy?
Recipients were engaged in the development of the policy by identifying best practices and testing new tools (e.g. the General Assessment). In addition, the Aboriginal Financial Officers Associations of Canada organized information sessions for more than 500 First Nations representatives. Meetings were also held with the Assembly of First Nations and the First Nation Financial Management Board.
Q4. How will the DPMP benefit recipients?
For recipients, the policy offers:
- greater focus on default prevention
- more flexible range of remediation strategies to address default situations
- linkages to tools to assist remedy specific defaults and support longer-term community development.
Q5. What support will be available to recipients who need to strengthen their funding agreement management capacity to avoid default situations?
AANDC will use the General Assessment results and other monitoring activities to identify the Department's most important risk management issues by program and geographic area. This information will result in AANDC working collaboratively with the recipient to identify potential default situations to strengthen their capacity and prevent a default, where possible.
Q6. What is a Default?
The "Default" section of AANDC's funding agreement models describe conditions that can lead to a default. Generally speaking, a default occurs when:
- the recipient has not met its obligations under the funding agreement
- the recipient's annual audited financial statements can not be relied upon (i.e. the auditor has given a disclaimer of opinion or adverse opinion)
- the recipient's financial position places the delivery of funded programs at risk
- the Department determines that the health, safety or welfare of the community is at risk or being compromised
- the recipient, who is required to maintain corporate status, is bankrupt or at risk of bankruptcy; or has lost or is at risk of losing its corporate status.
Q7. How does AANDC determine when a default occurs?
AANDC monitors a recipient's ability to meet obligations under the funding agreement through reviews of recipient financial and program performance reports. The Department also considers other types of information such as observations during field visits, complaints from those receiving services or extraordinary events that may impact services.
Q8. What is a Management Action Plan and how does it differ from the Remedial Management Plans that were used under AANDC's Intervention Policy (2007)?
A Management Action Plan (MAP) is a plan developed by the recipient and acceptable to AANDC to remedy and recover from the default to address its causes and prevent its recurrence. The Management Action Plan is also used to identify capacity gaps and resources available for successful implementation. It is similar to the previous Remedial Management Plan – but is more structured and streamlined.
Q9. Third-Party management is seen by many First Nations as being an overly aggressive approach to addressing problems in a community. Why is AANDC still using this approach under the new Policy?
If a recipient is unable to rectify its default situation, even with the assistance of a recipient-appointed advisor, or if extraordinary circumstances dictate the need for increased financial management assistance, the Department will appoint a Third-Party to administer AANDC funding which is normally managed by a First Nation. In most instances however, recipients will remedy their defaults through the use of a Management Action Plan, thereby reducing the requirement for a Third Party Manager.
When deciding what measures to take, the Department takes into account the 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.