ARCHIVED - Default Prevention and Management Policy - June 2011

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Archived information is provided for reference, research or record keeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.


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Table of Contents

1.0 Effective Date

This policy takes effect on June 2011.

2.0 Application (Who is covered by this policy?)

This policy applies to Aboriginal Affairs and Northern Development Canada (AANDC) (hereafter referred to as the Department) officials managing transfer payments. This policy does not apply to funding provided under legislated self-government agreements and funding agreements resulting from federal-provincial accords.

This Policy is based on the implementation of the Policy on Transfer Payments (2008), setting out the policy framework for AANDC default prevention and management activities based on risk management and assessment to assist recipients to be proactive in addressing program and/or financial management and capacity challenges.

This policy repeals and replaces the Aboriginal Affairs and Northern Development Canada (AANDC) Funding Agreements: Intervention Policy dated April 1, 2007 and is issued under the authority of AANDC Chief Financial Officer (CFO).

3.0 Policy Statement (What is the policy designed to achieve?)

3.1 Objective

The objective of this policy is to:

3.2 Expected Results

The expected results are:

3.3 Defaults

A default, as specified in the funding agreement, is the occurrence of any of the following circumstances:

4.0 Context (Why this Policy matters?)

The Department recognizes the importance of continued, uninterrupted provision of programs and services for the health, safety and well-being of Aboriginal community members. This policy sets a three part approach of prevention, management, and sustainability to facilitate the effective management of defaults.

Key principles of the approach involve:

  1. Prevention:

    • Where possible, developing recipient capacity and/or funding programs targeted to capacity development for efficient and effective program and service delivery to Aboriginal community members by;
      • Supporting capacity development in Aboriginal communities in a sustainable manner;
      • Ensuring that capacity development is demand driven to meet specific needs of communities as opposed to supply driven;
      • Promoting capacity development within Aboriginal institutions and organizations to work with Aboriginal communities on their capacity gaps; and
      • Promoting community mentoring and linking communities with expertise to those with capacity gaps.
    • Recognition of community identified needs and priorities and their role in default occurrence, as well as default prevention and sustained self-management.
  2. Management:

    • assist and support Recipients, where possible, in addressing situations that could give rise to a default under a funding agreement, and where one occurs, supporting effective recipient management of the default with a flexible range of strategies that will assist Recipients address the default situation and timely recovery;
    • transparency to Aboriginal community members through disclosure of the General Assessment, Management Development Plan and/or Management Action Plan;
  3. Sustainability:

    • Identifying to recipients areas of capacity development that may enhance sustainability and reduce the occurrence of future defaults.

      These principles of Prevention, Management and Sustainability are enabled through a process where:

      • Recipients remain responsible and accountable for compliance with the terms and conditions set out in funding agreement including effective management and use of resources involved, preventing defaults, and remediating and recovering from these defaults in a timely manner when they occur;
      • AANDC provides funding to recipients in accordance with funding agreements, reviewing the recipient's accounting for the appropriate use of the funds provided, and in applying this policy and related directives as appropriate;
      • AANDC strives to develop and maintain a co-operative relationship with recipients to enhance the capacity and financial health necessary for sustainable, efficient and accountable delivery of programs and services;
      • AANDC, where possible, will strive to ensure incidents of defaults that AANDC becomes aware of are clearly communicated;
      • Use of voluntary Management Development Plans will be strongly encouraged for addressing low risk defaults;
      • AANDC, where possible, will strive to make default management progressive, flexible and implemented in a manner which allows the recipient the opportunity to remedy the default; and
      • AANDC, where appropriate, will allow default management to be, on a program specific basis to insure the action taken is reasonable, cost effective and proportionate to program risk.

Achievement of the objectives and expected results of this policy relies on an integrated approach involving effective default prevention, management and sustainability processes, specialized pools of expert resources, who the Recipient will monitor for performance, and capacity development resources available within departmental programs.

5.0 Policy Requirements (How will the policy results be achieved?)

5.1 Responsibilities (Who does what under this policy?)

As Chief Accounting Officer, the Deputy Minister is responsible for:

The Chief Financial Officer is responsible for:

The Regional Operations Senior Assistant Deputy Minister is responsible for:

Assistant Deputy Ministers are accountable to the Deputy Minister for:

Regional Directors General and Directors General are accountable to their Assistant Deputy Ministers for:

5.2 Approach

This policy will support the delivery of programs and services through a three part approach which includes:

  1. default prevention,
  2. default management, and
  3. sustainability.

Figure 1 outlines some of the tools and resources available for each approach.

A text description of this chart is available on a separate page.

5.2.1 Default Prevention

The Department, through ongoing review of information available about the recipient's management of funding and through other strategies, will, to the extent possible, assist recipients in their efforts to prevent the occurrence of circumstances that may give rise to defaults. Such assistance may include, but may not be limited to:

5.2.2 Default Management

Notwithstanding the best intentions of Recipients to prevent the occurrence of default, from time to time defaults will occur. The Directives on Default Prevention and Management and Third Party Funding Agreement Management contain details for the default management process. This process, through the use of departmental tools and resources, will support the recipient in remediating their default. The process is a continuum of default management that includes active monitoring of the situation, requiring the recipient to develop and implement a Management Action Plan to the employment of expert resources.

Subject to the terms and conditions of the funding agreement, the appropriate departmental official may take any one or more of the following actions once a default has been identified:

When deciding what measures to take, the official must, to the degree that is prudent in the circumstances:

Defaults will not automatically result in the need for formal measures.

These measures, and the processes related to them, are described in greater detail in the Directives on Default Prevention and Management, Third Party Funding Agreement Management, Financial Reporting and Reporting Management.

Defaults in reporting resulting in halted funds will be subject to the Directives on Financial Reporting and Reporting Management and the Management Control Framework that is programmed within the First Nations and Inuit Transfer Payments (FNITP) System.

The appointment of a Third Party Funding Agreement Manager would be instituted as a last resort to ensure the continued delivery of programs and services to community members.

5.2.3 Sustainability

The objectives of sustainability are to:

The Department will work within the Community Development Framework with the recipient and other partners where feasible to support capacity development and identify and appropriately apply available resources to help re-establish sustainable program and service delivery and prevent the recurrence of circumstances that may give rise to future defaults.

5.3 Tools

The following is a list of the main tools and resources that may be used to implement this policy:

6.0 Consequences (What happens when significant issues arise under this policy and directives?)

Consequences of non-compliance with this policy and its supporting directives, or of failure to take corrective actions that may be requested by the CFO, may include reporting to Senior Management, requiring additional training, changes to procedures and systems, the suspension or removal of delegated authority, disciplinary action, and other measures as appropriate.

7.0 Enquiries

For enquiries and interpretations please contact the AANDC Transfer Payments Centre of Expertise.

Appendix A: References (What other policies and directives are relevant?)

Appendix B: Definitions

Default management: the process for identifying and managing defaults of a funding agreement.

Financial assessment process: an assessment process developed by AANDC based on accepted accounting and financial standards and a holistic set of indicators and measures designed to consider the operating environment and community as a whole that assists in the determination of the financial position of the recipient.

Funding agreement: a written agreement or documentation constituting an agreement between the Government of Canada and an applicant or a recipient setting out the obligations or understandings of both with respect to one or more transfer payments.

Program: is a group of related activities that are designed and managed to meet a specific public need and are often treated as a budgetary unit. A program can be a project or a service.

Recipient: Is an individual or entity that either has been authorized to receive a transfer payment or that has received that transfer payment.

Third Party Funding Agreement Manager: a prequalified Third Party, appointed by the Department, that administers funding for services otherwise payable to the recipient and the recipient's obligations under a funding agreement, in whole or in part, and that may assist the recipient to remedy defaults under a funding agreement.

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