This website will change as a result of the dissolution of Indigenous and Northern Affairs Canada. Consult the new Crown-Indigenous Relations and Northern Affairs Canada home page or the new Indigenous Services Canada home page.
This website will change as a result of the dissolution of Indigenous and Northern Affairs Canada. Consult the new Crown-Indigenous Relations and Northern Affairs Canada home page or the new Indigenous Services Canada home page.
This directive takes effect November 2013.
This directive applies to Aboriginal Affairs and Northern Development Canada and Health Canada (hereinafter referred to as the department(s)) officials managing transfer payments. This directive does not apply to funding provided under legislated self-government agreements and funding agreements resulting from federal-provincial accords.
The objective of this directive is to aid in the implementation of the Default Prevention and Management Policy through departmental processes which identify defaults. The Default Prevention and Management Policy mandates a risk-based approach, which emphasizes recipient responsibility, capacity, Default Prevention and the management of defaults to ensure Programs are delivered and funds are expended in compliance with the terms and conditions of the funding agreement.
The expected results of this directive are to:
The department(s), through ongoing review of information available about the recipient's management of its funding agreement 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.While the responsibility of Default Prevention, identification and remediation lies with the recipient, the department(s), through the use of departmental tools, resources and processes, which are outlined in this directive and the Directive on Third Party Funding Agreement Management, will support the recipient's efforts in preventing and subsequently, identifying and addressing their default in an appropriate, timely and cost effective manner.
The Default Prevention and Management Policy puts emphasis on maintaining relationships with the recipient, Default Prevention, capacity development and Sustainability.
This directive is developed to work in synergy with other elements of the department(s') Transfer Payments Policy Architecture and supports the objectives of the Treasury Board Secretariat Policy on Transfer Payments (2008) and the Directive on Transfer Payments (2008) utilizing a risk management approach outlining some of the primary business processes by which:
This directive should be read in conjunction with the "Default" and the "Remedies on Default" sections of the funding agreement.
The Directive on Financial Reporting and the Directive on Reporting Management provide for monitoring by the department(s) of recipient compliance to the financial and non-financial reporting requirements of funding agreements. These directives provide for remedies to be applied in the event of non-compliance.
This directive provides for additional action(s) to be taken in the event a recipient is in default of the terms and conditions of its funding agreement. In the highest risk situations, the directive on Third Party Funding Agreement Management will also be applicable.
A Default Assessment Workbook, a Default Assessment Tool, a Management Action Plan Workbook and a Guide on How to Select a Recipient-Appointed Advisor support the implementation of this directive.
The Chief Financial Officer has authority to issue this directive in support of the TBS Policy and Directive on Transfer Payments (2008), to amend or rescind this directive and to approve any exceptions to this directive that may be sought.
Please refer to section 5.1 of the Default Prevention and Management Policy for a list of departmental officials and their responsibilities.
This is a structured approach which emphasizes Default Prevention, recipient capacity development and Sustainability. When Default Management is required, the cooperation, willingness and capacity of the recipient as well as specific principles contained in the Default Prevention and Management Policy must be considered:
The department will perform, to the extent possible, ongoing reviews of available information on the recipient's management of the funding agreement, and through other strategies, assist recipients in their efforts to prevent the occurrence of circumstances that may give rise to defaults.
In the context of Default Prevention, attempts should be made to identify potential concerns in advance of a default happening. This is especially true where the default could become serious enough to affect the delivery of Programs to the community.
Historical information should be used to identify situations that could give rise to defaults and prevention opportunities as well as inform strategic investments in activities such as governance, financial and administrative capacity targeted at preventing defaults. Access to these strategic investment opportunities requires a plan by the recipient such as a plan developed under the Community Development Framework, a Management Development Plan or a similar plan which clearly identifies the potential benefits and need for the funding.
Maintaining a relationship with the recipient allows Funding Service Officers and Program Officers to identify areas of concern with respect to recipient capacity and being proactive in preventing situations that could give rise to defaults.
The Funding Service Officers and Program Officers should be alert to one or more of the following indicators which increase the potential for defaults. This list should not limit Funding Service Officers and Program Officers to consider other indicators:
On an ongoing basis, a Funding Service Officers and Program Officers perform a number of monitoring activities under the Management Control Framework, commensurate with the level of risk of the recipient. Through monitoring activities, causes for concern for a potential default or an actual default are documented and addressed. The monitoring activities below may uncover one or more indicators of potential default:
The presence of any of the indicators noted above is a warning sign that a default may happen or may be imminent. The responsible official monitors the default information through their own monitoring exercises in consultation with Program and compliance staff. At the Default Prevention stage, the responsible official is concerned with aiding the recipient in rectifying the situation that is causing the risk indicators to arise. Where there is a risk that the recipient is moving towards a default situation of its funding agreement, the following actions should be taken:
If and when concerns arise relating to potential default(s), interactions with the recipient will take place via e-mail, telephone or letter. Where communication has taken place by phone, a log of the conversation must be documented detailing the date and time of the discussion, the recipient representative spoken to, and the outcome of the conversation. The communication with the recipient should outline the details of the departmental concern(s) and work with the recipient to explore approaches on how to address the concern(s). A ‘Concern(s) Relating to Funding Agreement' template letter has been developed to assist responsible departmental officials to communicate potential default(s) to the recipient.
If prevention activities are unsuccessful and a default occurs, the approach moves to pillar 2 - Default Management.
Defaults may be identified through the department(s') structured business processes (e.g., Default Assessment Tool or compliance regimes, etc...) or through less structured means (e.g., observations made during field visits). Grants and Contributions Information Management System provides protocols for capturing, storing and accessing both types of default information.
Funding Services Officers (or equivalent) monitor the default information provided by Program and compliance managers. When concerning trends are observed, they may contact the recipient to confirm the situation and encourage the recipient to rectify the default(s). Such (informal) action may be justified as appropriate, where two or more of the following are known to be true:
Formal Action not Initiated
Steps taken to contact the recipient to confirm the situation and a decision not to initiate formal action through a Default Assessment will be noted to file.
Initiating Formal Action
Where the Funding Services Officer (or equivalent) observes a concerning situation, steps will be taken to initiate a Default Assessment where:
Information on the Default Assessment process can be found in section 126.96.36.199. Default Assessment.
Default Management is a process for identifying and managing defaults of a funding agreement. There are a wide range of actions available to the department(s). The action(s) chosen must be necessary, progressive, and reasonable in the circumstances and must be communicated to the recipient without limiting any remedy or other action Canada may take under the funding agreement. The actions taken must be well documented and need to be based on documented facts and not conjecture.
The legal underpinnings of Default Management activities are contained within the text of the funding agreement signed by the recipient. The range of actions the department(s) may take on default are listed there.
A default is specified in the funding agreement and may include:
The Default Assessment is a structured business process used to confirm the existence of default, identify its causes and recommend a principle default action that is assessed as a reasonable way to proceed.
The Default Assessment Tool is the tool used by the Funding Service Officer or responsible official to complete a Default Assessment. He/she may update the recipient's General Assessment, as a first step in initiating a Default Assessment, for the purpose of presenting to approval authorities, the current status and range of potential issues that may impact delivery of departmentally-funded Programs. The completion of the Default Assessment Tool will then help assess if an actual default has occurred or not. If a default does exist, the Default Assessment Tool will help identify the level of risk of the default and aid the department(s) in deciding the appropriate Default Management action.
The responsible official will determine, for a recipient in a default situation:
The Default Assessment is completed in accordance with the Default Assessment Workbook and instructions issued by the Chief Financial Officer. The completed Default Assessment Tool should then be saved into the Grants and Contributions Information Management System.
The overall Default Assessment risk rating classifies recipients as having a "low", "medium" or "high" risk profile. Based on the recipient's risk rating, the appropriate delegated authority, as outlined in the table below, is provided with the Default Assessment and the recommended Default Management action(s) for review. Such actions may or may not be accepted by the delegated authority, who may choose to provide alternatives that are less intrusive to the recipient.
|Overall Risk Level||Multi-Program (Ongoing) Recipient||Project and Specific Service Recipients||Approval|
|Low Risk||Recipient-Managed (i.e.: Ninety-Day Plan for corrective strategies)||Recipient-Managed (i.e.: Ninety-Day Plan for corrective strategies)||Funding Services Manager or equivalent with notification to Regional Transfer Payment Management Committee (TPMC) or equivalent|
|Medium Risk||Management Action Plan (MAP) or MAP with Recipient-Appointed Advisory services||Management Action Plan (MAP) or MAP with Recipient-Appointed Advisory services||Regional TPMC or equivalent|
|High Risk (As a Last Resort)||Third Party Funding Agreement Management||Terminate Agreement||Program / Regional Director General/Regional Executive Officers|
Risk to service population as outlined in the Default Assessment Workbook is determined in consideration of the actual or potential consequences of a default situation; and the degree of urgency associated with correcting the defaults.
Information about the recipient is compared to the risk to service population "considerations" or sources of risk as outlined in the Default Assessment Workbook, to determine a risk score for each default. The risk scores are used to prioritize corrective action. The "cumulative score for all defaults" is used to classify the overall risk to service population risk rating as being low, medium or high.
Information about the recipient is compared to the risk to remediation "considerations" as outlined in the Default Assessment Workbook to determine a low, medium or high risk to remediation rating.
The overall Default Assessment risk rating is based upon the risk to service population and risk to remediation crosswalk table provided in Exhibit 5 / Table 1 presented in the Default Assessment Workbook.
A Default Management action is determined in proportion to the overall Default Assessment risk rating. This rating may be supplemented by the judgement of the responsible officer, who will draw upon information which may be available.
Thereafter, the responsible officer will recommend a Default Management action. If the recommendation differs from that generated by the Default Assessment, a rationale will be provided.
Subject to the terms and conditions of the funding agreement, the department(s) may employ the following steps in order of escalation:
When deciding on default measures, the department(s) must consider the following:
The department(s) or recipient can, at any time, identify reasonable actions that they may take to address a default. This can include withholding of all or part of the funds normally payable under the funding agreement, until the default is corrected. Defaults in reporting may result in the halt of funds and will be subject to the Directives on Financial Reporting and Reporting Management, and the Management Control Framework that is programmed within the Grants and Contributions Information Management System.
Default Management actions are applied based upon the overall Default Assessment risk rating determined through the Default Assessment process and accepted by the departmental official with delegated authority (see Exhibit 1). The principal Default Management action may be amended upon the approval of the delegated authority in consideration of progress being made by the recipient in remedying their default(s); and as supported by an update of the Default Assessment.
|Principal Default Management Action||Recommended by||Accepted by|
|Initiate Recipient-Managed (i.e.: Ninety-Day Plan)||Funding Service Officer or equivalent||FSO Manager with notification to Regional Transfer Payment Management Committee (TPMC) or equivalent|
|Withhold Funds||FSO or equivalent||FSO Manager or equivalent|
|Require Management Action Plan (MAP)||FSO Manager or equivalent||TPMC or equivalent|
|Appoint Third Party Funding Agreement Manager||TPMC or equivalent||Program / Regional Director General/Regional Executive Officers|
|Terminate Agreement||TPMC or equivalent||Program / Regional Director General/ Regional Executive Officers|
There are four potential outcomes of the Default Management action evaluation process:
Where the overall Default Assessment risk rating is low and the recipient is deemed capable of remedying the default(s) within approximately 90 days, with appropriate approval, the responsible official will communicate to the recipient:
Recipient-Appointed Advisors can be implemented for single or multiple Programs or be applied to all departmentally funded Programs and core administration. A Recipient-Appointed Advisor is used when the recipient is willing but lacks the capacity to address a default. As funding for Recipient-Appointed Advisors is not provided by the department, a Management Action Plan should be considered prior to requiring Recipient-Appointed Advisor support.
Within the corrective strategy, the recipient will be required to set out the action to be taken and by whom within the 90 day timeframe. The responsible official will approach the recipient to formulate mutually agreed upon benchmarks and will subsequently monitor progress against such benchmarks. The corrective strategy is not incorporated in the funding agreement as an amendment.
Once a default has been identified, the responsible official may withhold funds. Such funds would have otherwise been payable under a funding agreement.
The Directives on Financial Reporting and Reporting Management authorize the withholding of funds without the undertaking of a formal Default Assessment process.
Where the overall Default Assessment risk rating is medium and upon acceptance by the Transfer Payment Management Committee or equivalent, the department(s) will notify the recipient in writing of the requirement to prepare a Management Action Plan.
The department(s) will ask the recipient to amend the funding agreement and include the Management Action Plan and assign a Data Collection Instruments (DCI) for quarterly reporting requirements.
A Recipient-Managed Management Action Plan is used when the recipient is willing and has the capacity to remedy the default. This is a recipient led activity that must be acceptable to the department(s).
The following principles apply in defining Management Action Plan requirements:
This is the most costly and intrusive Default Management action and should be used as a last resort to ensure the continued delivery of Programs to community members. The responsible official will, upon approval of the Region / Program Head, notify the recipient of the appointment of a Third Party Funding Agreement Manager. Third Party Funding Agreement Manager may be determined to be the most appropriate Default Management action in the following circumstances:
See the Directive on Third Party Funding Agreement Management for more information on this Default Management action.
To assist the responsible official, a supplementary consideration tab has been added to the end of the Default Assessment Tool in order to further assess whether or not appointing a Third Party Funding Agreement Manager is the most appropriate course of action. This consideration tab involves a number of questions, which are generally answered yes or no, and a space is provided to document evidence to support the assessor's responses. The questions are meant to aid in the decision-making process and to provide the final decision maker with all the information that is at the department(s') disposal.
Where the overall Default Assessment risk rating is high and upon approval of the Region / Program Head, the responsible official will notify the recipient, in writing, that the agreement will be terminated and provide the reasons for its termination.
The responsible official may give the recipient up to 14 calendar days from the time the recipient receives the Notice issued by the department(s) to provide information which would indicate that a default has not occurred or has already been addressed.
Upon termination, the department(s) will:
Sustainability emphasizes the proactive and strategic measures taken to ensure continuous Program delivery and help identify capacity gaps that may lead to a default in the terms and conditions of the funding agreement if not addressed. The Default Prevention and Management Policy is meant to accentuate the building and maintenance of relationships with the recipient so that funding agreements are in compliance, and continue to be in compliance. The department(s) will work with the recipient to monitor progress on any action plans that have been created to build recipient capacity and assist the recipient to address and rectify a default situation. A view to building recipient capacity should be taken through all processes related to Default Prevention and Management. Where this is the case, recipients often emerge from successful Default Prevention and Default Management with increased capacity and higher chances of avoiding default in the future.
Below are ways the department can assist the recipient in capacity building:
General Assessment (GA)
The preparation of the General Assessment may identify capacity issues. These are addressed through mitigation strategies and are monitored on an ongoing basis. The resolution of these issues also builds capacity. Tackling these capacity development gaps ensures the recipient's continued delivery of Programs to its members.
Management Development Plan (MDP)
The department(s) encourages recipients to engage in a process of continuous improvement and make a Management Development Plan a part of the continuous improvement process. A Management Development Plan may contain some elements that formed part of an exit strategy from Default Management or utilize the General Assessment Workbook for determining recipient eligibility for block contribution funding or other flexible funding approaches to complete a gap analysis. Plans such as a Management Development Plan and similar plans are encouraged as they may enable recipient eligibility for capacity development funding.
Recipient-Appointed Advisor (RAA)
The targeted hiring of a Recipient-Appointed Advisor is a measure taken by the recipient to address gaps in the recipient's capacity before a default occurs. A guide has been prepared for recipients of departmental funding who need and/or are required to seek advisory support in addressing individual Program areas.
Community Development Framework
The Framework describes an approach to community development in Aboriginal communities that is intended to facilitate the improvement of individual and collective outcomes, well-being and quality of life in Aboriginal communities. The approach is investment based and responds to the needs of community developed and owned plans while providing access to a broad array of capacity programming from as many departments as possible. The department will work closely with recipients and other partners where feasible to support this principle. The objective is to identify and appropriately apply available resources to help maintain or establish sustainable Program delivery and prevent defaults.
Professional and Institutional Development Program (P&ID)
The objective of this program is to develop the capacity of First Nations and Inuit communities in order to perform core functions of government, by funding governance-related projects at the community and institutional levels. Each region of the department has an independent budget for the Professional and Institutional Development Program, for use in funding projects that will benefit the governance capacity of First Nations and Inuit communities in that region. To access this funding, First Nations are encouraged to complete the Governance Capacity Planning Tool, which is a practical, step-by-step, independent workbook that allows First Nations to develop a five-year roadmap to plan and prioritize governance capacity-building projects and initiatives that are more community-focussed.
Recipients may also refer to Aboriginal Organizations that support First Nations in developing their financial, administrative and management capacity. Two such organizations are:
Tribal Councils are funded by the department under the Tribal Council Funding Program Policy. They are mandated to provide specific advisory services and are responsible for helping their member First Nations develop capacity.
Communities of Practice
Recipients can build capacity by looking to other communities of practice (e.g. other First Nations/Tribal Councils) who are willing to share their best practices.
Additional oversight and controls support due diligence and are in place to ensure enforcement of this directive through the following activities:
The department(s) will, to the extent possible, support the development of staff skills in order to meet organizational requirements including:
Oversight of the operation of the Management Control Framework and transaction processing is managed by the Chief Financial Officer and Audit and Evaluation Services.
The Grants and Contributions Information Management System provides performance indicators for review/evaluation of this directive including:
Engagement of the recipient in default situations including:
The consequences of non-compliance with this Directive are set out in section 7 of the Default Prevention and Management Policy (2013).
For enquiries and interpretations, please contact (as applicable):
Treasury Board Secretariat: Policy on Transfer Payments (2008)
Treasury Board Secretariat: Directive on Transfer Payments (2008)
AANDC: Management Control Framework for Grants and Contributions
AANDC: Default Prevention and Management Policy (2013)
AANDC: Directive on Third Party Funding Agreement Management
AANDC: Directive on General Assessment
AANDC: Directive on Financial Reporting
AANDC: Directive on Reporting Management
AANDC: Tribal Council Funding Program Policy