Default Prevention and Management Policy Explained
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 recipient defaults on the terms and conditions of the funding agreement.
Generally speaking, a default occurs when:
- The health, safety or welfare of the community is at risk or being compromised
- The recipient has not met its obligations under the funding agreement
- An auditor has flagged concerns with the recipient's annual audited financial statements
- The recipient's financial position places the delivery of funded programs at risk
- The recipient is bankrupt or at risk of bankruptcy; or has lost or is at risk of losing its corporate status
The Default Prevention and Management Policy was originally put in place in the summer of 2011 in response to the recommendations of an internal audit, an evaluation of AANDC's Intervention Policy, and discussions with First Nation governments and financial experts. The DPMP was revised in 2013.
This policy was developed in collaboration with the Aboriginal Financial Officers Association and First Nation governments, and was reviewed and vetted by the Department’s External Audit Committee; comprised of members outside the public service.
The DPMP focuses on prevention, management and sustainability in order to reduce the number of communities in default management 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 revised DPMP came into effect in November 2013, replacing the previous version of the policy dated June 2011. It exists to support community capacity development so that communities can continue to increase their ability to self-manage and thereby prevent defaults. The Department reports on three levels of default management:
- Recipient Managed – Management Action Plan: replaces Recipient Managed in accordance with Remedial Management plans (RMP) under the former Intervention policy. In this level of default management, the recipient develops a plan, acceptable to the Department, to remedy and recover from a default, to address the default and prevent its recurrence.
- Recipient-Appointed Advisor – Management Action Plan (MAP): replaces Expert Resource Support under the previous DPMP. The Recipient-Appointed Advisor is contracted by the recipient as part of their Management Action Plan to address the default and prevent its recurrence. In some cases, a Co-Managed level of default exists where the recipient has entered into a Co-Management Agreement prior to the implementation of the DPMP and that Co-Management Agreement has not yet expired.
- Third-Party Management: the Third-Party Manager, contracted by the Department, administers the Department's funding for the delivery of programs and services and works to remedy the underlying causes of the default. This level of default management is a temporary measure to ensure the continued delivery of programs and services to community members.
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. The decision to place a recipient in default management is not taken lightly and the appointment of a Third-Party Manager is used as a last resort to ensure the continued delivery of programs and services to community members.
Recipients 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.
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