Despite all the rhetoric, debt is still a powerful weapon used against First Nations.

The 0.2% economy is managed in Ottawa. But when things go wrong on reserves, as Arthur Manuel describes in Unsettling Canada, the Department of Indigenous and Northern Affairs comes wagging its finger at the chief and council with ominous hints of “irregularities” and the need for “transparency.”

These insinuations are directed with a purpose. Financial corruption exists but is not widespread on reserves. INAC knows this well because band budgets are carefully scrutinized throughout the year and rigorously audited on annual timetables.

Rather, as Manuel writes, the financial problems lie elsewhere, “invariably caused by the system itself, which forces First Nations to try to satisfy the basic needs of their people with a budget that simply cannot cover them.” The “starvation wages” allocated by Ottawa are barely enough to keep people alive without running a deficit.

This is where the trouble begins. Bands need a surplus to pay off debts. But when you borrow against an insolvent future, this leads to deeper debt — which leads straight into the federal Default Prevention and Management Policy and its three-level approach to debt management.

Financial warfare

As of October 2017, according to INAC, 143 bands are currently under the Default Prevention and Management Policy. That’s almost a quarter of all bands in Canada.

Third-party management is a mercenary act of financial warfare against the poorest of the poor.

Under the Default Prevention and Management Policy, third-party management is identified as a “last resort” when remedies like co-management and recipient-management are exhausted. If a band is “non-cooperative” in co-management or unable to recover from a debt that climbs above 8 per cent of the band’s budget, third-party management is applied.

Third-party management is another very technical term for a straightforward thing: financial takeover.

With the imposition of third-party management, a paradoxical machinery is set into motion. A tender goes out to accounting firms to bid on managing the band’s debt. INAC then hires the firms, but the companies are paid out of the band’s deficit-ridden budget. Therefore, it is unclear to whom they are accountable.

Rather than invest these funds on training community members and building local capacity, bands are forced to siphon away money from the reserve economy. With almost no federal oversight, accounting firms have zero incentive to ever get bands out of the rabbit hole, because that would write them out of a job.

Bands subject to so-called “intervention” pay between $200,000 and $500,000 annually for accountants, many of whom rarely step foot on the reserve. Under intervention, bands must struggle even harder to get out of debt because federal transfer payments — that money that barely covers basic operating costs, infrastructure needs, and programs and services — are now expected to cover expenses, generate surplus to pay off deficits, and dole out an additional lump sum in the hundreds of thousands to private-sector accountants.

“At the end of the day, the government has had complete free reign, because we have been so busy managing our misery.”

Pamela Palmater sharply highlights the economics of this absurdity: “INAC’s intervention policy is really an industry. It makes a lot of people very rich.”

Palmater notes that when working at INAC she witnessed many bureaucrats jump ship for accounting firms hired under the Default Prevention and Management Policy when they recognized the gravy train.

Third-party management is a mercenary act of financial warfare against the poorest of the poor. As many First Nations leaders point out, it is in the disciplinary tradition of the residential school, part of the garrison infrastructure of colonial control that strips communities of their capacity to govern.

But like so many other aspects of colonialism in Canada today, it is banal, technocratic, and rationalized as a necessary form of paternal management. And that is why it needs to be so closely examined.

Big business

INAC’s own evaluation found that 42 per cent of First Nations under intervention have been so for over 10 years — a failure by any count. From 2006 to 2010, bands were also paying an average 46.4 per cent of their total Band Support Funding to third-party managements.

The data available since the publication of INAC’s report is full of gaps, so it is difficult to know exactly the average amount of time (and therefore costs) spent under intervention today.

But we do know it is big business. According to a document obtained by NDP MP Charlie Angus, a small number of firms often rise to the top of the tender process. These groups managed millions of dollars of First Nation money last year, earning an annual average of $223,000 per band throughout 2015-2016 alone. And that’s just for bands under third-party management.

In Manitoba last year, 43 out of 63 First Nations were under some form of management through the Default Prevention and Management Policy. Wasagamack and Garden Hill First Nations are among bands in the province that have been under third-party management for several years, hemorrhaging funds to third-party management while they have no clean running water on their reserves.

There are some bands that have managed to pull out of debt in relatively quick timeframes, for example at Pine Creek First Nation under Chief Derek Nepinak’s leadership, or at Mathias Colomb Cree Nation under Chief Arlen Dumas’s leadership.

Manitoba Grand Chief Derek Nepinak in 2015


But when asked how his band managed to get out, Dumas responds that it took every ounce of attention they had over a six-month period, which is a bleak hope for most bands because of the scale of crisis on reserves.

“At the end of the day, the government has had complete free reign, because we have been so busy managing our misery. We haven’t had a chance to focus our time and energy on getting out of intervention,” says Dumas.

Housing shortages

The stated policy goal of the Default Prevention and Management Policy is “to support community capacity development so that communities continue to increase their ability to self-manage thereby preventing default and default recurrence.” But bands tend to languish under third-party management and other levels of intervention. Under austerity measures, reserve infrastructure deteriorates along with community self-esteem.

Take the Barriere Lake Algonquins in Quebec. Since they were placed under third-party management 10 years ago, not a single new house has been built in the community. The housing shortage is so acute that, for lack of other options, there is a family living in the basement of a burnt-out house that floods each spring.

But the housing issue is not a standalone tragedy. It compounds other issues, such as child welfare. The past decade of third-party management has placed Barriere Lake Algonquin families and children at further risk of interventions by Quebec’s Department of Youth Protection. As research by Columbia University PhD Candidate Margaux Kristjansson has shown, the housing crisis in Barriere Lake is intertwined with the removal of children.

In 2013, Kristjansson interviewed an Algonquin mother whose four children had been taken from her custody. As Kristjansson describes, “Her youngest child was removed from her arms in hospital. When she moved back to Kitiganik [reserve], she and her husband built a small cabin because there was no housing available for them. While her return to Rapid Lake was intended to be part of regaining custody over their children, her housing situation — a one-room cabin — factored into the court and social workers’ decision not to restore her custody over her children.”

University of Manitoba Press

The historical relationship between underfunding and child welfare goes further back, of course. John Milloy, author of A National Crime, found that gastroenteritis was a common cause for abducting children from their families. Linked directly to a lack of clean water on reserves and village settlements, the state’s disinvestment was unsurprisingly found to render conditions unsanitary for children. Instead of ameliorating these conditions, the government put children in residential schools, where their physical health usually deteriorated further.

Daily despair

Dumas, now grand chief of the Association of Manitoba Chiefs and chief to Mathias Colomb Cree First Nation since 2008, has thought long and hard about the meaning of these fiscal relations in the context of Indigenous self-determination.

“I was born in 1974, and from that year until 2000 there was not a single suicide in our community. In 1998 we were put under co-management. In 2000 the first suicide happened in the community. And after that there were a rash of them.”

When asked why he thinks people started to take their lives, he responds, “People lost hope. There’s the physical deterioration of the community, the lack of belief in your leadership and your people and the lack of money for any youth programs, sharing circles, feasts.”

“We’ve just lost millions of dollars every year on paying out accountants instead of building back our communities.”

People had to make decisions about whether to feed their families or pay to keep the lights on.

Besides the daily despair of the Default Prevention and Management Policy, the long-term impacts to infrastructure that Dumas discovered were enormous. The reserve has eight lift stations that each cost about a quarter of a million dollars. As Dumas explains, “Over the course of 10 years of co-management the co-manager was diverting our maintenance funds to pay down debt. When the co-manager finally left and we could lift up the cover on what had been happening, we learned that every single one of our lift stations had to be replaced. The pumps have a lifespan of 30 years, and these pumps were only 15 years old. But because they weren’t properly maintained they had all deteriorated beyond use.”

Terry Sappier, a member of Tobique First Nation in New Brunswick, contends that the community sunk from 47 to 90 per cent unemployment from 2006 to 2009 under third-party management. According to Sappier, the accountants laid off everyone, kicked elders off welfare, shut down work programs and caused an enormous amount of distress in the community. People had to make decisions about whether to feed their families or pay to keep the lights on.

It was the grassroots community that pulled band members out of poverty. They went after NB Power, asserting their Maliseet jurisdiction, and launched an occupation of the Mactaquac Dam. Over an eight-year period they negotiated for work programs — linesmen, transmission line work, security contracts — and secured millions for community-directed riverbank restoration. Unemployment declined from 90 to 70 per cent. There were no more suicides or social problems. But they remain under third-party management to this day.

Average paid by a single band for third-party management in 2015-2016: $222,898
Total paid by 10 bands for third-party management in 2015-2016: $2,228,979
Average paid by a band for third-party management over 10 years: $1,793,740
Number of bands in some form of intervention during this period: at least 227
Of the 28 bands in third-party management during period, number not in intervention by end: only 9
Number of bands in third-party management for the whole period: 3
Number of bands in co-management throughout the whole period: 37
Number of bands in some form of intervention for the whole period: 73
Average time for a band in third-party management and co-management: ~3 and 4 years respectively

INAC’s dirty tricks

Milton Born With a Tooth’s community is one of the earliest documented cases of third-party management. In 2005, the Peigan Nation was put under intervention because his band mismanaged $64 million. This large sum of money was the settlement paid out by Alberta for draining the Oldman River and destroying the watershed system.

The Blackfoot warrior watched with growing horror as the resettlement monies were depleted by band leaders and an INAC-appointed accountant hired to help manage the funds. The funds were embezzled, partially facilitated by INAC’s accountant according to Born With a Tooth, and the band was put under third-party management.

“The policy needs to be exposed. It’s not what it looks like. It doesn’t do what it’s supposedly meant to do, which is to stabilize corruption,” he says. “It’s not our corruption that needs to be examined, it’s INAC’s tricks.”

When asked where he thinks the Default Prevention and Management Policy comes from, Born With a Tooth answers without hesitation. “It was [Pierre] Trudeau’s revenge. When they brought the Constitution here, he thought he was going to have a clean slate to run the country. He didn’t think he’d have to deal with any treaties.” The inclusion of Section 35 rights in the Constitution that protected and affirmed Aboriginal and treaty rights reset the relationship with the Crown on new footing.

To alienate communities from their leaders, the government set out to shame them through a witch hunt for corruption on reserves.

Grand Chief Dumas disagrees that the policy is geared singularly at bands facing resource development or being traditionalist. While he believes it is used to those ends, he says, “It’s a more general punitive thing.” But like Born With a Tooth, Dumas sees the policy in general as punishment for Indigenous peoples’ successful movement to secure their rights in the patriated constitution in 1982. To alienate communities from their leaders, the government set out to shame them through a witch hunt for corruption on reserves.

The origins of the intervention policy are murky, most likely based on compliance requirements introduced into transfer payment policy in the 1980s and 1990s in the period Dumas and Born With A Tooth both describe.

INAC maintains that it is difficult to determine its origins, since it likely began prior to the digitization of policy materials. We know that a National Intervention Policy has been in place since at least 2006 and that it was revised to become the Funding Arrangements: Intervention Policy, based on a framework outlined within the Treasury Board Secretariat’s 2008 Policy on Transfer Payments. The department moved from that version to the Default Prevention and Management Policy effective June 2011 until present day.

Trying to discover how the policy is legally structured and what gives these interventions a legal or legislative basis, however, is a fruitless endeavour. Despite repeated calls to INAC, the answers remain unclear.

Systemic causes

BY THE NUMBERS: 2006–2010
Average paid per year by a single band for third-party management from 2006 to 2010: $159,648
Maximum paid by a single band for third-party management from 2006 to 2010: $768,200
Cost of co-management: $100,000 to $300,000 per year

Hearings were held this past spring on the Default Prevention and Management Policy, and First Nations leaders and analysts testified for weeks. The Parliamentary committee concluded that “broad and substantive changes are needed,” recommending that INAC shoulder the costs of intervention, repercussions be introduced for managers that do not show results, reforms be introduced to improve monitoring and assessment, and INAC “establish enforceable timelines and service standards for third-party managers.”

It is astonishing that these basic protections for First Nations have not yet been introduced, despite years of similar criticism made by the Auditor General of Canada beginning in 2003.

Perhaps most arresting in the Auditor General’s final report is the finding that “the current funding arrangements are among the key systemic causes of financial difficulties in First Nations communities that require attention.” The first recommendation in the report is that the Canadian government provide adequate funding to First Nations.

At the recent Parliamentary hearings on the Default Prevention and Management Policy, Grand Chief Nelson Genaille of Swampy Cree Tribal Council approached the problem of third-party management from this same fundamental place: “In essence, why are we underfunded? That’s the first question. Why are we underfunded? I should be asking you that question.”

There have been vague assurances issued by the Minister of Indigenous Affairs that the policy is on its way out. But even when this policy is dead and gone, like residential schools, its legacy will persist far beyond its lifespan. Children growing up today in northern Manitoba with 15 to 22 people living in a small, unheated two-room shack will carry the burden of unlearning the implications of the way they have been treated: simply as debtors, not as the wealthy landholders that they are.

Sources for numbers: Documents 2, 4, 10 and 11 from INAC. We were unable to obtain the raw data for 1999–2010 so this is based on INAC intervention policy evaluation. Data for 2011–2017 reflects points in time rather than the full fiscal year. We were unable to obtain data for recipient management for October 2016 and so had to estimate. If a band was in recipient management for both July 2015 and April 2017, we assumed they were in recipient management in October 2016; if not, we assumed they were not.