The chief and council of Peguis First Nation paid themselves thousands of dollars in money earmarked for flood compensation, diverted thousands more to private consultants and hired unqualified staff as a make-work project for flood emergency operations.
Those findings -- obtained by the Free Press -- are among the red flags an independent management review and auditing firm in Ottawa has raised.
The outside review Aboriginal Affairs and Northern Development ordered in November was tasked with tracking what happened to $10.5 million in federal flood-compensation funding.
It concluded due to "numerous significant control weaknesses" it was impossible to "provide assurances that all of the funds were spent for the intended purposes."
The Peguis audit was part of a broader review of how federal emergency assistance was managed for First Nations in the wake of the Manitoba 2011-12 floods.
Ottawa launched an investigation last month to find out why the number of flood evacuees in Winnipeg hotels had skyrocketed since last spring. Another investigation focuses on how the First Nations federal flood co-ordinator, the Manitoba Association of Native Fire Fighters, handled emergency assistance.
The Peguis review is the first indication Ottawa is scrutinizing the finances of individual First Nations and may go further than just recouping funds. Bands could also find themselves the focus of criminal investigations.
"Should substantiated indications of criminal activity be found to have taken place as part of this or any subsequent financial reviews, AANDC will turn this information over to the appropriate policing authorities," a federal spokeswoman said.
But Chief Glenn Hudson defended his administration on Tuesday, taking exception with findings his staff is unqualified or there are any legitimate grievances to find with the financial administration of flood compensation at the Interlake-area reserve.
Hudson said the band co-manager disputed the federal review in writing and filed a point-by-point rebuttal with Ottawa after chief and council reviewed Ottawa's harsh findings.
"Indian Affairs put us in co-management and those managers have to account for every dollar. They're responsible for co-management and administration of those funds," Hudson said.
He dismissed the audit as inaccurate and said it offered an incomplete picture of Peguis finances for flood spending.
"I can tell you outright, it's not accurate," Hudson said. "There are no truckloads of money going to chief and council. They don't have all the accurate findings and there are inaccuracies in their review and we've rebutted that," he said.
Ottawa provided a catalogue of issues with flood compensation in an 11-page letter sent to the Peguis chief and council March 14. In addition to the payments, the review cites instances of direct political interference.
"According to the flood co-ordinator, he regularly received text messages during flood season from chief and councillors asking that someone be considered for hiring. In some cases the individual required reduced duties because of medical issues," says the letter, signed by Sylvie Lecompte, director of the department's assessment and investigative services branch.
Among the expenditures questioned and financial record-keeping criticized was $41,000 for gravel that wasn't adequately justified and an allegation the administration tried to turn seasonal flood work into year-round jobs that would qualify for employment insurance. In another case, some $500,000 worth of flood-related work off-reserve was never billed for, although work was done in a neighbouring municipality and at least one other First Nation.
Ottawa also questioned items that could be described as compassionate gestures: Flood-affected families were given $150 credits for groceries at Peguis Family Foods in July 2010, an expense that does not qualify for emergency disaster assistance.
In the end, the review concluded mismanagement landed the Ojibwa First Nation in a crisis, with a cash crunch that affected the band and left householders holding the bag for millions of claims for flood damages that had yet to be filed by this January, let alone reimbursed by the provincial Emergency Measures Organization.
The letter concludes by warning Peguis could be on the hook for thousands of dollars Ottawa will claw back from the First Nation.
However, Hudson characterized the review as positioning Ottawa is taking as it negotiates final flood-compensation funding against payment advances previously made to the First Nation.
Residents at Peguis say they are livid over the alleged mismanagement.
"This overall excessive and unnecessary expenditure shows the great inefficiencies in the system where chief and council have the power to do whatever they want for their own vested interests," declared James Sinclair in an itemized analysis of the federal review.
Another band member, Kelly Sinclair, said: "Peguis members need to be aware of what is going on here. Our members are being told lie after lie about flood issues."