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Contentious cleanup

Ottawa's decision to parachute third-party managers into debt-ridden First Nations is a short-term, short-sighted fix that doesn't get to the root of the problem, critics on both sides of the books argue

Hey there, time traveller!
This article was published 9/12/2011 (2079 days ago), so information in it may no longer be current.

Roseau River is arguably the most tumultuous, dysfunctional First Nation in Manitoba, plagued by petty financial scandals, internal division and messy, confusing elections.

Lake St. Martin First Nation has 700 flood evacuees living in limbo, and its chief has been accused of stalling a relocation plan because the province wouldn't hire his company to build the temporary houses.

The outside view of the  trailer of Richard Andrews in Wasagamack First Nation.


The outside view of the trailer of Richard Andrews in Wasagamack First Nation.

Kids inside the home of Richard Andrews in Wasagamack First Nation, which is under third-party management. The band needs about 450 more houses to alleviate chronic overcrowding.


Kids inside the home of Richard Andrews in Wasagamack First Nation, which is under third-party management. The band needs about 450 more houses to alleviate chronic overcrowding.

In remote Wasagamack First Nation, most homes don't have indoor toilets or running water, and the band needs about 450 more houses to alleviate chronic overcrowding.

All three bands have something in common: The chief and council aren't really in charge. An outside accountant handles all the money.

Third-party management -- where the federal government forces a band to turn over control of its cash and day-to-day operations to an independent manager -- was once an obscure bureaucratic manoeuvre Ottawa used to reign in financially troubled First Nations.

Thanks to Attawapiskat, where an outside accountant appointed to deal with a housing crisis was politely punted off the reserve Monday, third-party management is now big news.

The practice is being widely criticized as, at best, paternalistic. At worst, it's costly and ineffective.

Former federal auditor general Sheila Fraser repeatedly raised red flags about third-party management, and one former manager told the Winnipeg Free Press the practice does nothing to genuinely improve a band's financial operations.

Instead, it's more about cutting spending and services on reserves already underfunded -- (former Alberta premier) "Ralph-Kleining a community back into the black," said the former third-party manager.

Stripping band councils of their signing authority is meant to be an extreme intervention, a last-ditch measure to yank a band out of financial catastrophe.

But in Manitoba, it has become the norm.

There are 23 bands in Manitoba managed entirely by a third party or co-managed in partnership with the chief and council.

That's more than a third of all the bands in Manitoba.

It's more than any other province.

And it's up from last year.

In 2010, 21 bands were in some form of third-party or co-management. Currently, an army of outside accountants are managing well over $300 million in federal funds and the fates of 30,000 people living on-reserve.

In most cases, the third-party accountant is paid out of band funds, meaning already indebted and cash-strapped bands have to cut spending to come up with thousands to pay the accountants.

Last year, a financial-management firm was reportedly paid nearly $200,000 to run the affairs of Little Saskatchewan First Nation, which went into third-party management in 2010 after the band ran up a $2.6-million debt and its financial paperwork became indecipherable.

And, in Attawapiskat, the new third-party manager will be paid $180,000 for seven months of work.

That amounts to about $1,300 a day. Attawapiskat is being forced to lay off education assistants to pay the bill.

After Attawapiskat's makeshift tents made national headlines, the Harper government immediately put the northern Ontario band into third-party management while raising questions about how $90 million in funding for the reserve since 2006 was being spent.

The move was condemned by First Nations leaders as a cynical response to a human disaster. But it also sparked a national debate about the future of the country's reserve system and what accountability measures are in place for billions spent on First Nations.

A longtime third-party manager in Manitoba said the system is dysfunctional and doesn't actually improve things.

The manager spoke on the condition of anonymity because going public would affect his livelihood.

He said the relationship between a band and an outside manager is always strained and can be volatile.

"There is, typically, push-back," he said.

"At the end of the day, I'm just some white guy from (the city) going in and telling them what to do."

And, he said, the system is not set up to improve conditions on a reserve. A third-party manager is not there to assess big-picture problems -- housing needs, education gaps or economic problems -- and then work with the band and Ottawa to fix them.

Instead, it's about shoe-horning spending back into acceptable limits, which often means cutting services.

"Ralph-Kleining a community back into the black, a monkey can do that," said the manager.

"Our job is to make sure money is spent in the correct category."

When Bloodvein First Nation was in third-party management for several years, cash was so short that, at one point, the reserve's school was borrowing paper and pens from the nursing station, William Young, the band's former chief, said last year.

The third-party process is also fraught with loopholes. The managers do not have any control over how a band handles entities it owns, such as gas bars and casinos. If the band decides to sell a piece of equipment, the money raised is not handled by the manager, either.

Without having an entire picture of a band's financial situation, a third-party manager can't provide a true fiscal plan.

And third-party management doesn't build skills -- the current catchphrase is "capacity." Many bands get into trouble because chiefs, councillors and band managers don't have the accounting and governance skills needed to run multimillion-dollar operations with very specific and often onerous federal reporting requirements. Handing it off to an outside accountant often doesn't help build that capacity.

And, troubled band management is also a symptom of frequent turnover in leadership.

Norway House Chief Ron Evans, formerly the province's grand chief, said almost any band in third-party management is guaranteed to be on a two-year electoral term. That means the chiefs and council never have the time they need to make tough decisions about cleaning up a band's fiscal picture.

"Leadership with longer terms can make tough decisions for their communities without worrying about immediately having to be re-elected," said Evans, whose own band is in co-management.

Evans said he's hopeful bands will opt in to the four-year electoral terms for chief and council being made possible by new legislation introduced by the federal government.

First Nations leaders also argue third-party and co-management run counter to the principals of self-government, exiling duly elected band councils to a powerless purgatory.

"It's an awkward situation to be in, because, on the one hand, at least no fingers are pointing at you that you're mismanaging funds," said Gerald Anderson, the new chief of Little Saskatchewan First Nation. "But the band's funds are not in your hands. They're in someone else's hands."

Little Saskatchewan's third-party process has been so strict that, until the debt and cash flow improve, the chief and council are not getting paid, said Anderson, who quit his job as a school teacher to run for chief early this year. He wonders how many federal officials or non-aboriginal politicians would put up with doing a full-time job for no pay.

But, he says, some things are getting better. For one, the band's new third-party manager from the Exchange Group has managed to stop a parcel of band-owned land from being seized in a tax sale.

There are other bright spots.

After seven years of ping-ponging between third-party and co-management, Skownan First Nation in the north Interlake got full control of its finances back on Monday, the very day Attawapiskat sent its new manager packing.

That coincidence gave Skownan Chief Cameron Catcheway a chuckle Friday as he stepped out of a routine meeting with Aboriginal Affairs and Northern Development Canada officials in Winnipeg.

Catcheway said the process was painful at times. To cut costs and pay down the debt, band staff agreed to go down to a four-day work week to save money, and the education department took a big hit that meant some promising band members didn't get funding to help them with university tuition.

And it stung having to pay Meyers Norris Penny roughly $12,000 a month to be the band's co-manager.

"We could have been building housing with all that money," said Catcheway.

But Catcheway said the process worked well because band members pitched in, and his council developed a decent relationship with Meyers Norris Penny and with the AANDC finance officer assigned to Skownan's case. Getting some accountability measures in place have been good for the band.

"I think we'll be good to go from here on in," said the chief.

And in Roseau River, the third-party status has had an odd upside.

The southern Manitoba band was placed into third party in 2009 after it wracked up $1.5 million in debt over three years. An audit found incomplete financial accounting and "a number of unexplained anomalies" along with money earmarked for development projects spent instead on travel expenses and year-end bonuses to the chief and council.

Since then, a contentious band election has produced two rival chiefs and councils, one led by longtime chief Terry Nelson and the other by Ken Henry.

The political stalemate has produced a financial one, but because the band is in third-party management, Meyers Norris Penny has been able to keep the school, social services and other federally funded programs running.

Still, Fraser, the former auditor general, has repeatedly taken issue with the third-party management system for its lack of ability to improve the conditions on a reserve and the fact there was no clear mechanism for how a band in third-party management could get out of it.

And in November 2010, the government reported on an evaluation of its intervention policies for First Nations and found, in general, third-party management is not cost-effective. It found it is successful to ensure the ongoing delivery of essential services and maintain the health and safety of band members. But it is not good at keeping chiefs and council accountable, helping the bands improve their situation and ultimately helping them get out of third-party management.

Said Evans: "The people given the assignment need to be able to identify the resources that are needed, identify the problems, identify the cost to fix it and then give Ottawa a plan and a request for the resources to fix the problems."

How it works

Normally, Aboriginal Affairs and Northern Development Canada appoints a co-manager or a third-party manager when a band's finances are in disarray and the band is unable to comply with federal funding agreements, when an auditor raises red flags or when deficits soar above eight per cent of revenues.

Ottawa has also stepped in to help manage bands when political turmoil paralyses a First Nation, as it did in Pine Creek a couple of years ago.

Third-party management is the most extreme level of intervention. That's when AANDC appoints an outside accountant to take complete control of a band's money and day-to-day operations of essential services. That effectively strips the band council of signing authority and control.

Co-management is when AANDC forces the band to hire an outside accountant or consultant to help keep the books in co-operation with the chief and council. Band councils may still have signing authority but can make financial decisions only with the agreement of the co-manager. Or, the co-manager might have effective control over the band's funds.

Each year, bands are given funding earmarked for different programs and areas -- social assistance, health care, education, child and family services and so on. Theoretically, the band is supposed to keep each category separate. But as with a personal budget, if one area comes up short, it is not uncommon for a band to take from one area to solve a problem in another.

When a third-party manager is hired, one of the first things they do is establish a new bank account in trust for the community. From then on, all federal money flows to that account and only the third-party manager can issue cheques. Sometimes the bands have someone in place who can distribute social-assistance cheques, but sometimes third-party managers do that as well.

The manager often works right in the band office. In Little Saskatchewan First Nation, for example, the chief says his third-party manager is on the reserve three, sometimes four days a week.


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