Default Prevention and Management Policy explained
Changes to how ISC applies the Default Prevention and Management Policy
As of June 1, 2023, ISC no longer applies the first 2 levels of the Default Prevention and Management Policy (DPMP), Recipient-Managed and Recipient-Appointed Advisor, to recipients that enter default. This is an important step in the process to repeal the DPMP, which the Government of Canada committed to in 2017. ISC plans to work with First Nations partners to co-develop a new approach that provides capacity development support to communities experiencing significant governance capacity challenges. The third level of default management, known as Third-Party Funding Agreement Management, remains as a last resort, applied only in rare circumstances when all efforts to ensure the continued delivery of programs and services to community members have been exhausted.
First Nations programs and services are delivered through funding agreements signed by both Indigenous Services Canada (ISC) 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 (DPMP) was originally put in place in the summer of 2011.
The Government of Canada is working with First Nations to establish a new fiscal relationship that moves towards sufficient, predictable and sustained funding for First Nations communities. Over the last few years, ISC has been engaging with Indigenous-led institutions and organizations such as:
- the Assembly of First Nations
- the First Nations Financial Management Board
- the Aboriginal Financial Officers Association of BC
through a technical level joint working group, with the goal to repeal the DPMP and establish a new system of capacity building supports provided by First Nations institutions.
This new approach will also be based on a series of pilot projects conducted with the First Nations Financial Management Board to support First Nations in building financial management capacity and exiting the default management process. These pilot projects have been ongoing since 2016.
Default Management
The current DPMP has 3 levels of default management:
- Recipient managed: The recipient develops a management action plan, acceptable to the ISC, to remedy and recover from a default and prevent its recurrence.
- Recipient-appointed advisor (formerly called co-management): A recipient-appointed advisor is contracted by the recipient as part of their management action plan to address the default and prevent its recurrence.
- Third-party funding agreement management: A third-party funding agreement manager, contracted by ISC, administers ISC'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.
The decision to place a recipient in default management is not taken lightly. The appointment of a third-party funding agreement 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.