Addenda to Directive 205: Default Prevention and Management Policy

1. Effective Date: This Addenda is in effect as of March 19, 2018
2. Application (Scope)
   
   This Directive applies to the participants and activities performed under the de-escalation pilot project as defined herein. This includes First Nations, First Nation Financial Management Board (FNFMB), CIRNA and DISC personnel
3. Context
   
   CIRNA/DISC are engaged with First Nation Financial Management Board (FNFMB) in a de-escalation pilot project to work with First Nations deescalating from Third Party Funding Agreement Management (TPFAM), to develop Financial Administration Capacity (Capacity) so that participating First Nations  may exit and remain out of Third Party Funding Agreement Management.
   
   The collaboration of all parties involved in this process is required to meet the expected results expressed in this document.
4. Expected Results (Objectives of the De-escalation pilot project)
   1. 4.1. The objective of the de-escalation pilot process is to engage First Nation(s) currently under Default Management with CIRNA/DISC in a Financial Management capacity development process with FNFMB for those First Nations to exit and remain out of Third Party Funding Agreement Management
      1.  4.1.1. FNFMB will work with the First Nation to support the implementation of the First Nation Financial Administration Law (FAL)
5. De-escalation Requirements under the Pilot Project
   1. 5.1. First Nations in the de-escalation pilot project will be de-escalated from Third Party Management after the following pre-requisites have been completed:
      1. 5.1.1 Current Audited Financial Statements and Management Letter
      2. 5.1.2. Current General Assessment (GA) Score including completed GA Workbook
      3. 5.1.3. CIRNA/DISC's assessment as per the Default Assessment Tool (DAT)
      4. 5.1.4. Results of Capacity Development Plan prepared by the FMB and:
      5. 5.1.5. Recipient's Capacity Development Work Plan prepared by the FMB
6. Formal Engagement into the De-escalation Pilot Project process
   1. 6.1. Participation of a First Nation into the de-escalation pilot project will be confirmed by a signed letter of cooperation and a Band Council Resolution to that effect. The confirmation letter will include:
      1. 6.1.1. A commitment to submit a Financial Administration Law and to participate in the De-Escalation process
      2. 6.1.2. A commitment to maintain and share the required reporting to monitor the First Nation's default management action
7. Default Management Action
   1. 7.1. Upon the formal engagement of the First Nation in the De-escalation Pilot Project and the completion of the five (5) pre-requisites enumerated at (S)5.1 The First Nation will be adjusted to Recipient-Appointed Advisor, with the requirement for the latter to co-sign money transfer instruments.
   2. 7.2. Management Action Plans (MAPs) will no longer be required as the Capacity Development Plan and Work Plan (Requirements 5.1.4 and 5.1.5) replaces MAPs
   3. 7.3. The Default Management Action of the First nation is monitored, adjusted and terminated using INAC's Default Assessment Tool which will consider the demonstrated progress of the recipient in its WorkPlan as measured under FNFMB's criteria and upon the recommendation of Pilot Project Steering Committee and the approval of the appropriate INAC authority (FSO, Regional Default Committee or RDG)
   4. 7.4. The Recipient's Default Management Action may be adjusted back to Third Party Funding Agreement Management should the Recipient not demonstrate progress in delivery of services, governance, administration and financial management
   5. 7.5. The status of the Recipient's Default Management Action is confirmed in writing to both the recipient and FNFMB at the same time
8. External Support
   1. 8.1. External Support might be required for numerous and distinct mandates which may include: Training, Development of policies, Delivery of Essential Services, Consultation on debt management, Delivery of services or other targeted activities.
   2. 8.2. For the purpose of this Directive, external support is divided three-fold
      1. 8.2.1. Capacity Building, as hired and contracted directly by FNFMB
      2. 8.2.2. Delivery of Essential Services and support to de-escalation as hired and contracted directly by the First Nation
      3. 8.2.3. For the transition period, awaiting change of Default Management Action, the Third Party Funding Agreement Manager
   3. 8.3. External support for Capacity Building activities will be selected, hired and contracted by First Nation Financial Management Board
   4. 8.4. The Recipient-Appointed Advisor, identified for the delivery of programs, services and activities as funded by INAC will be selected by the First Nation and approved by INAC under the regular terms and conditions as Recipient-Appointed Advisors
      1. 8.4.1. The mandate of the Recipient-Appointed Advisor for the above activities will include the obligation to co-sign all money transfer instruments
9. Monitoring
   1. 9.1. On an ongoing basis, CIRNA/DISC will monitor the reported progress of the First Nation against  their Workplan activities and goals
   2. 9.2. Monitoring will include the progress of the First Nation's financial position through the ‘Financial Performance Ratios' report produced by FNFMB
   3. 9.3. On an ongoing basis, CIRNA/DISC will also monitor the First Nation improvement via such monitoring activities as: evaluation of the working relationship; review of the General Assessment; review of the financial audit report and the auditor management letter; review of recipient audit or compliance review report(s); site visits; complaints as submitted by recipient's membership; timely submission of reports; confirmation of the use of funds and completion of the required activities under the funding agreement
   4. 9.4. The First Nation will be informed by INAC of its observations and assessment of performance and its resulting Default Management Action
   5. 9.5. The recipient will be provided opportunity to respond to the communication on Default Management Action.
10. Roles and Responsibilities
    1. 10.1. Chief Finances, Results and Delivery Officer (CFRDO) is responsible for
       1. 10.1.1. This Directive, and to approve any exceptions to it
       2. 10.1.2. Development and maintenance of the Default Assessment Tool (DAT)
       3. 10.1.3. Ensuring compliance to this Directive
    2. 10.2. Regional Director General is responsible for
       1. 10.2.1. Approving the adjustment of a First Nation in or out of ‘Third Party Funding Agreement Management' or ‘Pilot Project Co-Manager' Default Management Action
    3. 10.3. Regional Office: Transfer Payment Management Committee
       1. 10.3.1. Approving the adjustment of a First Nation in or out of ‘Recipient-Appointed Advisor' Default Management Action
    4. 10.4. Regional Office : Manager Funding Service Officer
       1. 10.4.1. Approving the adjustment of a First Nation in or out of ‘Recipient Managed – Management Action Plan' Default Management Action
    5. 10.5. Steering Committee
       1. 10.5.1. Recommend a Default Management Action to the Regional Director General
    6. 10.6. Third Party Funding Agreement Manager (TPFAM)
       1. 10.6.1. The TPFAM will collaborate with all stakeholders to facilitate the De-escalation of the First Nation who elect to join the De-escalation Pilot Project, into this Project
11. Definitions
    1. 11.1. Default Assessment Tool (DAT): a standardized business process that identifies the level of risk of a recipient default and aids the department(s) in deciding the appropriate default management action based on capacity/performance, willingness and the risk of the recipient to deliver programs.
    2. 11.2. Default Management (DM): The process for identifying and managing defaults of a funding agreement.
    3. 11.3. Default Prevention: is an ongoing process that focuses on the relationships with funding recipients and is inherent in existing departmental business processes.
    4. 11.4. Emergency: a present or imminent event that requires prompt coordination of actions concerning persons or property to protect the health, safety or welfare of people, or to limit damage to property or the environment. (Quoted from the Emergency Management Framework for Canada).
    5. 11.5. Financial Health: The financial position of the recipient as determined through the department(s') financial assessment process such that programs funded by the department(s) are not at risk.
    6. 11.6. Funding Agreement (FA): A written agreement between the Government of Canada and a recipient that sets out the obligations or understandings of both parties with respect to transfer payments.
    7. 11.7. General Assessment (GA): A standardized process for assessing a recipient for the purpose of identifying potential issues that may impact delivery of departmentally-funded programs; and for adjusting administrative requirements in proportion to that risk, such that the funding agreement is managed within the department(s') risk tolerance.
    8. 11.8. Workplan: Document completed by FNFMB which aims to guide the development of a First Nation Financial Management capacity and to reach Financial Management System Certification (FMSC)