Audit of ISC's Processes to Support Participation in the 10-Year Grants

Positive Observations

The audit noted the following positive observations:

• The Department has developed an Operating Guide which provides a framework for the implementation of the Grant.
• The Department has collaborated with stakeholders like the AFN and FMB, which are critical to the effective implementation and ongoing policy development of the Grant.
• The Department performed a rollout of the Grant and has subsequently engaged in outreach efforts to get First Nations to participate in the Grant.
• Guidance on the process of testing for initial and on-going eligibility has been developed.

Opportunities for Improvement

The audit team identified areas where management control practices and processes could be improved, resulting in the following recommendations:

1. The Assistant Deputy Minister of Strategic Policy and Partnerships should ensure that the distinct roles of Strategic Policy and Partnerships and Regional Offices in outreach activities and the Grant process in general are well understood, while also ensuring that the outreach material provided to First Nations is consistent across regions and contains sufficient detail about how the Grant differs from other funding models, including its short and long-term benefits.
2. The Assistant Deputy Minister of Strategic Policy and Partnerships should ensure capacity development resources for First Nations are identified and linked to the respective eligibility criteria and clearly communicated in outreach material to First Nations. This should include establishing and implementing an approach to collect, track, and analyze the results of outreach activities and capacity development needs and use this information to tailor outreach material and identify capacity development needs and facilitated on-going improvement. 
3. The Assistant Deputy Minister of Strategic Policy and Partnerships should develop a standard risk based rationale for the areas assessed by the ISC Grant Eligibility Review Committee to ensure the appropriate areas of risk are being assessed by the committee.  This should be done in a way to provide guidance for the identification and assessment of risks to committee members as part of the Grant Eligibility Review Committee's due diligence process.
4. The Assistant Deputy Minister of Strategic Policy and Partnerships should work with the relevant stakeholders and establish a framework that tracks and monitors the status of ongoing eligibility activities for all participating First Nations and effectively manages risks associated with the limited performance of monitoring and oversight activities.
5. The Assistant Deputy Minister of Strategic Policy and Partnerships should work with the relevant stakeholders to assess the type and level of risk the Department is taking on due to the issues with the completion of on-going assessments at the time of this audit. Once the level of risk is determined, mitigation plans should be identified and implemented as needed. 
6. The Assistant Deputy Minister of Strategic Policy and Partnerships should ensure that the Grant Eligibility Review Committee is part of the on-going eligibility review process, so that those risks that were reviewed by the committee when assessing initial eligibility continue to be assessed. 

Role of the First Nations Financial Management Board

A Memorandum of Understanding (MOU) was established on November 6, 2018, between the FMB and the Government of Canada. As part of this MOU, the FMB accepted the role of assessing whether a First Nation meets the eligibility criteria for a Grant, on behalf of ISC.

The 10-Year Grant is available to First Nations that submit a request and meet the eligibility requirements. The eligibility requirements, co-developed by the Department, the AFN and the FMB, assess the financial performance and governance structures of recipients.

Eligibility criteria include:

• Have in place a financial administration law (FAL) or by-law (FAB), that meets the co-developed standards for Grant eligibility; and,
• Meet prescribed financial performance ratios as calculated by FMB.

The eligibility requirements are based on the agreed-upon standards for financial management certifications. FMB conducts the analysis of eligibility of First Nations by evaluating audited financial statements from the previous five years and by verifying that the First Nations' FALs or FABs are aligned with FMB's standards for such laws, with requirements in terms of specific FAL/FAB provisions enumerated in the ISC funding agreement model. FMB also provides a Financial Management Systems (FMS) Certification, which certifies the use of good governance and finance practices as outlined in the First Nation's FAL.

FMB provides the eligibility assessment results to the Department (NFR Secretariat), then the Grant Eligibility Review Committee discusses the results of the assessment, examines additional risk areas and prepares a recommendation to the Minister of Indigenous Services (the Minister), who makes the final decision to offer the Grant agreement.

FMB also supports ISC's implementation of the co-developed risk assessment and ongoing eligibility monitoring activities required to continue receiving the Grant.

Departmental roles and responsibilities

The NFR Secretariat, which is within the Strategic Policy and Partnerships (SPP) Sector, is responsible for overseeing and leading the implementation of the Grant. Specifically, the NFR Secretariat is responsible for policy development, coordination of eligibility information, risk assessment of potential candidates, ongoing eligibility monitoring activities, and development of operational guidelines and information products.

Transfer Payments Advisory Services (TPAS) within the Chief Finances, Results and Delivery Officer (CFRDO) sector supports implementation through development of the Grant sections of the departmental comprehensive funding agreement model. CFRDO is also responsible for providing support during eligibility reviews of potential recipients as part of the Grant Eligibility Review Committee.

Members of Regional Operations (RO) sector and the First Nations and Inuit Health Branch (FNIHB) are responsible for supporting the administrative activities across the Grant lifecycle including supporting the Minister's decision to offer the Grant agreement. This includes the issuance of the call letters to First Nations based on materials developed and provided by the NFR Secretariat, and meeting with interested recipients to address their questions and concerns on the Grant agreements. For the assessment and ongoing eligibility, RO and FNIHB provide input into initial eligibility reviews, supports the conduct of ongoing eligibility monitoring, and corresponds with First Nations regarding capacity development support.

The Department co-developed the Grant Operational Guide (the "Operational Guide") with FMB and the AFN, which identifies key activities and corresponding roles and responsibilities related to the Grant. The Operational Guide was drafted and neared completion in June 2021 but remains in draft as of February 2022.

2.1 Why it is important

For First Nations, the implementation of the Grant provides a concrete step towards flexible and predictable funding to address their needs and priorities. For ISC, the implementation of the 10-Year Grant demonstrates commitment to building a new relationship with First Nations. Performing this audit allows an assessment of the process established by the Department to engage eligible First Nations and those that are interested in participating in the Grant, as well as evaluation of the internal processes in place to support the Grant.

2.2 Audit objective

The objective of the audit is to provide assurance that the Department's activities support the assessment of initial and ongoing eligibility of First Nations participating in the Grant and also support First Nations that may be interested and have not yet participated in the Grant.

2.3 Audit scope

The audit covered the processes and controls that support the assessment of outreach activities, initial and ongoing eligibility of First Nations, and capacity development activities related to the Grant based on information provided by management. The audit covered the period from April 2019 to February 2022.

The audit examined the work of the NFR Secretariat (part of SPP), RO, FNIHB and CFRDO. It did not examine the work of external partners such as FMB, as the activities of external partners fall outside of the scope of the audit.

Regional offices selected as part of this audit were British Columbia, Alberta, Ontario, Quebec and Atlantic. These regions were selected based on the number of grants issued. The audit looked at regions with high grant issuance rates and those that didn't issue as many, as well as the resulting work by regional offices for outreach activities, ongoing eligibility assessments and capacity development support.

The audit focused on evaluating the following activities related to implementing and operationalizing the Grant.

• Outreach activities: First Nations receive communications and information annually from the Department seeking Expressions of Interest to enter the Grant. Outreach activities provide First Nations that are not currently participating in the 10-Year Grant with information that supports an informed decision for participation in the new program. 
• Initial eligibility: The Grant is available to First Nations that provide a written request and that meet the eligibility requirements. The eligibility requirements, co-developed with the AFN and the FMB, assess the financial performance and financial governance of recipients. The initial eligibility assessment of the Grant offer is performed by FMB, who provides the eligibility assessment results to the Department (NFR Secretariat). The Grant Eligibility Review Committee then discusses  results and reviews additional areas of potential risk before preparing a recommendation to the Minister of Indigenous Services, who makes the final decision to offer the Grant agreement.
• Ongoing eligibility: To continue to receive grant funding, recipients have to demonstrate that they continue to meet the eligibility requirements during the entire term of the Grant. FMB supports ISC in the implementation of the co-developed risk assessment and ongoing eligibility activities.
• Capacity development support activities and resources: Capacity development support is available to First Nations from both the Department and FMB to support developing and continued eligibility requirements as well as governance capacity.

The audit did not include testing of individual grant agreements. The audit also excluded the activities and assessments performed by the FMB related to assessment, eligibility and compliance of First Nations.

2.4 Audit approach and methodology

The audit was conducted in accordance with the requirements of the  Treasury Board Policy on Internal Audit and was conducted in accordance with the Institute of Auditors International Standards for the Professional Practice of Internal Auditing. The audit examined sufficient, relevant evidence and obtained sufficient information to provide a reasonable level of assurance in support of the audit conclusion. The approaches used to address the audit objective included the development of audit criteria, against which observations and conclusions were drawn. The audit criteria can be found in Annex A.

The audit consisted of three phases: planning, conduct and reporting. The main audit techniques used included:

• Interviews with key stakeholders involved in the design and delivery of the Grant;
• Process walkthroughs of outreach (awareness) activities, initial and ongoing eligibility activities as well as capacity development and ongoing support activities;
• Documentation review including policies, procedures and guidance to support stakeholders responsible for activities related to Grant funding within a comprehensive funding agreement, monitoring responsibilities and workflows, tools used to fulfill responsibilities, reporting on recipient monitoring activities and results.

3.1 Outreach and Capacity Development Activities

Outreach is a critical part of growing participation in the Grant. Communication needs to be consistent and clear, and highlight the key components of the Grant as well as why participation in the Grant is beneficial. Along with this outreach, the Department should have capacity development support available to assist those First Nations that are interested but may have challenges meeting the eligibility criteria.

Accordingly, the audit expected that outreach activities would be performed by the Department to provide awareness and accurate information about the Grant to seek interest from those First Nations that were not currently enrolled. Furthermore, the audit expected that those First Nations interested in participating in the Grant that also had capacity development needs be identified by the Department and be provided with available departmental support to assist with grant eligibility.

There was a risk that the Department's outreach activities may not provide sufficient information about the Grant to First Nations which would impact participation in the Grant. There was also a risk that the Department may miss an opportunity to provide capacity development support to First Nations who are interested but would not qualify due to capacity development needs. Without effective outreach and capacity development support, the overall effectiveness of the NFR initiative would be impacted as participation in the Grant may be limited to communities that already have capacity to meet the eligibility criteria and understand the 10-Year Grant.

3.2 Initial Eligibility

The Minister has the final approval authority to determine whether to offer the Grant to a recipient. The Minister may also decide to impose conditions on an offer, including enhanced monitoring or requirement to obtain an FMB Financial Management Systems (FMS) Certification. The FMB Financial Management Systems Certification process provides verification of the implementation of a First Nation's FAL, including provisions related to grant eligibility.

The audit expected the Department to consistently identify, assess and communicate eligibility risks as part of the Grant approval process as well as a defined dispute resolution process that seeks input from relevant stakeholders in the event ISC's risk assessment does not align with the results of FMB's review.

Failure to identify and communicate eligibility risks could result in ineligible recipients entering into the Grant or a missed opportunity to provide capacity development support to a First Nation that is interested but has capacity development needs.

3.3 Ongoing Eligibility

ISC, FMB, and the AFN have co-developed a risk assessment and ongoing eligibility activities approach. As per the Operating Guide, the stated objectives of the risk assessment and ongoing eligibility activities is to identify and mitigate risks related to a First Nation's ability to maintain eligibility, assist First Nations in identifying opportunities for increased capacity support, support First Nations in increasing accountability to its citizens, and to ensure that the risk assessment and ongoing eligibility activities are minimal and non-intrusive and make use of the information that is to be provided through the terms of the Grant agreement. The ongoing monitoring responsibilities of ISC are defined in the Operational Guide.

Accordingly, the audit expected to see the Department's roles and responsibilities operationalized, including carrying out monitoring activities to identify and mitigate ongoing eligibility risks or issues.

There is a risk that ineffective ongoing monitoring could lead to inadequate risk management, as well as ongoing eligibility issues not being identified or adequately addressed. If this risk were realized, grant funding would be provided to recipients that may become ineligible over time.