First Nations reporting reforms

Despite many positive initiatives aimed at improving aboriginal communities across Canada, more changes are still necessary. Government reporting requirements and community stakeholder reports, for example, could be better designed to better serve the government and the community. CMAs Robert Anderson and Ron Baker are looking for a way to make that happen.

By Robert Colman

First Nations communities face unique challenges in a changing government, social and demographic landscape. Prime Minister Paul Martin recognized this recently when, at the opening of his meeting on health care funding with the provinces, he presented a -million plan to improve health delivery to Canada’s aboriginal communities. There is a well-documented and sizeable gap between the health of aboriginal communities and the rest of Canada.

There are also disparities in business opportunities that the government has been equally keen to address, with programs like Industry Canada’s Aboriginal Business Canada (ABC) program (see this month’s government issues column for more about the program).

However, little has been done thus far to address critical accounting and accountability issues in these same communities. For instance, the Office of the Auditor General of Canada undertook a study of First Nations reporting requirements in Saskatchewan in 2002. The objectives of the study were to assess the reporting and auditing requirements for these communities, examine the use of reports and audits, and develop criteria for a more effective reporting system. A number of observations and recommendations arose from this study:

• Communication with First Nations is inadequate;
• Performance information is insufficient; and,
• There is a need for better coordination amongst funding entities.

While the report provides a useful starting point on the issue of First Nations’ accounting and reporting, the study was not comprehensive, as pointed out by Indian and Northern Affairs Canada (INAC) officials in their response to it. The study drew heavily upon consultations with only four First Nations groups.

Nevertheless, it did identify a minimum of 168 required reports from First Nations to various funding agencies. In some cases, this number rose to 208 — a significant administrative burden. The report questioned whether all of this information was being used.

Robert Anderson, CMA, an associate professor, entrepreneurship, in the faculty of administration, University of Regina, has been studying Aboriginal economic development issues for 20 years now. Through his writing, and as co-editor of the Journal of Aboriginal Economic Development, he has been confronted with this issue on a number of occasions and considers it a problem in serious need of an answer.

“There is an increased interest in devolution, in having less interference from government in the affairs of First Nations and increasing First Nations accountability for their own communities,” he notes. “The government has made a reasonable move towards making this happen. They’ve encouraged decision making in the communities, but they’ve done so piecemeal. So although the education, social services, housing and other programs are each perfectly reasonable and understandable as single initiatives, as a whole they create a morass of reporting requirements to show that there is a proper use of funding dollars.”

The main objective of INAC is to “assist First Nations, Inuit and northern communities in their journey toward achieving social, economic, environmental, cultural and political sustainability.” In addition to devolving decision making and program management to the community level, economic development is a key component of the department’s sustainable development strategy. Funding by the department to First Nations has increased from $25 million annually to $120 million annually from 2001 to 2003 to assist in this effort. In addition, specific and comprehensive land claims agreements include considerable amounts of money intended for economic development. 

With devolution have come increased accountability requirements to the government and to the community. In addition, increased business activity in pursuit of economic development is adding its own reporting burden.

“As it stands, in one small community you may have three or fewer people in charge of all of the reporting processes for the many, disparate funding programs used to maintain the community,” says Anderson. “At the same time, members of that community are asking why a certain number of houses haven’t been built in the year, or why some university students haven’t received funding for the year, and leadership is trying to find efficient ways to convey that information. Complicating this program-associated reporting need is the need many communities have to report on the business activities and economic development related activities undertaken. A new system has to be developed to meet the needs of each group equally. Although there are models out there to do this, most of them are large in scale and require more substantial administrative commitments.”

Ron Baker, CMA, has seen the challenge First Nations communities face from both sides, as the senior finance officer of INAC in Saskatchewan, and as a public housing official in a small community in the Arctic. Baker is now assistant professor and CMA faculty fellow of accounting at the University of Regina.

“I oversaw the reporting system at INAC - Saskatchewan,” notes Baker. “The department has a proprietary, automated system that allows officials to see who has reported what and when. We had a full-time audit position reviewing all of this material, and from this data, funding decisions were made. The question is whether all of the information is essential.”

Anderson and Baker have set themselves the task of researching potential solutions for this complex issue. The objectives of their research are two-fold, and are divided into two stages. The first stage will investigate the diffusion of government reporting requirements to economic entities funded through government programs, either directly or through Bands and/or Tribal Councils.

The goal of this process is to quantify the extent to which administrative burden is increased by reporting requirements that exceed standard accounting practices used by non-First Nations entities. This could lead to determining the costs, in financial terms, of government reporting requirements that First Nations organizations must bear. The work will involve consultations with First Nations organizations, political leaders, Economic Development Officers (EDOs) and community members. 

The second stage of their research will involve the construction of a reporting model for funded First Nations’ organizations. Drawing upon stakeholder theory, the construction of this model will begin with the community accountability and managerial information needs of the organization, rather than the needs of departments or parliament. Guided by consultation with political leaders, EDOs and community members from the beginning, a model will be built that ideally satisfies the primary organization’s needs — community and membership accountability, environmental reporting, profitability, creditor requirements, managerial accounting information, and the like — while meeting the requirements of professional accounting standards (GAAP and GAAS).

The hope is that at the conclusion of the research, the gap between the two reporting tools, the new First Nation organization model and the current government reporting requirements, can be analyzed and the cost associated with government requirements that go above and beyond what might be considered “normal” administrative burden can be assessed and, to a certain extent, relieved.

The study will begin with documentary research, to catalogue the current reporting requirements and to investigate current reporting models, both private sector and non-profit. Anderson and Baker are currently researching and looking for feedback from individuals “on the ground” in First Nations communities on the status of the current reporting requirements, the applicability of other reporting models, and, through consultation, the construction of a new reporting model. As a first step, the two will present a 90-minute workshop to community EDOs at the annual conference of the Canadian Council for Small Business and Entrepreneurship, being held in Regina this month.

“The research will be a time-intensive process because we want to talk face-to-face with people in these communities to find out what their reporting needs are,” says Baker. “ A lot of  the initial data gathering will be done in Saskatchewan, but because the reporting requirements are fairly standard across the country, we may be able to create a model here and then travel across the country discussing its merits with other communities.  We also have to discuss with government officials the amount of information that is actually used from the many reports they currently receive. Understanding government needs better can only strengthen any proposed model.”

Both Baker and Anderson are confident that a compromise solution is possible.

“There are good models available out there that might work in such communities,” notes Anderson. “For instance, models used to report on corporate social responsibility and environmental stewardship have many of the characteristics that First Nations reporting requires. In many cases, if detail could be superseded by substance, much more information could be provided to the community that would also clarify spending for government agencies as well. As long as controls are there, and effective audits prepared, a model like this might be possible.”

“With a strong alternative concept, we may yet be able to remold or at least challenge government reporting requirements,” says Baker.

Robert Colman is the editor-in-chief of CMA Management.

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