Question Period Note: Office of the Auditor General’s Performance Audit on the New Fiscal Relationship with First Nations

N.A.

• Our government welcomes the Auditor General’s report on the New Fiscal Relationship with First Nations and agrees with its recommendations.
• We are taking concrete action to improve how the New Fiscal Relationship is implemented, monitored, and assessed, including further strengthening First Nations’ governance capacity and how progress is measured and reported.
• Advancing the New Fiscal Relationship remains focused on empowering First Nations’ self-determination through flexible and predictable funding, as well as First Nations-led accountability and transparency measures.

On May 4, 2026, the Office of the Auditor General tabled an audit that looked at whether ISC effectively implemented, monitored, and assessed the results of the New Fiscal Relationship with First Nations.
The audit observed that two of the New Fiscal Relationship commitments were not met: the Default Prevention and Management Policy was not replaced, and a mutual accountability framework was not created.
In 2023, ISC released an interim directive that repealed the first two levels of the Default Prevention and Management Policy. ISC left the final level of the policy, third-party management, in place to be used only as a last resort where there is a risk to the delivery of essential services. There are currently no cases of third-party management.
Engagement with First Nations showed that they do not support a single, static mutual accountability framework but instead favour a First Nations-led approach that evolves over time. ISC is working with partners to develop a suite of evergreen accountability elements that can be updated as First Nations’ governance capacity grows.
The audit found that only 39% of the 10-year New Fiscal Relationship Grant files examined had all of the financial monitoring reports completed, largely due to financial management capacity challenges and difficulties securing auditors. The Auditor General recommended that ISC should provide additional support to First Nations to increase their administrative and financial capacity to prepare financial statements. ISC agrees with the recommendation and work is underway to strengthen governance capacity and improve access to supports within the current fiscal context.
The audit found that ISC had not yet reported on the socio-economic impacts of the New Fiscal Relationship Grant, as it is relying on the Community Well-Being Index, which is only available every five years. The Auditor General recommended that ISC should leverage data it collects to measure and report annually on the impacts of the Grant. ISC agrees and will examine the feasibility of using program-level indicators to strengthen outcome reporting, noting that the Community Well-Being Index is well suited to measuring socio-economic indicators, enables comparisons with non-Indigenous Canadians and does not add an additional reporting burden on First Nations.

If pressed on the Default Prevention and Management Policy
• Our government acknowledges the Auditor General’s finding that the Default Prevention and Management Policy has not yet been replaced.
• Guided by First Nations partners, we have repealed the first two levels of the default policy, and the final level, third-party management, is in place only as a last resort. There are currently no First Nations under third-party management.
• We recognize that more needs to be done and are working with partners to ensure that the right financial governance capacity supports are in place. If pressed on the a mutual accountability framework
• Our government acknowledges the Auditor General’s finding that a mutual accountability framework has not yet been created.
• Through engagement, First Nations told us that a single approach does not reflect their realities—they want something that grows, adapts, and is led by First Nations.
• We continue to work collaboratively with First Nations partners on a suite of mutual accountability elements and on First Nations-led accountability and transparency mechanisms. If pressed on supports to increase administrative and financial capacity
• We agree with the Auditor General’s recommendation and will work towards increased supports for First Nations’ financial and administrative capacity to prepare financial statements.
• Our government recognizes that many First Nations, especially small or remote communities, face complex capacity challenges. Access to auditors is limited, capacity is stretched, and deadlines can be difficult to meet.
• Work is underway to advance Canada’s support for First Nations’ governance, capacity, and financial administration responsibilities. If pressed on measuring the impacts of the 10-year New Fiscal Relationship Grant
• Our government agrees with the Auditor General’s recommendation and will examine the feasibility of using available data to measure the impacts of the 10-year New Fiscal Relationship Grant.
• The Community Well-Being Index is well suited for this purpose as it focuses on socio-economic measures and does not impose an additional reporting burden on First Nations. But we recognize the importance of timely information.
• We remain committed to supporting First Nations in strengthening their data governance capacity and enabling them to share their stories in ways that reflect their priorities and perspectives.