Audit of the Additions to Reserve Process

Background

The Audit and Assurance Services Branch (AASB) of Indigenous and Northern Affairs Canada (hereon referred to as "INAC" or "the Department") identified an Audit of the Additions to Reserve Process in the 2016-2017 to 2018-2019 Risk-Based Audit Plan. The audit was identified as a priority because the Additions to Reserve (ATR) process is complex and involves multiple considerations, including environmental, legal, communication, and consultation issues. The process also involves multiple stakeholders, including First Nations, other federal departments, and other levels of government. Furthermore, in 2012 significant changes to the ATR process were implemented that reduced the role of INAC Headquarters (HQ) and increased the responsibility of Regional Offices.

Audit Objectives and Scope

The objective of the audit was to assess the extent to which recent changes to the governance and control framework support efficient and effective management of the ATR portfolio. The specific audit objectives were to assess the extent to which:

• Recent redistribution of roles, responsibilities, and authorities is supporting the effective and efficient processing of ATR files and oversight of the ATR portfolio;
• ATR Support Centres are appropriately positioned and functioning to support effective, efficient, and timely processing of ATR files; and
• Processing of ATR files is continuously improved and/or streamlined through the identification, communication, and effective implementation of proven practices or approaches.

Statement of Conformance

This audit was conducted in conformance with the International Standards for the Professional Practice of Internal Auditing, as supported by results of the quality assurance and improvement program

Conclusion

Management has made improvements to the governance and control framework that are designed to better support efficient and effective management of the ATR portfolio. However, key elements necessary to support effective monitoring and risk-based planning/decision-making in connection with the ATR portfolio as well as support to First Nations during the process have been identified. In addition, there is a need for greater clarity around the Department's ATR-related strategic objectives and roles and responsibilities of key internal and external stakeholders.

Recommendations

1. The Assistant Deputy Minister of the Lands and Economic Development Sector, in collaboration with the Senior Assistant Deputy Minister of Regional Operations Sector should develop and communicate strategic objectives related to Additions to Reserves.
2. The Assistant Deputy Minister of Lands and Economic Development Sector, in collaboration with the Senior Assistant Deputy Minister of Regional Operations Sector should ensure that a plan and a timetable are established to develop and implement governance elements for the Additions to Reserves portfolio related to:
   • Performance reporting that adequately supports the oversight of Additions to Reserves activities in terms of assessing results achieved and identifying challenges;
   • Resource plans for Additions to Reserves activities;
   • Monitoring bodies to assess the alignment of Additions to Reserves activities with objectives; and
   • Approaches to identify, assess, and manage risks associated with Additions to Reserves objectives.
3. The Assistant Deputy Minister of Lands and Economic Development Sector, in collaboration with the Senior Assistant Deputy Minister of Regional Operations Sector should ensure that:
   • Options are identified and assessed for providing national support on Additions to Reserves, and responsibilities are assigned accordingly; and
   • Expectations related to supporting First Nations during the Additions to Reserves process are clearly defined, communicated and implemented.

Management's Response

Management is in agreement with the findings, has accepted the recommendations included in the report, and has developed a management action plan to address them. The management action plan has been integrated in this report.

1.1 Additions to Reserve – A Brief Description

An ATR is a proposal for the granting of reserve status to a parcel of land typically located within the traditional or treaty area of a First Nation. The Indian Act defines a reserve as a "tract of land, the legal title to which is vested in Her Majesty, which has been set apart by Her Majesty for the use and benefit of a band". Since there is no statutory authority under the Indian Act to set aside land as reserve, lands that do not fall under Claims Settlement legislation^{Footnote 1} are granted reserve status pursuant to the Royal Prerogative. An ATR process has been developed in order to assist First Nations and the Department in completing the necessary steps to add land to reserve.

There are numerous reasons for land to be added to reserve, including the fulfillment of a legal obligation established by a specific claim and treaty settlement agreement; community additions; new reserve or economic development; advancement of reconciliation and improvements to treaty relationships; and improvements to the access of land and resources.

The following table provides a view of the number of open and completed ATR files by region. It highlights that the volume of ATR activity has historically been concentrated in provinces where Treaty Land Entitlements (TLE) Agreements exist^{Footnote 2}. More specifically, files have been concentrated in the provinces of Saskatchewan (52% of current open files) and Manitoba (32% of current open files).

1.2 The INAC Additions to Reserve Policy Directive

The Department has developed formal guidance and direction on the steps associated with adding lands to reserve. These are set out in the INAC ATR Policy Directive within the Department's Land Management Manual (Chapter 10). On July 27, 2016, after considering feedback and comments from various stakeholders, INAC updated the ATR Policy Directive, with the intention of streamlining the process for reserve creation by providing policy direction, promoting consistent assessment, acceptance, and implementation of reserve creation proposals where possible, and encouraging collaboration among all parties involved. The new Policy Directive also introduced a change in the ATR process, as the Department now provides the First Nation with a Letter of Support early in the process to demonstrate the Department's commitment to undertaking the ATR initiative. This replaces an Approval in Principle under the previous Policy Directive, which was provided after all requirements were met. The new Policy Directive also includes improved environmental requirements, more flexible land selection criteria, and guidance materials for stakeholders.

The Policy Directive sets three distinct categories of reserve creation: legal obligations and agreements; community additions; and, tribunal decisions. A brief description of each category of reserve creation is included in Appendix A.

1.3 The Additions to Reserve Process

The ATR process can be extremely complex and the steps involved vary depending on a number of factors including whether the land that is proposed to be added is federal or provincial Crown land, privately owned land, and whether the land includes or does not include subsurface rights.^{Footnote 4} Depending on who owns the proposed land, various partners and stakeholders need to be involved in the ATR process along with the Department and the First Nation. Other levels of government (e.g. municipal, provincial), as well as third party participants (e.g. utilities, pipelines, forestry/energy companies, etc.) are often involved.

As stipulated in the ATR Policy Directive, the ATR process is divided into four distinct phases: Initiation; Assessment and Review; Proposal Completion; and, Approval. See Appendix B for a brief description of the phases involved in the ATR process.

INAC's responsibilities related to the ATR process are distributed among the following four groups:

• Economic Research and Policy Development Branch (LED) – are responsible for policy and process development;
• Lands and Environmental Management Branch (LED) –are responsible for policy and process guidance, and support;
• Regional Offices – lands management officers in regional offices are responsible for ensuring all process requirements are met, and supporting First Nations during the process; and
• The ATR Support Centres – are responsible for providing Regions with operational assistance and guidance related to ATR submissions (these responsibilities are discussed in more detail in subsection 1.4 below).

The Department's ability to administer the ATR process in a consistent way across regions is challenged by the presence of distinct legal requirements for treaty lands in some provinces (e.g. Manitoba and Saskatchewan), by a variety of provincial requirements for land transfer, and by the resulting expectations and practices of the Department's legal advisors and other parties involved in an ATR proposal.

1.4 Changes in ATR Process Responsibilities

As part of a significant streamlining initiative, a reorganization of the human and financial resources that support the ATR process was undertaken in 2012. The restructuring of responsibilities and efforts to streamline administration of ATRs resulted in the elimination of HQ's role in the ATR approval review process. As such, a number of ATR and land management responsibilities were shifted to regional offices.

In order to support regional offices in assuming their new responsibilities, HQ established Regional Support Centres to provide them with operational assistance and guidance. One Support Centre was created in Regina to assist with Treaty Land Entitlement submissions and another was created in Toronto to assist with non-Treaty Land Entitlement submissions.

The two ATR Support Centres were mandated to provide support to Regions by maintaining submission templates and reference documents, conducting quality assurance activities on submissions prior to being sent for approval, training staff members involved in the submission of ATR proposals, providing advice to applicable Regions as required, reviewing translated documents as required, and liaising with HQ and applicable Regions.

2.1 Audit Objective

The objective of the audit was to assess the extent to which recent changes to the governance and control framework support efficient and effective management of the ATR portfolio, including an assessment of the extent to which:

• Recent redistribution of roles, responsibilities, and authorities is supporting the effective and efficient processing of ATR files and oversight of the ATR portfolio;
• ATR Support Centres are appropriately positioned and functioning to support effective, efficient, and timely processing of ATR files; and
• Processing of ATR files is continuously improved and/or streamlined through the identification, communication, and effective implementation of proven practices or approaches.

2.2 Audit Scope

The scope of the audit included an assessment of those elements of the governance and control framework that were impacted by recent changes, including devolution of ATR responsibilities to Regions and the establishment of ATR Support Centres.

5.1 Strategic Direction

The 2016 Mandate Letter to the Minister of INAC and the 2016-2107 Report on Plans and Priorities (RPP) set out the government's commitment to reconciliation and establishing a renewed relationship with Indigenous Peoples. The news release announcing the new ATR Policy Directive in July 2016 identified ATRs as a key mechanism in advancing reconciliation.

In light of these recent government commitments and expectations, there is a need for the Department to consider and plan for how ATRs can be leveraged (in coordination with other program areas) as an effort to renew relationships and promote reconciliation. As discussed earlier, there is no statutory authority to set aside land as reserve, and while the ATR Policy Directive provides guidance over the process, it does not set out the Department's objectives and priorities related to ATRs. As such, a strategic foundation (through stated objectives) needs to be established in order to guide departmental staff (and other stakeholders) to meet these expectations and to promote the importance of ATRs in advancing reconciliation.

The audit expected to find that strategic and operational objectives for the ATR portfolio are established through formal strategic planning activities, and are communicated to HQ and regional staff, and other relevant stakeholders. The audit found that strategic and operational objectives specific to ATRs have yet to be established at a national level. INAC's 2016-2017 RPP identified "supporting the completion of ATRs" as a planning commitment. However, it was listed as one of several planning commitments for the Department, and does not provide clear guidance on the overall objectives of the ATR portfolio or how it is intended to support reconciliation.

Without defined strategic and operational objectives, there is a risk that the regions will have differing interpretations of the expectations of the ATR portfolio, potentially leading to them establishing other priorities. Currently, regions are setting their own ATR-related priorities and work plans based on the demands experienced and resources available within their unique regional environments. Various approaches and criteria are used to prioritize files across the regions including focusing on files with legal obligations, those that the community has identified as priorities, and those that have "momentum" (i.e. where the community has the capacity to make progress on the file). Nonetheless, priorities are determined on a file-by-file basis and rely on the judgement of regional management and staff.

A lack of strategic and operational objectives also hinders the Department's ability to communicate and emphasize the importance of ATRs in advancing reconciliation vis-à-vis other activities. The ATR process can be lengthy with several delays, which can lead resources to shift its focus to other land activities (particularly in regions without a dedicated ATR group). A clear strategic direction will help enforce the importance of ATRs in supporting reconciliation within the broader lands and economic development agenda.

5.2 Governance and Oversight

The purpose of the new ATR Policy Directive, introduced in July 2016, is to provide guidance with respect to the assessment, acceptance, and implementation of Reserve Creation Proposals. More specifically, the Policy Directive provides information related to the criteria that apply to all ATR proposals and provides guidance on the ATR process, including all requirements and responsibilities. The Policy Directive also raised the importance of working closely with First Nations to establish community-level priorities and to support them during the process. Along with the Policy Directive, LED Sector developed a suite of tools and templates to support implementation and ensure a consistent application of the ATR process across regions.

While the Policy Directive sets out the overall process and associated activities, it does not set out the overall objectives and priorities of the ATR portfolio (as discussed in subsection 5.1 above) or set out expectations regarding governance and oversight over ATR-related activities. An appropriate governance framework is required to ensure that the Policy Directive is applied as intended and that objectives are being met, and to fully realize its benefits.

The audit expected to observe a commensurately robust governance framework that would serve to support the new ATR Policy Directive, and related activities and objectives. However, the audit found that key governance and oversight elements were missing, as discussed below.

Performance Reporting

ATR-related data and associated performance reporting does not adequately support effective oversight. More specifically, reporting does not adequately inform management of the results achieved or effectiveness of the ATR process. Given that strategic and operational objectives have not been established, performance is currently measured based on the number of parcels and acres converted to reserve, and each region annually establishes targets against these measures. However, these measures do not consider the complexity of the files (e.g. third party interests, negotiations with municipalities, etc.) or the impact the file has had on the community (e.g. housing, economic development, etc.). For example, a small parcel in an urban setting may have far more complexities associated with the file but with potentially significantly greater impacts (e.g. revenue generation through a commercial enterprise) to the community than a larger parcel in a rural setting. As demonstrated in the graph below, the number of urban ATRs has increased steadily since the 1960s. Without reporting that is aligned to defined strategic and operational objectives, management will be challenged to assess and determine the performance of the ATR portfolio.

Text alternative for Number of Completed ATRs - Rural vs. Urban (1969-Present)

Overview

The chart shows the number of ATR files completed overtime (from 1969 to present time) and make the distinction between Rural and Urban files.

Values

Numerical values presented on the image:

Period	Urban files	Rural files
1969-1999	11	678
2000-2005	26	655
2006-2010	35	450
2010 to present	47	311

Presentation

The line chart represents both the number of ATR completed files per period, and the type of file (Rural or Urban). There is four periods of time represented on the graph.

 

Available information and reporting does not provide a complete understanding of the overall status of the ATR portfolio, or identify the key challenges to meeting defined objectives. NATS is the national system of record for the ATR portfolio. Limitations in the functionality of NATS do not enable an accurate picture of the status and challenges associated with a file. Generally, regional staff will only update NATS when a new ATR proposal is submitted and when an ATR file is completed. Instead, each region has established their own unique approach to monitoring the status of its ATR files internally (involving checklists, spreadsheets, and other methods). As such, it is challenging to obtain a complete and accurate national-level depiction of the status of the ATR portfolio and its key challenges.

During the conduct phase of the audit, the Lands and Environment Branch of the LED Sector began an initiative to collect information on the status of active ATR files and file-specific challenges from each region. The intention of this initiative is to identify the most prevalent challenges across regions and establish a plan to support the regions in resolving those challenges.

5.3 Roles and Responsibilities

The audit expected to observe that roles and responsibilities of all parties involved in the ATR process are defined and communicated to ensure there is a consistent understanding of expectations, and that each party is undertaking their respective responsibilities. This includes whether roles and responsibilities for the ATR Support Centres have been formally defined, and whether the Support Centres are providing consistent support for all regions.

Roles and responsibilities associated with the ATR process are clearly set out in the ATR Policy Directive and other supporting documentation. However, there are some gaps in the interpretation and implementation of these roles and responsibilities, as discussed below.

TLE History – A Brief Synopsis/Overview

The following provides a brief overview of the history of the TLE Framework Agreements in Saskatchewan and Manitoba.

Key Characteristics of Saskatchewan and Manitoba TLE Agreements

Many Saskatchewan Regional staff indicated that Saskatchewan TLE Framework Agreement "sets them up for success" and that the provisions in the agreement help them in the process of converting land to reserve status. Since the establishment of its TLE Framework Agreement, the Region has added over 1,000,000 acres to reserve. Regional interviewees pointed to two distinct advantages.

1. Tax Loss Compensation Funds – When land in a rural municipality attains reserve status, Canada and the Province pay the municipality an amount totaling 22.5% a year for the tax loss after reserve creation. For urban municipalities, tax compensation is equivalent to what the municipality has always been receiving through tax from the land.
2. Negotiated Utilities Templates – Saskatchewan has made efforts to streamline their process by developing/negotiating utilities templates, with the consent of the TLE First Nations and the Province.

In comparison to Saskatchewan, while, the Manitoba TLE Framework Agreement allows them to make Crown land available for reserve creation, it does not include provisions regarding tax loss compensation or pre-negotiated utilities templates. In Manitoba, when a First Nation undergoes the ATR process, they need to negotiate settlements with each utility and is responsible for negotiating tax loss compensations with municipalities. This can cause additional delays.

To date more than 850,000 acres of land have been either selected from provincial Crown land or purchased from willing sellers in Manitoba. Aside from the advantages discussed above, regional interviewees from Manitoba pointed to two other distinctions between the their process and that in Saskatchewan and Manitoba, with one being a characteristic of the Agreement and one being a regional approach.

1. TLE Committee (TLEC) – TLEC is responsible for assisting First Nations during the ATR process and in providing technical and professional support as needed. Providing this technical support can be challenging and time consuming, and at times the roles and responsibilities between TLEC and the Region have somewhat lacked clarity. However, recent efforts have been made to mutually establish accountabilities and prioritize files with TLEC to ensure that TLE First Nations are receiving adequate technical support and to move ATRs forward.
2. Duty to Consult - In 2013, the Supreme Court ruled in favour of the Manitoba Metis Federation (MMF) that the federal government had not fulfilled its obligation as set out in the Manitoba Act of 1870. This had stopped the progress of ATR files for some time. Since the Supreme Court ruling, the Region has established an agreement with the MMF, which provides them with funding to establish a consultations unit for ATRs and sets out an approach for future consultations with the MMF. The Region now undertakes a pre-consultation analysis for each proposed ATR to identify any Indigenous groups that may be impacted, and develops a consultation plan as needed.

As discussed earlier, both Saskatchewan and Manitoba TLE Agreements have provisions related to the use of pre-reserve designations via the Claims Settlement legislation. A pre-reserve designation takes place before lands are granted reserve status. It was identified that this is not addressed in the ATR Policy Directive. Furthermore, the Claims Settlement Legislation allows for Reserve Creation of Saskatchewan and Manitoba TLE submissions to be approved by Ministerial Orders and do not require an Order in Council.

Implications of TLEs on ATRs Moving Forward

Settling claims is one of many steps on the journey of healing and reconciliation with Indigenous peoples and helps create a better future for everyone.^{Footnote 9} As part of this effort, Canada, Ontario and the Chapleau Cree First Nation have established the Ontario Region's first TLE Claim Settlement. Under the settlement, the Chapleau Cree First Nation is provided approximately $21.5 million in financial compensation from Canada and about 4,000 square hectares of provincial Crown land from Ontario.

Various factors and implications need to be considered when assessing the use of TLE Agreements. It was indicated that the influx of ATR files has been increasing and will continue to increase over the next few years, and that many First Nations are beginning to pursue urban reserves and economic development opportunities. The increase in the volume of files, the complexity of files, and the increased need for consultation will have implications on the workloads of Regional staff. If Regions do not have the capability or capacity to demonstrate progress in fulfilling the legal obligations set out in the TLE Agreements, the Department runs the risk of alienating and/or damaging the relationship with the TLE First Nations.

The following are good practices and lessons learned from Regions with substantive TLE Agreements that should be considered when negotiating/entering a new TLE Agreement:

• The use of pre-negotiated utility templates and agreements helps expedite the process as agreements do not need to be negotiated every time a First Nation wants to transfer land to reserve.
• Having access to a Tax Loss Compensation fund (and associated provisions/guidance in the Agreement) helps in negotiations with municipalities.
• TLE Agreements should be supported by legislation that expedites the process including provisions such as pre-reserve designations, ministerial approvals, and potentially others.
• It was indicated that TLE Agreements are often set out without understanding what 3rd party issues exist. While the TLE Framework Agreements provides guidance on how to deal with certain scenarios, it lacks guidance on mechanisms to accommodate and/or replace 3rd party interests.
• Implementation of the TLE Agreements may ultimately place greater strain on regional staff to manage the increasing reserve land base (i.e. increase in permits, leases, environment, etc.), and could cause significant strain on relationships.

Audit Criteria and Control Objectives