Federation of Sovereign Indigenous Nations Forensic Audit - Summary Report of Findings and Recommendations

Allegation #1 – COVID-19 Expenditures

1. FSIN received $30,024,786 in COVID-19 related funding between April 1, 2020 and March 31, 2023. We sampled 88.2%, or $26,487,310 of total COVID-19 expenditures.
2. Expenditures were categorized as questionable in the amount of $23,451,907 where we were unable to obtain complete supporting documentation to determine eligibility. Including a potential recovery of $60,335 in ineligible expenditures and $1,050 in unsupported expenditures.
   • Evidence of deliverables received and/or distributed;
   • Contract documentation;
   • Invoices; and
   • Linkages to the appropriate funding letter.
3. 34 samples reviewed, totaling $2,618,336, did not appear to have the appropriate approval obtained for the purchase.
4. We were unable to assess how or if purchased Personal Protective Equipment was distributed to the 74 Member First Nations of FSIN. We found a lack of documentation relating to flowthrough agreements entered into by FSIN for the flow of COVID-19 funding.

Allegation #2 – Travel Expenditures

Allegation #3 – FSIN Executive Raises

1. We reviewed a briefing note prepared for FSIN's Treasury Board (TB) dated November 5, 2020 recommending a total of $60,000 increase to Chief remuneration and a $40,000 increase to Vice Chief remuneration.
2. The remuneration increase appears to have been implemented in FSIN's payroll system on December 15, 2020, with retroactive payments made to the Executives applying the increase effective April 1, 2020. It is not clear whether the Executive remuneration increase was to be effective as of April 1, 2020 or as of the date of the approval as there is no effective date listed in either the Briefing Note or the FSIN TB Record of Decisions.
3. If the increase was to have been effective as of December 1, 2020, then there would have been an overpayment of $146,667.
4. FSIN advised that the mention of there being budget to accommodate the increase in the 2020-2021 fiscal year in the FSIN TB motion supports the remuneration increase being applied retroactively.

Allegation #4 – Fleet Vehicles

1. During the Period of Review, we identified the purchase of 22 vehicles by FSIN in the amount of $1,376,298.
2. In July 2022, a 2022 Ford F-150 was purchased for $66,430. It was traded-in in March 2023 with a value of $47,500. FSIN has advised that there was an issue with the Ford F-150 purchased and the dealership agreed to a trade-in with a reduction of the original purchase price of $18,930 due to the mileage already on the truck.
3. It appears that on both March 18, 2022 and October 16, 2023, FSIN purchased 5 new vehicles for the entire Executive team. FSIN advised that the Executive fleet vehicles encounter extreme conditions and incur a significant number of kilometers each year resulting in an average life expectancy of less than two years. Additionally, FSIN advised that the extended warranty was set to expire at 200,000 kilometers and the vehicles were approaching that number.
4. We have not been provided with supporting documents relating to the mileage records for the Executive fleet to verify the usage, therefore, we have considered the $367,929 paid for the vehicles purchased in October 2023 to be a questionable expenditure.
5. It appears that for both Executive fleet purchases, the purchases exceeded the amount approved by Financial Audit Committee ("FAC").
6. During the Period of Review, we identified the sale of 9 vehicles by FSIN to staff or Executives resulting in Other Income of $88,600.
7. We were able to match 2 vehicles sold to vehicles purchased during the Period of Review through the Vehicle Identification Number that appear to have resulted in an accounting loss on disposal of $23,603 and $36,434 to FSIN.

Allegation #5 – Payments to Former Employee

1. We identified salaries of $425,804 paid to the former employee during the Period of Review.
2. During the Period of Review, 7 employment agreements were entered into between FSIN and the former employee.
3. In addition to salaries, it appears that the former employee was contracted through a personal company to perform services that appear to align with their responsibilities as an employee of FSIN. It appears that the former employee received $104,332 through this contract.
4. The former employee received a severance payment that appears to have been inappropriate as they were re-employed within 1 week of the payment, which appears to contravene FSIN's Human Resource Management Regulations, and the former employee resigned prior to being terminated without cause by FSIN leading to the severance payout.
5. We have calculated potential overpayments to the former employee, through salaries and contract payments, to be $246,524.

Allegation #6 – Procurement

1. We reviewed 159 sampled procurement transactions that were selected based on allegations received, totaling $1,561,668.
2. Ineligible expenditures are comprised of settlement fees paid for a wrongful dismissal case against FSIN, expenditures paid out of a Vice Chief's program for 9 vendors utilizing the same invoicing templates where the deliverable is unknown, and the purchase of 10 televisions through a Vice Chief's program.
3. Expenditures were categorized as questionable where we were unable to obtain complete supporting documentation to determine eligibility, primarily relating to consultant expenditures where the deliverables and rationale for the procurement appear vague.
4. While not considered in our eligibility assessment, we note that 49 samples reviewed, totaling $492,332, did not appear to have the appropriate approval obtained for the purchase.

Allegation #7 – Use of Administration Fees

1. We reviewed FSIN proposals and related funding agreements provided by ISC – Saskatchewan Region. We noted that FSIN proposals indicate the proposed percentage of administration fees in project budgets, however there is no specific detail as to how administration fees will be used.
2. Our analysis has considered FSIN policy on the use of administrative funds. Specifically, the Contribution Funding Agreement Policy lists the following regarding administration fees:
   • Covered (per FSIN not an exhaustive list): Office overhead, janitor, Finance Department, audit, bank charges and interest, insurance, telephone line hookup, computer services, legal services, HR, communications, and FSIN Treasury Board.
   • Excluded (per FSIN not an exhaustive list):  Office rent, office renovations, long distance charges, equipment, repairs, printing and photocopying charges.
3. While we understand that administration fees must be reasonable and justifiable under ISC policy, we did not identify any specific rules in funding agreements, or descriptions of planned use of administration funding under FSIN budgets or proposals. For this reason, we have relied upon FSIN policy as the expected use of administration fees.
4. We have considered all FSIN departments where administration fees were accounted for as revenue (i.e. credit balance in the department).
5. Our review did not consider FY 2023-2024, as the allocation of administration fees for that year was incomplete.
6. FSIN has allocated approximately $2.3 million of administration fees during the Period of Review to the purchase and development of capital items, specifically the new building (office renovations are excluded according to FSIN policy) and vehicle fleets.
7. More than $5.2 million in funds have been directed towards the offices of the Chief and Vice Chiefs, which is not included as a covered cost in FSIN policy.
8. In practice, FSIN does not appear to budget for administration costs for a fiscal year, or the necessary administration fees for operations.

Allegation #8 – FSIN New Office Building

1. FSIN constructed a new office building that opened on April 1, 2022. Total costs for the new building are approximately $7.6 million, partially funded through other government funding and through administration fees funded by ISC ($1.75 million).
2. FSIN occupies 20,000 square feet of office space in the building. In July 2023, there was a new tenant at the new building, occupying 4,973 square feet of office space.
3. As owners of the building, FSIN applies rental charges to itself to apply office space costs to the appropriate departments.
4. Rent charges to FSIN are structured the same as other tenants, including charges for basic rent and occupancy costs. 
5. FSIN basic rent has been calculated based on market rates, as opposed to actual costs incurred by FSIN (total land lease costs plus amortized building costs (net of federal funding received).
6. We have calculated total basic rent charged to programs in excess of actual net building costs incurred by FSIN to be $482,796.
7. Occupancy costs are a component of office rent, and are applied to ISC funded programs based on office space utilized ($12/square feetsq ft). FSIN initially advised that it was not required to reconcile to actual costs, however we were later informed that occupancy costs in excess of actual costs would be credited to future years.
8. We reviewed the actual occupancy costs incurred, and have calculated ineligible costs based on the total occupancy costs collected in excess of actual costs.
9. We have noted that occupancy cost rent collected are not applied against costs incurred in financial statements. Instead, actual occupancy costs are included in the overhead department, which is funded through administration fees. We have considered these actual costs to be questionable, given that they have been paid for through administration fees, as well as occupancy cost rent collected

Allegation #9 – Internal charges and cost allocations

1) COVID-19 Expenditures

To ensure proper administration of funding for ISC reporting purposes, we recommend FSIN consider the following steps for flow through funding:

• Obtain budgets and planning information from flowthrough recipients to ensure planned activities align with funding requirements.
• Document where purchases are made on behalf of the flowthrough recipient, including authorization and other necessary procurement support.
• Ensure reporting on funding use is received from flowthrough recipients, including invoices and ultimate use of funds to ensure that actual expenditures align with planned budget. Where variances exist, document reasons and assess if variances are eligible under funding agreements.
• FSIN could consider tracking the expenditures associated with a particular funding letter to clearly present how ISC funding has been spent. This will also allow for easier tracking of expenditure eligibility.

2) Travel Expenditures

• FSIN could consider reviewing internal policies and procedures to ensure that trips are reviewed and approved in advance of travel to ensure adherence to policies.

3) Fleet Vehicles

• FSIN could consider establishing a capital asset policy outlining accounting procedures for the capitalization and subsequent disposal of fleet vehicles and other capital assets to ensure the vehicles and related expenses are appropriately recorded.
• FSIN could consider obtaining a fair value assessment of the vehicle in advance of an auction sale. Where vehicles are sold at less than fair value, accounting records should reflect a loss to FSIN to the benefit of the purchaser. Alternatively, FSIN could consider trading in fleet vehicles to the dealership when new fleet vehicles are purchased instead of auctioning to employees.

4) Potential Overpayments to a Former Employee

• We recommend FSIN consider implementing FSIN Treasury Board review of proposed severance packages for employees prior to payment. We recommend FSIN also document the rationale for termination, and where terminated employees have been rehired, document rationale for rehiring. In addition, we recommend FSIN consider a detailed annual review of all payments to FSIN executives and employees, including those terminated during the fiscal year.
• We recommend FSIN conduct vendor due diligence prior to engaging in any work to verify that vendors are in good standing and not in a conflict of interest with FSIN, including ownership by an employee. FSIN should ensure it does not knowingly contract a company that is owned by an employee.

5) Procurement

• FSIN should consider developing a clear chart summarizing the approval thresholds for each type of procurement, if different thresholds are appropriate. Alternatively, if different approval thresholds should not apply to different procurements, FISN could consider developing a single procurement policy outlining the standardized procurement requirement for all purchases.

6) Administration Fees

• We recommend that FSIN and ISC discuss and formally agree to the process by which FSIN determines the appropriate amount of administration fees to budget for a given funding agreement as well as the appropriate use of same. We also recommend that eligible administration expenses be allocated to a separate department to ensure that use of administration fees can be tracked.

7) Internal Charges and Cost Allocations (including New Building)

• We recommend FSIN implement processes where actual annual expense amounts net of ISC funding are calculated to base its internal charges for tracking and reporting purposes.

8) General

• Program codes should be established for ISC only funding, with the only revenues included being ISC funding and only eligible expenditures according to the funding arrangement.