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Attawapiskat Chief Theresa Spence is in the third week of a hunger strike on Monday Jan. 7.CHRIS WATTIE/Reuters

The Northern Ontario first nation which declared a state of emergency over deplorable housing and whose chief is now on a hunger strike over treaty obligations has not properly accounted for millions of dollars of federal spending, according to an audit commissioned by the Conservative government.

The audit of the finances of Attawapiskat that was conducted earlier this year by Deloitte and Touche says the first nation had difficulty maintaining satisfactory records, particularly related to the housing projects. Attawapiskat came to public attention in the fall of 2011 because many of its people were living in substandard conditions as winter was setting in.

In a letter to Attawapiskat Chief Theresa Spence that was dated last August, Serge Desrochers, a Deloitte partner, says the first nation will need to establish management control practices and a sound accounting system. Of 505 transactions that the firm examined to determine whether they were complied with federal funding agreements, 409 lacked proper documentation, wrote Mr. Desrochers.

"An average of 81 per cent of files did not have adequate supporting documents and over 60 per cent had no documentation of the reason for payment," he wrote.

As a result, said Mr. Desrochers, "we were unable to conclude whether the claimed expenditures were in accordance with the terms and conditions of the funding agreements with (the Aboriginal Affairs Department) and Health Canada."

When asked Monday about the audit, Ms. Spence's spokesman, Danny Metatawabin said neither he nor the chief would make any comment. "We have bigger issues here with respect to our treaty rights," said Mr. Metatawabin.

Ms. Spence said in a statement on Monday afternoon that the release of the audit,which was completed in September, was nothing more than a distraction aimed at discrediting her and her cause.

"I remain steadfast on my journey and will not allow any distractions at this time to waver the goal set forth," she said. She demanded that legislation opposed by first nations people be rescinded, that the government live up to its constitutional obligations to native people, and that resource revenues be shared with the first nations.

Clayton Kennedy, Ms. Spence's partner and the co-manager of the first nation, said he has not seen the report but its release could have been timed to discredit the chief.

"There are no allegations of misappropriation and the band has never missed any of their mortgage or loan payments," Mr. Kennedy told the Aboriginal People's Television Network. If the auditors had pursued suppliers for documentation, it could have been found given more time, he said.

"I view the report as recommendations to strengthen internal controls," said Mr. Kennedy."That audit was conducted at the request of the deputy minister at the time they put us in third party management, so it is all part of the politic."

The federal government pulled the third-party manager last April after the first nation pressed the federal court to find it was unreasonable to ask an outsider to oversee Attawapiskat's finances. The court later ruled in Attawapiskat's favour.

Approximately $104-million was paid to the first nation between April 2005 and November 2011 – mostly for education, health, social services, water and housing. But many of the roughly 1,500 residents live in abject poverty and Ms. Spence is on a hunger strike, which was in its 27th day Monday.

The Deloitte audit was requested by the Aboriginal Affairs department because of ongoing concerns about housing problems despite the amount of money that has been directed at the reserve. It found that, for most of the years of investigated, the first nation had neglected to create a remedial management plan that was a requirement of federal loan guarantees.

The audit also says the first nation did not comply with a number of the requirements of its agreement with the Canada Mortgage and Housing Corporation. Specifically, it says, reserve funds that were to be used to replace housing that had become dilapidated were not put into a separate account and were continuously underfunded.

Loans and subsidies were provided to Attawapiskat even though the community was known to be operating outside the terms of its agreement with the Crown housing corporation, says Deloitte.

When Ontario chiefs were asked at a news conference last week about the financial situation in Attawapiskat, Grand Chief Stan Louttit, who represents the northern Ontario region, replied that an audit requested by the federal government had been completed and both sides were in the process of reviewing what it said.

Ms. Spence's protest was originally intended to force a meeting with Prime Minister Stephen Harper and a representative of the Crown – presumably Governor-General David Johnston – to discuss treaty rights. Now that Mr. Harper has agreed to meet with first nations leaders on Friday, including Chief Spence, she says there must be concrete results from that meeting before she will eat solid foods.

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