The federation noted in a letter to the province that funding agreements place specific targets on spending.
Interim chief Morley Watson says it would be improper to use the funds for any other reason.
Former chief Guy Lonechild had been under pressure to leave since his conviction earlier this year for drunk driving.
Lonechild resigned earlier this month and took a buyout package for him and his senior staff that he has said will probably end up around $600,000.
The province raised concerns saying it didn't want about $1 million in funding used on the buyouts.