OTTAWA - The battle over the plight of Canada's First Nations escalated Monday amid accusations of a cynical public relations ploy by the Harper government and new demands by a hunger-striking chief.

Chief Theresa Spence, who has been on a liquid diet since Dec. 11, said she now wants elements of the Conservatives' latest omnibus budget bill repealed as soon as MPs return to Ottawa at the end of the month.

Spence had previously been seeking only a meeting between Prime Minister Stephen Harper and the Governor General and First Nations leaders to discuss outstanding treaty matters.

"We are asking that the legislation related to (native) lands encoded in Bill C-45 must be rescinded as soon as Parliament resumes," Spence said in a release.

The new demand comes as Ottawa releases a scathing audit of tens of millions of dollars in spending on Spence's Attawapiskat reserve, a troubled community on the shores of James Bay in northern Ontario.

The audit details an absence of basic accounting by the band council and ongoing indifference by federal government departments.

Spence's release called the leaked audit "no more than a distraction of the true issue ... to discredit Chief Spence who is willing to lay down her life for a larger cause."

Her spokesman, Danny Metatawabin, had earlier accused the Harper Conservatives of "trying to undermine the process here, the movement of the people."

The Deloitte audit — released publicly Monday by Aboriginal Affairs and Northern Development after being leaked to select media outlets on the weekend — catalogues more than $109 million in spending over almost seven years, much of it poorly documented, undocumented, or questionable.

The timing is explosive.

Prime Minister Stephen Harper agreed last Friday to meet with aboriginal leaders on Jan. 11. And while Harper was careful not to link the meeting to Spence's hunger protest, his decision was widely seen as a concession.

The damning audit was similarly interpreted as the Prime Minister's Office pushing back in the war for public opinion.

While the government was required to release the audit by the middle of the month, the way it came to light is questionable, said NDP MP Paul Dewar, who described the report's release as a political choice, not one driven by policy.

"They prefer not to deal with problems; instead, they turn it into one of their political equations," Dewar said.

"It's brass-knuckle politics."

Repeated reports from the federal auditor general have highlighted financial reporting issues for First Nations since at a least 2002.

Carolyn Bennett, the Liberal critic for aboriginal affairs, said if the department was doing its job and became dissatisfied with spending documentation, "then the government can ask for (documentation) before it sends any more money."

The Attawapiskat audit was commissioned by Ottawa in December 2011 after Spence, with winter approaching, declared a state of emergency over concerns about unsafe housing conditions in her remote community of about 1,800 residents.

The Conservatives questioned why the problem existed, given the millions provided to Attawapiskat over the years, and Ottawa briefly imposed an external manager on the band.

The Deloitte audit is the only comprehensive analysis of a band's finances that the government has posted on its website. It is unclear whether other First Nations have ever come under the same level of independent scrutiny, although three smaller reviews were undertaken last year of different bands after allegations of misspending.

Spence was first apprised of the audit's findings last Aug. 28 in a letter in which the Deloitte auditor wrote that "there is no evidence of due diligence in the use of public funds, including funds for housing."

"In our opinion, having over 80 per cent of selected transactions lacking any or proper supporting documentation is inappropriate for any recipient of public funds."

According to Aboriginal Affairs, only 46 of Attawapiskat's 316 housing units are considered adequate, while another 146 need major work and 122 are placement.

The audit is not likely to burnish Spence's credentials as a high-profile native advocate.

Last February she wrote a public letter to the Queen, complaining that the federal government "has taken the position that the First Nation mishandled its funding."

"This is simply not true," Spence asserted.

Among the sample 505 transactions a Deloitte auditor examined from April 2005 through November 2011, fewer than 20 per cent could be fully tracked and documented — and 61 per cent had no documentation at all explaining the reason for payment.

The sample of transactions includes $2.2 million spent on consultants, with two thirds of the 26 payments improperly documented.

"The independent audit ... speaks for itself, and we accept its conclusions and recommendations," said Jan O'Driscoll, a spokesperson for Aboriginal Affairs Minister John Duncan.

Those conclusions include some questions for federal officials as well as band management.

The Canada Mortgage and Housing Corporation, a Crown agency, must conduct a physical inspection of housing units every five years and found "abnormal and accelerated deterioration of housing units" at Attawapiskat. CMHC also found housing management issues in a separate 2010 audit.

None of these findings were reported to Aboriginal Affairs, says the audit, because CMHC only passed along such reports "if CMHC deemed there were significant issues or concerns."

The audit dryly adds that "despite the nature of the findings noted by CMHC," no reports were kicked up the chain to the Aboriginal Affairs department.

The audit also found that only $3.6 million of Attawapiskat's $6.85 million in core capital housing funding was actually spent on house renovations and maintenance, with the rest being used for debt repayments. The practice, it found, is common among First Nations and Aboriginal Affairs is well aware of it.

The audit recommends the federal department no longer allow housing maintenance funds to be used for debt servicing.

That the audit pointed out the federal government also has a responsibility for oversight shouldn't be overlooked, Dewar said.

"At the end of the day, that means political accountability."

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