The report by Howard Sapers, tabled Thursday in the House of Commons, chastises the government not only for how it deals with aboriginals behind bars, but also for failing to keep them out of jail in the first place.
"If I were releasing a report card on aboriginal corrections today, it would be filled with failing grades," Sapers told a news conference.
Roughly one in four inmates in federal penitentiaries is aboriginal, yet aboriginal-specific provisions in the justice system are chronically underfunded, says the report.
It's a problem that's been largely ignored and allowed to worsen during the past two decades, ever since the Corrections and Conditional Release Act was first passed into law in 1992, said Sapers.
Sections 81 and 84 of the law allow the public safety minister to transfer aboriginal inmates to community facilities and to so-called healing lodges, but that power is not being properly used, the report concludes.
"When we consider outcomes 20 years after Section 81 and Section 84 became law, we find aboriginal offenders are still much more likely to serve more of their federal sentence behind bars and in more restricted conditions of confinement than their non-aboriginal counterparts."
The landmark report found that just four agreements have been reached between the federal government and aboriginal communities to allow for Section 81 transfer of inmates, with just 68 beds available in four healing lodges across the country. No such agreements exist in Ontario, British Columbia, Atlantic Canada and the North.
Healing lodges in aboriginal communities also receive only a fraction of the funding that's made available to similar facilities operated by Corrections Canada.
The BC Civil Liberties Association called the report proof that the corrections system is "racist."
"This is an appalling example of the discrimination against indigenous people in this country and it is tearing communities and families apart," said the association's director, Josh Paterson.
"While those who commit crimes should be dealt with appropriately by the justice system, these numbers make clear that the system over-polices and over-incarcerates indigenous people. This is racist and it is unacceptable."
The Conservative government needs to significantly increase funding to deal with aboriginal offenders, said Sapers.
"This is a bit of a 'pay me now (or) pay me later' argument," he explained. "Healing lodge beds are cheaper to run than minimum and medium security beds in a mainstream institution."
But under questioning in the House of Commons, Prime Minister Stephen Harper said people are in prison for a reason.
"It is important to note that prisoners are people who were found guilty of criminal acts by independent courts," Harper said in French.
"And it is essential for society to act."
The government has bolstered spending on anti-crime programs, including the Northern Aboriginal Crime Prevention Fund, added Justice Minister Rob Nicholson.
But more is needed than just throwing money at the justice system, said Sapers.
Underfunding of education in aboriginal communities and a failure to understand aboriginal people and their culture is leading to more aboriginals being put behind bars, he said.
The best strategy to reduce disproportionate incarceration rates among aboriginals is to spend more on education, said Assembly of First Nations National Chief Shawn Atleo.
"We need to work together to increase graduation rates from high school, post-secondary and training programs as the best remedies we have to keep our youth away from the justice system and out of prisons," Atleo said in a statement.
Aboriginal offenders also return to federal custody at a higher rate, are twice as likely to be involved with gangs than their non-aboriginal counterparts and less likely to be granted parole, the report found.
The report is a "shocking indictment of how the Harper government is failing aboriginal Canadians," said Randall Garrison, the NDP's public safety critic.
Garrison demanded the government devote more money to aboriginal programs, including those designed to reduce native incarceration rates.
Conservative government policies have exacerbated the problem, added Liberal aboriginal affairs critic Carolyn Bennett.
A key recommendation of the report is the appointment of a deputy commissioner for aboriginal corrections to ensure the government is held to account in reducing incarceration rates for Aboriginal Peoples.
The report follows one released last week that pointed to racism and systemic discrimination in Ontario's justice system.
And it mirrors one issued by the Canadian Human Rights Commission in 2003 that focused on aboriginal women in Canada's prison system, said acting chief commissioner David Langtry.
"Those findings, from a decade ago, are largely unchanged with respect to aboriginal women today," Langtry said.
"We are still seeing a disproportionate number of aboriginal women in solitary confinement, which creates barriers to access to rehabilitation programs."