UPDATE 1-Audit of Canada native band casts cloud on protest movement
* Native band failed to show how it spent money: audit
* Aboriginal leaders set to meet prime minister on Friday
* Many of Canada's 1.2 million aboriginals live in poverty
* Judge slams police for not removing rail line protest (Adds judge criticizing police for not clearing rail protest)
By David Ljunggren
OTTAWA, Jan 7 (Reuters) - A Canadian native band that successfully pressured the prime minister to hold a special meeting on aboriginal grievances cannot account for millions of dollars in federal funding, according to an audit that critics say was leaked to discredit a growing protest movement.
Angry native activists, fed up with poor living conditions they blame on decades of neglect from Ottawa, have blockaded rail lines and threatened to close Canada's borders with the United States in a campaign they call Idle No More.
Attawapiskat Chief Theresa Spence has been on a hunger strike for almost a month near Parliament Hill in Ottawa to demand better treatment for natives.
But the August 2012 report from accounting firm Deloitte said Spence's Attawapiskat First Nation in northern Ontario had shown "no evidence of due diligence" in accounting for how it spent federal money intended to improve housing and health. The audit was leaked to some media organizations over the weekend, and released on Monday.
A spokesman for Spence said she would address the audit on Friday when she and other aboriginal leaders will discuss social and economic issues with Conservative Prime Minister Stephen Harper. The leak was designed to discredit Spence, he added.
"They're trying to undermine the process here, the movement of the people. The people are speaking out," Danny Metatawabin told reporters.
Successive Canadian governments have for decades struggled to improve the life of natives, who want more federal money and a greater say over what happens to resources on their land.
Ottawa spends around C$11 billion ($11.1 billion) a year on an aboriginal population of 1.2 million, yet living conditions for many are poor, particularly for those on reserves with high rates of poverty, addiction, joblessness and suicide.
Critics say bands do not have to show enough evidence of how they spend the money they receive, and some groups insist on living in remote regions with few jobs or prospects.
Deloitte, which surveyed the Attawapiskat First Nation's expenditures from April 1, 2005 to Nov 30, 2011, said a probe of 505 transactions showed 81 percent of files did not have adequate supporting documents and more than 60 percent did not document the reason for payment. The band received C$109 million in federal funding over the period.
"We were unable to determine if the funds were spent for their intended purpose. There is no evidence of due diligence in the use of public funds," Deloitte said in a letter to Spence, recommending better financial controls.
"The independent audit ... speaks for itself, and we accept its conclusions and recommendations," said Jan O'Driscoll, a spokesman for federal Aboriginal Affairs Minister John Duncan.
Ontario Finance Minister Dwight Duncan, a Liberal, accused the federal government of trying to discredit aboriginal leaders. "Tough love the rallying cry of the cowards who 'leak' these 'audits'. Too much tough, not enough love, for our aboriginal brothers and sisters," he said on Twitter.
As part of the Idle No More campaign, protesters blocked a Canadian National Railway Co line in Sarnia, Ontario, in late December and early January. CN went to court to obtain an injunction on Dec. 21, but local police did not enforce it until Jan. 2.
The judge in the case, Justice David Brown, expressed his frustration at the failure of the police to act, saying "local police agencies cannot ignore judicial orders under the guise of contemplating how best to use their tactical discretion."
Brown granted CN another injunction on Jan. 5 to clear a separate group of protesters blocking the main rail line from Toronto to Montreal.
Sarnia police were not immediately available for comment. A CN spokesman declined to say how much money the blockades had cost the company.
($1=$0.99 Canadian) (Additional reporting by Susan Taylor in Toronto; Editing by Frank McGurty, Peter Galloway and Eric Walsh)