The financial crisis of the Natuashish Innu band in Labrador has been years in the making, according to financial audits obtained by CBC News.
The band, which is $1.5 million to $7 million in debt, has been struggling to pay its employees since August.
Spending began spiralling out of control three years ago, according to the financial statements, which show the band's expenses rose 50 per cent between the 2008 and 2011 fiscal years.
The band took out a $3-million bank loan last year, but funds ran dry in August and workers' cheques have bounced.
Daniel Poker, one of those employees, said the band should have seen this situation coming.
"There was a report from the auditors predicting what's going to happen to the band and the store ... and it's happening ... It's happening now," he said.
Poker said some in the community are struggling, while others are jumping ship.
"A lot of people don't have food in their houses because I've seen it and I've heard it from other people. And because of that, we're losing our mechanics ... because of this situation," he said.
Poker said the band told him a line of credit is now being used to pay workers some back wages.
There are 80 native communities in Canada like Natuashish, where recurring budgetary problems have prompted Ottawa to require that band finances be monitored, or controlled by either a third party outside or some sort of co-management system.
In the case of Natuashish, auditors warned the band a year ago that it would run out of cash.
Documents show unsustainable spending in a number of areas. Over a two-year period, spending on wages rose 60 per cent, while travel expenses and consultant fees doubled.
The audits also reveal the band turned money-making ventures into money losers once assuming ownership.
The band's financial vulnerability isn't helped by fluctuating mining revenues and royalties, and a lack of insurance on buildings in town.
Chief Simeon Tshkapaesh said the heavy spending has everything to do with responding to the needs of his community.
"For the last couple of years, we've been building stuff out of our own expense. Like we built the treatment centre. We built five cabins. We also built the rec centre. We've been preparing for solvent abuse for the kids," he said.