Living conditions on First Nations reserves remain significantly below the national average despite billions of federal dollars spent each year to address longstanding issues like a lack of clean drinking water, inadequate housing, and woefully underfunded education, says the auditor general in a report released Thursday.

Sheila Fraser's last status report as auditor general, tabled in the House of Commons, looked at worsening conditions in key areas on reserves, including education, water, housing and child welfare.

"I am profoundly disappointed to note ... that despite federal action in response to our recommendations over the years, a disproportionate number of First Nations people still lack the most basic services that other Canadians take for granted," Fraser wrote.

"After 10 years in this job, it has become clear to me that if First Nations communities on reserves are going to see meaningful progress in their well-being, a fundamental change is needed."

Fraser, who has seen 16 First Nations audits, said many of her key recommendations have either been sidelined or implemented half-heartedly, frequently leading to no change or deterioration.

One key area addressed is education. The report stated the gap in education between First Nations students and the general population is widening.

Fewer than half of First Nations students are graduating from high school and improvements seem a long way off, the report said.

The report also said there is a worsening in the shortage of adequate shelter and conditions on existing houses have deteriorated, including rampant mould problems.

Drinking water is also a major concern. Water-quality testing is done only sporadically and more than half of reserves' drinking water systems are at risk, the report said.

The same day the auditor general's report was released, a joint action plan between the government and the Assembly of First Nations was announced.

"First Nations have been saying for a long time that there are deep inequities in areas of funding," Shawn Atleo, the national chief of the Assembly of First Nations, told CTV's Power Play Thursday.

"In some cases the disparity for a First Nations child on a reserve is anywhere from $2,000 to $7, 000 less per child. This gap keeps growing and we need to transform this."

The purpose of the Canadian First Nation Joint Action Plan is to develop concrete goals for education, economic development and governance on reserves across the country.

"What I'm hopeful for is that this body of work can happen in very short order so we can reform the systems and give young people the supports they require," Atleo said.

"As well as look to stable, fair, long-term and equitable funding supports that are going to light the fire of potential that we all know exists in young people."

They aim to have the new plan culminate in a summit next winter accompanied with a measure in the 2012 budget.

NDP MP Charlie Angus was also on CTV's Power Play with Grade 10 student Shawnesia Ottawa to discuss "Shannen's Dream," a nation-wide campaign to highlight the plight of First Nations children in terms of education and opportunity.

"The children in my communities back home are tired of waiting," Angus said. "Children only have one childhood and this government and the past government has blown through the potential of so many kids."

Fraser blamed the lack of progress on reserves on the fact that there's no legislation defining the level and range of services the federal government is responsible for.

The reserves also have few organizations such as school boards and health boards to support delivery of services.

With files from The Canadian Press