Scathing report says $9.87 billion given out despite lack of ‘sufficient revenue drop’ during pandemic
Tens of thousands of Canadian employers that received the Canada Emergency Wage Subsidy (CEWS) were ineligible for the government benefit.
That’s according to a scathing report from the Auditor General of Canada.
It states that 51,049 employers received $9.87 billion in CEWS payments even though their monthly GST/HST filings “did not demonstrate a sufficient revenue drop to be eligible for this subsidy.”
Overall, $15.5 billion was paid to recipients that should be investigated further, says the report.
While the subsidy supported employers in sectors that suffered the biggest employment declines, “it was difficult to assess the impact of the program and how effectively the program met its objectives because of the limited information employers were required to provide upon application.”
“The Canada Revenue Agency and Employment and Social Development Canada did not manage the selected COVID‑19 programs efficiently given the significant amount paid to ineligible recipients, the limited adjustments as programs were extended, and the slow progress on post-payment verifications,” says the report, which makes several recommendations for improvements.
“Finally, we concluded that the department and the agency were not performing a sufficient number of post-payment verifications to be able to identify payments made to ineligible recipients.”
The CEWS program ended in October 2021.
One-third of employers benefited
About 36 per cent of all active employer businesses received the subsidy.
According to Statistics Canada, the top three industries that received the subsidy as at June 2021 were:
• accommodation and food services (66 per cent)
• arts, entertainment, and recreation (56 per cent)
• manufacturing (55 per cent)
But the agency made few additions or improvements to pre-payment controls to address risks of ineligible payments in order to maintain the speed of processing applications, says the report.
For example, the program did not require employers to submit any information on rehiring. And, prior to payment, the agency did no automated validation of the revenue decline submitted by applicants, which was an eligibility criterion.
“At a minimum, the agency could have compared the submitted revenue decline against historical goods and services tax/harmonized sales tax (GST/HST) data (even if only on a sample basis),” says the report.
Overall, 41.6 per cent of employers used the CEWS at least once between March 2020 and September 2020.
Lack of data
The Canada Revenue Agency did not have the data needed to measure the effectiveness of CEWS, says the auditor general. For example, the application form did not require employees’ social insurance numbers. Without data, the government could not accurately determine:
• the exact number of employees who benefited from this program
• whether employees remained working for the same employers, changed to another employer, or moved to work in another sector
• the exact number of employees who were rehired (as the program aimed to encourage employers to rehire workers who were laid off as a result of the pandemic)
“Sound management of public funds requires that data collection and analysis be a key aspect of program administration. In our view, this missing data highlights a broader issue of missed opportunities to assess the effectiveness of programs, in this case the Canada Emergency Wage Subsidy,” says the report.
In the administration of future programs, the CRA should engage with its partners, such as Statistics Canada and relevant departments, it says “to ensure it collects pertinent data from applicants to better monitor and measure the effectiveness and outcomes of programs.”
The report also says the Canada Revenue Agency and Employment and Social Development Canada lacked a modern, real-time payroll data requirement for businesses, which could have been used to assess program eligibility, calculate the benefit payment, and improve the overall efficiency of managing the COVID‑19 programs.
Other jurisdictions have implemented systems and reporting requirements to collect payroll information in a timely manner, says the report, citing the U.K. and Ireland.
In addition, real-time payroll data could:
• reduce the reporting burden on businesses
• reduce errors and improve compliance on tax assessments
• help provide benefits for citizens that can adapt more quickly to evolving situations (such as loss of employment)
• support the collection of timely data to better inform, design, and assess public policies
• help the government to more efficiently and accurately manage the benefits it provides to Canadians and Canadian businesses
The report recommends the Canada Revenue Agency, with the collaboration of Employment and Social Development Canada, pursue the development and implementation of a real-time payroll system with clear timelines and deliverables — and the agency agreed.
‘Decisive’ approach to save lives
In response, Diane Lebouthillier, minister of national revenue, and Carla Qualtrough, minister of employment, workforce development and disability inclusion, said the federal government acted “decisively to save lives and the economy – and that's exactly what we did.
At the onset of the COVID-19 pandemic, employees from ESDC and CRA mobilized “like never before” to deliver critical emergency programs, they said in a release.
“These programs were designed and delivered quickly with the understanding that Canadians needed help immediately – not in weeks or months.”
“With the support of Parliament, the government determined that attestation-based application processes for both individual benefits and business subsidies was not only the most effective way to get money into the hands of Canadians rapidly, but that it was the only way to get support out when it was needed to save lives, keep food on families' tables and keep our economy afloat.”
CRA and ESDC will continue to take “a responsible approach to pursue fraud and a compassionate approach that is responsive to the individual circumstances of Canadians and small and medium-sized businesses,” they said, add that CRA's audit results to date show that the vast majority of applicants met the requirements of the CEWS program.