Public Accounts Committee on April 22nd, 2021

[The Chair, Conservative, Kelly Block]

I call this meeting to order.

Good morning, and welcome to meeting number 27 of the Standing Committee on Public Accounts. The committee is meeting in public today and is being webcast.

Pursuant to Standing Order 108(3)(g), the committee is meeting today to study “Report 7, Canada Emergency Wage Subsidy”, of the 2021 reports 6 to 9 of the Auditor General of Canada.

Today's meeting is taking place in a hybrid format pursuant to the House order of January 25, 2021, and therefore members may be attending in person in the room or remotely by using the Zoom application.

I have just a few reminders for members.

All of us are participating virtually today. Interpretation services are available for this meeting. You have the choice, at the bottom of your screen, of either “Floor”, “English” or “French”. Before speaking, click on the microphone icon to activate your own mike. When you are done speaking, please put your mike on mute to minimize any interference. When speaking, please speak slowly and clearly. Unless there are exceptional circumstances, the use of headsets with a boom microphone is mandatory for everyone participating remotely.

Should any technical challenges arise, please advise me, the chair. Please note that we may need to suspend for a few minutes in order to ensure that all members are able to participate fully.

Now I'd like to welcome our witnesses.

Joining us today from the Office of the Auditor General are Karen Hogan, Auditor General of Canada; Philippe Le Goff, principal; and Mathieu Lequain, director.

I'm sorry; I think my printer has put me in a rough spot.

Madam Clerk, can you please announce who our other guests are today?

[The Clerk of the Committee, Ms. Angela Crandall]

Certainly. Where did you leave off, Madam Chair?

[The Chair, Conservative, Kelly Block]

I left off with Ms. Hogan.

I know that we have a number of other guests with us today, but I just introduced those from the Auditor General's office.

[The Clerk]

Okay. From Revenue Canada, we have Mr. Bob Hamilton, commissioner of revenue and chief executive officer; Marc Lemieux, assistant commissioner, collections and verifications branch; Ted Gallivan, assistant commissioner, compliance branch; and Frank Vermaeten, assistant commissioner, assessment, benefit and service branch.

Then, from the Department of Finance, we have Michael Sabia, deputy minister; Andrew Marsland, senior assistant deputy minister, tax policy branch; and Maude Lavoie, director general, business income tax division, tax policy branch.

[The Chair, Conservative, Kelly Block]

Thank you so much, Madam Clerk.

I will now turn the floor over to Ms. Hogan for five minutes.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Madam Chair, thank you for this opportunity to discuss our report on the Canada emergency wage subsidy, which was tabled in the House of Commons on March 25.

Joining me today are Philippe Le Goff, who is the principal responsible for the audit; and Mathieu Lequain, who led the audit team.

As part of the response to the COVID-19 pandemic, the federal government announced the Canada emergency wage subsidy in March 2020. The subsidy was meant to help maintain the employer-employee relationship during the pandemic and help position employers to resume normal operations when businesses can fully resume.

The Canada emergency wage subsidy program, one of the largest initiatives the government has ever undertaken, is expected to cost approximately $97.6 billion by the end of the 2021-22 fiscal year. This audit focused on whether the Department of Finance Canada provided analysis on the Canada emergency wage subsidy program and whether the Canada Revenue Agency limited abuse by establishing appropriate controls in its administration of the program.

Overall, we found that the Department of Finance Canada and the Canada Revenue Agency worked together within short time frames to support the development and implementation of the Canada emergency wage subsidy. The Department of Finance Canada performed a partial analysis of the initial design of the subsidy program, and it later provided a sound and complete analysis to inform adjustments to the subsidy made in July 2020. Although we were given access to all documents, we are unable to provide Parliament with details of these analyses because they were in secret and cabinet documents.

The design and rollout of the subsidy highlighted pre-existing weaknesses in the Canada Revenue Agency's systems, approaches and data. These weaknesses need to be addressed to strengthen Canada's tax system.

One of the weaknesses is related to the lack of up-to-date tax data. For example, we found that 28% of the subsidy applicants did not file a return for the goods and services tax or the harmonized sales tax for the 2019 calendar year. Given that GST and HST returns are important indicators of revenue, the lack of tax data means that the agency did not have all the relevant information for assessing the applications before issuing payments. This revenue information would have allowed the agency to validate the reasonableness of the revenue drop that was declared by applicants.

To prioritize issuing payments quickly, the Canada Revenue Agency chose to forgo certain controls that it could have used to validate the reasonableness of subsidy applications. For example, the agency decided that it would not ask for social insurance numbers of employees, although this information could have helped prevent the doubling up of applications for financial support.

The limitations of the agency’s information technology systems affected its ability to perform some pre-payment validations, as did the absence of complete and up-to-date tax information. As a result, the agency will have to perform more post-payment verification work, and we expect that the agency will have to rely mainly on costly comprehensive audits that will start in spring 2021. This post-payment work will be the subject of a future audit from my office.

We made three recommendations to the Canada Revenue Agency and one recommendation to the Department of Finance Canada. The agency and the department agreed with the recommendations.

Madam Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Hogan.

We will now go to Mr. Hamilton for five minutes.

[Bob Hamilton, Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency]

Thank you, Madam Chair.

I am pleased to be here to discuss the Canada Revenue Agency's action plan in relation to Report 7 of the Office of the Auditor General of Canada on the Canada Emergency Wage Subsidy.

With me today are the Assistant Commissioners of the agency, whom you have already introduced.

First I want to recognize the excellent work of the agency employees who had the daunting task of developing this wage subsidy and its calculator in record time in order to support millions of Canadian businesses and workers in the challenging context of the COVID-19 pandemic. Their speed of execution was remarkable, and I offer them my sincere thanks. We are all truly proud of what they were able to achieve.

In report 7, the OAG made three recommendations addressed to the agency, and we accept them all: one, to strengthen its efforts toward tax compliance for GST/HST; two, to use automated validations with a unique identifier across programs; and three, to use business intelligence information as soon as it is available to conduct targeted audits.

With regard to the first recommendation, the agency will identify opportunities within the GST/HST delinquent filer program to improve filing compliance on the part of GST/HST registrants. The agency will review workload selection and prioritization criteria within this program to identify areas of improvement as applicable.

We will determine if program resources are allocated optimally and are sufficient to deliver on program expectations. The agency will also identify potential legislative changes that could support filing compliance.

Finally, the agency will identify additional ways to educate and support businesses regarding GST/HST registration and filing obligations in order to promote future compliance.

In the second recommendation, the OAG suggested that the agency should use automated validations with a unique identifier across programs in order to improve the integrity and validation efficiency of future emergency programs. In addition, the OAG also noted that the SIN, the unique identifier for individuals, comes with limitations, such as privacy issues and identity theft.

We acknowledge these observations and in collaboration with Employment and Social Development Canada, we are working in partnership with the Treasury Board Secretariat on its Sign-In Canada platform. Sign-In Canada will facilitate access to Government online services through a secure digital ID that is mapped to departmental programs. We expect the Sign-In Canada platform to be available in the next 24 to 36 months, at which time the agency will commence its onboarding activities.

At the same time, the agency also continues to enhance its authentication and credential management systems through multi-factor authentication. This solution is currently being rolled out to all users of the agency's portal services. Full roll-out is expected to be completed in June of 2021.

Lastly, regarding the third recommendation, the agency agrees that the timeliness of compliance actions is very important. To this end, the agency is continuously investing to improve its risk assessment systems and business intelligence to better focus its resources, in a timely manner, on the highest-risk cases of non-compliance at a national level.

Notably, the agency is working with the aid of risk assessment algorithms, which use data to help the agency quickly identify applications that warrant more careful examination. These algorithms are frequently updated and improved as the agency learns more about the common patterns in CEWS applications, and also to reflect changes to the CEWS legislation. Phase one is under way. Phase two, which will begin in September 2021, will maximize the results obtained in phase one, which will then inform and improve the risk assessment process for targeted audits as a whole.

As a result, in December 2021 the agency expects to produce its final report on this recommendation, which will include the best practices learned. These can be used as a basis for future targeted audits.

Thank you, Madam Chair. I'd be happy to answer your questions.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Hamilton.

We will now go to Mr. Sabia for five minutes.

[Michael Sabia, Deputy Minister, Department of Finance]

Thank you, Madam Chair.

Thanks to the committee for its invitation.

I am here today alongside my colleagues Andrew Marsland, Senior Assistant Deputy Minister of Tax Policy, and Maude Lavoie, Director General, Business Income Tax at Finance Canada.

As you know, the Department of Finance remains focused on supporting Canadians and Canadian businesses through the COVID-19 pandemic. And that is why I welcome this report from the Auditor General.

The Canada emergency wage subsidy is one of the strongest pillars of government support that was established in the early days of the pandemic.

The wage subsidy program was initially designed to keep employees attached to their employer by subsidizing 75% of their payroll costs, up to a maximum of $847 per employee per week. It acts to protect jobs, encourages employers to rehire workers previously laid off as a result of the COVID crisis, and helps position Canadian businesses for a robust recovery. Through this initiative, well over five million Canadian employees have had their jobs supported, with over $74 billion paid out through the program as of April 11, 2021.

Through the budget that we delivered this week, we proposed that this subsidy continue until the end of September 2021, alongside the Canada emergency rent subsidy and the lockdown support. We also proposed to gradually decrease the subsidy rate, beginning in July, to ensure an orderly phase-out. However, of course that depends entirely on the state of the pandemic and the progress with respect to vaccinations.

In addition to the wage subsidy program, we also introduced a new program in the budget. We've called it the “Canada recovery hiring program”, and it's to help businesses hire more workers between June 6 and November 20, 2021, as we begin a turn from protecting jobs to creating jobs. It will offer companies on the wage subsidy, as they begin opening up, a new alternative: a program to assist them by offsetting a portion of the costs of bringing in new employees.

Ms. Hogan’s audit focused on whether Finance Canada provided analysis on the wage subsidy during its initial development. I am pleased to note the audit’s conclusion that the department worked within short timeframes to provide decision makers with information to assist them in developing the wage subsidy, and that it subsequently provided sound and complete analysis to inform adjustments to the program.

In the department’s work in designing the wage subsidy, it collaborated with the Canada Revenue Agency to assess how the program could be implemented quickly and develop the legislation related to the subsidy. The analysis was done rapidly. The imperative at that time was to get help to our workers and businesses quickly. And it was the right imperative.

Finance Canada also proposed subsequent adjustments to the subsidy that were informed by sound and complete analysis, as well as input from businesses and employers. For example, revisions to the program made the subsidy accessible to a broader range of employers by including those with a revenue decline of less than 30%, and providing a gradually decreasing base subsidy to all qualifying employers.

Although, Madam Chair, I was obviously not in the Department of Finance at the time, I do want to say that I think the agility that our department demonstrated in the design of this program, and in particular the department's willingness and effectiveness to constantly assess feedback from stakeholders and program recipients and to constantly find opportunities to make adjustments and to improve the reach and rigour of the program, are important and very much worth noting.

As I mentioned a moment ago, we also very much welcome the Auditor General's recommendation to publish an economic evaluation of the wage subsidy program. Doing that is indeed our plan, and we've committed to undertaking this evaluation and publishing our findings in the 2022 report on federal tax expenditures.

Before I wrap up, I do want to—and again, I say this as someone who wasn't there at the time—give full credit to the public servants both in the Department of Finance and in the Canada Revenue Agency for a really extraordinary effort to design this program and to deliver it rapidly at a time of real economic and social crisis for the country. I think that speaks well of their dedication as public servants to Canada.

I'll stop there. Thank you again for the invitation. My colleagues and I will be happy to try to answer your questions.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Sabia.

We will now go to our first round of questioning. It's a six-minute round, starting with Mr. Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, Madam Chair. I'll commence conversation here with Mr. Sabia.

My area of inquiry will be the interplay between the CERB and the CEWS. I think that most economists as well as Canadians would have preferred to see more of the employer-employee relationship retained; however, when we look at the numbers, it appears to me that while the CERB was oversubscribed, the CEWS was undersubscribed, and that may have cost Canadians jobs, severing that important relationship between employer and employee.

Mr. Sabia, would you characterize that statement as correct, or how would you differ?

[Michael Sabia]

I don't think I would say that we share that view.

The wage subsidy program was designed initially and then, as I mentioned a moment ago, adapted following consultation to make it very broadly based, very simple and able to be put very rapidly in place. It has, as I mentioned, supported the continuing employment relationship of at least more than five million Canadians. We think that's important.

We think this program is doing its job. One of the most important factors in coming out of an economic event like the COVID crisis is to ensure that businesses are able to rapidly regain their operations. The loss of the employment relationship is something that would have substantially slowed that process.

Therefore, one of the reasons we're seeing the kind of economic strength in the country that we are, notwithstanding these very difficult conditions for many businesses, is the fact that this program has helped maintain that relationship. We think that's very important as an instrument of economic policy, but it's also very much an important part of helping Canadians and helping Canadian businesses through these exceptionally difficult times.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you, Mr. Sabia. Also, thank you to your department for everything that it's done.

I would respectfully differ. I think the numbers would tell us a slightly different story. With regard to the original projections for the CEWS program, it was undersubscribed by a good 50%, depending on which numbers you use, in accordance with your own projection. Then throughout most of the pandemic, Canada has been one of the laggards in terms of recovering jobs. Our unemployment, of course, has been near the bottom of the G7 throughout most of the pandemic. I would love to share your rosy review of the plan, but the facts don't merit it.

I would like to jump over to Mr. Hamilton and thank him, first of all, for all of his great work.

I'd like to start an inquiry, which I will probably continue in further rounds, about the vetting process.

We understand the pressures of getting the funds out as quickly as possible to employers to support the employees. However, it does seem as though a number of steps were skipped, one of which was in not collecting the social insurance numbers. I'd like to give Mr. Hamilton or any of the other panellists an opportunity to explain why the social insurance numbers were not collected.

[Bob Hamilton]

I'll take the specific question of the social insurance numbers and maybe put it into context.

At the beginning of this program, we definitely had a balancing act to get the benefits out as quickly as possible while doing as much upfront verification as we could. At the end of the day, we knew that we would have back-end audits and/or verifications to rely on if we were to miss something in the first effort. Part of our calibration was to think about the right equilibrium between getting the benefits out soon and doing some upfront verification that would help us at the back end.

We thought about asking the employer to include the social insurance numbers of the employees, but it was felt at that time that this was going to significantly slow down the implementation of the program and delay the benefits to the businesses that were looking to support their employees, so we made a decision to not require that.

Instead, on the T4 slip now, the employees include statistics on when they earned money through the course of 2020. We can use that information to go back and check whether there was an instance of somebody claiming the CEWS and also claiming the CERB, for example.

It was really an attempt to balance that act and recognize that we couldn't move fast enough if we were to include the SINs at the beginning. However, we did know that we had the back-end verification and would have better data then to catch it up.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Madam Chair, thank you very much.

[The Chair, Conservative, Kelly Block]

Thank you very much. There are just a few seconds left.

We will now go on to Mr. Fergus for six minutes.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Madam Chair.

Once again I'd like to thank the witnesses who are appearing before us today.

I'd also like to tip my hat to the Department of Finance and the Canada Revenue Agency for the outstanding work they've done during the crisis. I know it was very hard. However, the committee's duty is to try to identify problems so we can learn lessons and improve our performance next time.

First I'll speak to the representatives of the Office of the Auditor General, Ms. Hogan or Mr. Le Goff.

With respect to the goods and services tax and the harmonized sales tax, according to your report, 42% of subsidy applications came from businesses that had collected an average of 18% more GST and HST in 2020 than in 2019.

If the purpose of the subsidy was to assist only businesses that had experienced revenue declines, could we say that objective wasn't achieved in 42% of cases, or should we qualify that view?

[Karen Hogan]

I'll start off and then let Mr. Le Goff add any comments he wishes to make.

The figures you refer to appear in a section of our report where we noted that the Canada Revenue Agency was receiving information on which it could conduct more targeted investigations as the program advanced. The information received concerning GST and HST returns indicated there was an imbalance; at the very least, that information should have raised suspicions or doubts. However, the agency decided to use the information in its comprehensive post-payment audits instead of pausing subsidy payments to look into a potential problem.

I don't know whether Mr. Le Goff would like to add a few comments.

[Philippe Le Goff, Principal, Office of the Auditor General]

Good morning.

The Auditor General gave a good answer to the question.

To the best of our knowledge, the agency chose not to take advantage of that first-hand information, with which it could have determined whether the applications were reasonable from a revenue standpoint, while continuing payments to businesses. The information provided revenue indicators that were critical in helping the agency determine whether applications were valid.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you, Ms. Hogan and Mr. Le Goff.

Mr. Hamilton, do you have anything to add on this point?

[Bob Hamilton]

I'd like to add a few comments. Then I'll ask my colleague Mr. Gallivan to do the same.

It's important to note that we used the information we got as the program was being implemented to improve verification as much as possible. It was actually impossible to halt all the applications because that would have made the program inefficient.

As I said earlier, we'll have another opportunity to do the verification at the end of the process. That's an option for us. We made decisions in an attempt to strike a balance between speed and integrity. Our decisions may not always have been perfect, but we'll use the information that's now available to rectify matters so we can both respond more effectively to another pandemic and improve our normal annual verification method.

Mr. Gallivan may have something to add.

[Ted Gallivan, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

I'd like to clarify one point. The fact that more GST was collected wasn't necessarily a negative point. The accounting methods were varied, since the wage subsidy program made both cash and accrual accounting methods possible. It was a matter of dates. You mustn't think that 42% of applications were false. That was simply an indicator.

Although we didn't act in June, we started our verifications in August and September. So it didn't take long for us to introduce measures once we had the information.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now move to Mr. Blanchette-Joncas for six minutes.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Madam Chair.

Good morning to all the witnesses.

My first question is for Ms. Hogan.

Good morning, Ms. Hogan. It's a pleasure to see you once again.

I'll get straight to the point. I was surprised to hear you say the Department of Finance had given you full access to the information. I nearly fell off my chair when you said you couldn't provide Parliament with specific information because it was protected by cabinet secrecy.

This is a program that we deployed in only a few months, at a cost of $100 billion, according to the last economic update of November 30, 2020. I'm sure you'll agree that raises more than mere ordinary doubts; I'd even say it raises serious questions about government transparency. I'm trying to understand. Can you enlighten us?

Given your role, how do you perceive this unique state of affairs?