Public Accounts Committee on Jan. 26th, 2023

[The Chair, Conservative, John Williamson]

Hello, everyone. Welcome back. Happy belated new year. It's nice to see everyone here, and so many people in person as well.

I call this meeting to order.

Welcome to meeting number 45 of the House of Commons Standing Committee on Public Accounts.

Pursuant to Standing Order 108(3)(g), the committee is meeting today to undertake a study on Report 10 by the Auditor General of Canada, entitled “Specific COVID‑19 Benefits”. The focus is on the Canada emergency wage subsidy.

I would now like to welcome our guests.

It's wonderful to see everyone in person today. From the Office of the Auditor General, we have Karen Hogan. It's nice to see you. I think we'll be seeing you and your team a fair bit in the next couple of weeks and months. We have Mélanie Cabana, principal, and Josée Surprenant, director.

From the Canada Revenue Agency, we have Bob Hamilton, commissioner of revenue and chief executive officer. Good day to you. We have Cathy Hawara, assistant commissioner, compliance programs branch; Marc Lemieux, assistant commissioner, collections and verification branch; and Gillian Pranke, assistant commissioner, assessment, benefit and service branch.

We will hear from both the Auditor General and the CRA for five minutes each. Ms. Hogan, as a routine, you have the floor for five minutes, please.

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

Mr. Chair, thank you for this opportunity to discuss our report on specific COVID‑19 benefits, which was tabled in the House of Commons on December 6, 2022. I'd like to acknowledge that this hearing is taking place on the traditional unceded territory of the Algonquin Anishinabe people.

Joining me today are Mélanie Cabana and Josée Surprenant, who were responsible for the audit. This audit focused on whether Employment and Social Development Canada and the Canada Revenue Agency managed COVID‑19 benefits efficiently and effectively, including whether the COVID‑19 programs achieved their objectives and provided value for money outcomes.

We also looked at whether benefit payments were accurate, whether they were paid to those who were eligible to receive them, and whether the procedures to recover overpayments and payments made to ineligible recipients were timely.

Overall, the department and the agency effectively delivered COVID‑19 programs to provide quick financial relief to individuals and employers. This helped prevent an increase in poverty and income inequalities, and helped the economy bounce back.

To issue payments quickly, the government decided to limit pre-payment controls by relying on information provided by applicants. In doing so, it recognized that post-payment verification work would be needed.

We looked at six programs and found that overpayments of $4.6 billion were made to ineligible individuals. We also estimated that at least $27.4 billion of payments to individuals and employers should be investigated further because we identified risks that they may not have been eligible for the benefits that they received.

However, the number of post-payment verifications that the department and the agency have planned are insufficient. They do not plan to verify payments made to all recipients identified as potentially ineligible.

At the committee's request, we will focus on the Canada emergency wage subsidy today.

We found that the program delivered support to employers in sectors most impacted by the pandemic. However, we could not assess the impact of the program, including whether objectives were met, because employers were required to provide only limited self-declared information in their applications.

To carry out our audit work, we used GST/HST returns, because they were the best information that was available. The agency did not have monthly revenue data for businesses, even though this information is critical, based on eligibility criteria for the benefit.

By analyzing the GST/HST returns filed with the Canada Revenue Agency in 2020 and 2021, we estimated that $15.5 billion in benefits were paid to recipients of the Canada emergency wage subsidy who might not have been eligible to receive them. We concluded that all of those payments should be investigated further.

I am concerned about the limited progress in post-payment verification work for all the programs we looked at, including the Canada emergency wage subsidy. The government knew that significant postpayment work would be needed the moment the decision was made to limit prepayment controls; however, neither resources nor plans have been sufficiently adjusted to reflect the unprecedented circumstances brought on by the pandemic.

The federal government has spent billions of dollars and does not know whether that money always went to eligible recipients. In the interest of being fair to all taxpayers, the government must carry out rigorous verification work. If it chooses a different approach, then it must be clear and transparent with Canadians.

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

Thank you.

[The Chair, Conservative, John Williamson]

Thank you, Ms. Hogan.

Mr. Hamilton, you have the floor now for five minutes, please. It's over to you.

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

Thank you, Mr. Chair.

We're pleased to be here today to discuss the Auditor General of Canada's “Report 10—Specific COVID-19 Benefits”, with a focus today on the Canada emergency wage subsidy, or CEWS, as we may refer to it.

You've already introduced the three assistant commissioners who are joining me today.

First, I would just like to highlight the essential work the Auditor General does. This isn't the first time we've had the Auditor General come through and examine things we've done. It always produces useful insights that we can use. I thank her and her team.

We are very attentive to the recommendations that come out of it, particularly in something like these emergency benefits, where it was really a first-time thing for everybody, so there are a lot of lessons to be learned around it.

We also thank the committee for its review of “Report 7—Canada Emergency Wage Subsidy”, of the 2021 reports of the Auditor General of Canada, as well as its subsequent recommendations and requests for progress reports.

The CRA provided a report on postpayment audits for the committee’s attention in December 2022. In addition, the CRA will provide two further progress reports before May 31, 2023.

When the Canada emergency wage subsidy was first introduced, the urgent priority of the government was to assist the economy in an extremely volatile period at the onset of COVID‑19, where both the future of many businesses and the Canadians they employed was in question.

The CEWS was designed to allow employers to keep workers on their payroll, bring back previously laid-off employees and help ease their businesses back into normal operations.

The CRA implemented this program within constrained timelines in order to meet urgent financial and economic needs. What’s more, the CRA itself is not a policy-making body. It administered the CEWS according to the parameters set by the government and as passed by Parliament in enabling legislation.

With respect to report 10, the CRA accepts the majority of the recommendations, partially accepts one and is working to implement them. This is noted in the CRA’s action plan, which has been shared with the committee.

At the same time, on one point the CRA had some observations surrounding the OAG’s estimate of potentially ineligible payments that require further investigation into the CEWS, and the Auditor General has referenced that in her remarks. The results of completed CEWS audits to date suggest that the number of ineligible claims is expected to be significantly lower than initially projected by the Auditor General.

By way of background, as is usual in compliance work, the CRA has started its reviews and audits of the highest-risk claimants, allowing the CRA to focus on claims that are most likely to be ineligible or overstated. This approach optimizes recoveries and ensures that high-risk claims are addressed while making efficient use of CRA resources.

In the audits that the CRA completed as of January 3, 2023, 94.2% of the amounts reviewed have been allowed, and the CRA has denied or adjusted 5.8% of the dollar value of these claims. Admittedly, the compliance work is in the early stages, but that's our experience on the ground so far.

Indeed, in the audits to date, the majority of those businesses and employers applied the Canada emergency wage subsidy rules correctly and made every effort to comply.

That being said, it's too early in the compliance cycle of this program to provide concrete numbers on total ineligible claims with a degree of certainty. As noted by the Auditor General, a more definitive estimate of payments to potentially ineligible recipients will be determined only once the comprehensive postpayment audit activities are complete. We will continue to work diligently on our compliance efforts, including addressing the recommendations made by the Auditor General.

Before concluding, I want to take a moment to applaud the tremendous work of CRA employees during the pandemic. It was an extraordinary time for us at the agency, and these dedicated public servants delivered the COVID-19 programs in a matter of weeks, ensuring that Canadians received timely assistance in a period of much uncertainty. Their efforts continue as we focus on our compliance efforts.

With that, we thank the committee for the opportunity to appear before you today.

Thank you, Mr. Chair.

[The Chair, Conservative, John Williamson]

Thank you very much.

Both presentations were spot-on within your time.

We're beginning the first round now. We're going to Mr. Chambers.

You have the floor for six minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair, and welcome to our guests today.

Mr. Hamilton, it's been about 15 years since we crossed paths at the Department of Finance. You've had an impressive career since then.

I wanted to spend a bit of time on this notion of “partially accepts” and the methodology around how the CRA is determining the amounts that need to be investigated. The Auditor General has outlined a methodology that seems to be rather reasonable.

On what methodology is the CRA basing its view of how many payments need to be verified post payment?

[Bob Hamilton]

I'll tackle that as two aspects, and I'll pull them apart a bit.

One is whether we should be going after all the places where there could be risk or whether we take a more risk-based approach. I think that's the question you're asking. The other is a specific methodology to project what we think the amounts of the ineligible payments were. I'll leave that aside for future questioning.

In terms of partially disagreeing, our perspective on it is we generally—almost exclusively—take an approach within the agency to focus on a risk-based assessment. We take a look at the information that we have at our disposal, try to identify where the highest risks are and go after those. It's the highest risks and potential for recovery, and not covering 100% of the people.

There is an approach where you could go after 100% and uncover everything, but we take that risk-based approach and we amend it as we move forward. As we develop evidence about what worked and what did not work in previous attempts, we adjust our risk parameters based on business intelligence that we have. That may be leads that we have or some of the information we have at our disposal.

I think that's the core of the issue, in terms of partially disagreeing. We didn't want to commit to reviewing every claim that came in.

[Adam Chambers, Conservative, Simcoe North, ON]

It's not that you disagree with the $15 billion of wage subsidy that ought to be reviewed. It's that you have limited resources to pursue 100% of what the Auditor General has identified.

[Bob Hamilton]

No. I wouldn't characterize it as not having enough resources. Certainly, it would take more resources to go after every single dollar—

[Adam Chambers, Conservative, Simcoe North, ON]

Do you agree with the $15 billion? Answer yes or no.

Is that the number you believe—

[Bob Hamilton]

No. We think that is an overestimate.

Again, I would acknowledge that we're early in the compliance program, so we don't know for sure where it's going to go. However, based on our evidence to date, we see businesses generally complying. Where they have made mistakes, they've been errors because of the complexity of the program or what have you. We have seen some pockets of people who have intentionally misled, and we're pursuing those.

[Adam Chambers, Conservative, Simcoe North, ON]

You're doing an end result. You'll say, “Okay. We've done a certain number of postpayment verifications, and a certain percentage of those are ineligible,” and then you'll extrapolate them to say the total number. The Auditor General is saying, “Okay. We're looking at actual GST/HST returns. Here's the total pool that we think ought to be examined.”

Is that a fair description of how the CRA is approaching this?

[Bob Hamilton]

I'm not sure it's a fair description of how we're approaching it. Let me say that I think when you refer to the $15.5 billion and using GST/HST.... To be fair to the Auditor General's team, they were trying to come up with an estimate of how much might be out there, when there wasn't a lot of information available.

That's more of a projection of what's out there, rather than an approach. If we get to the projection, we think that GST data is not actually a very good indicator of who might be ineligible, and we have some experience with that. That's the issue of the estimate of the number. However, on the approach, ours is more of a risk-based approach.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

Can you provide to the committee the methodology that you're using to guesstimate the $15 billion or what you believe to be the amount that ought to be investigated?

[Bob Hamilton]

We haven't actually estimated the $15.5 billion. What we have we have on the ground. We've started audits and we've completed audits. We can see what we've done so far in some of the higher-risk cases that we've identified, and we don't think if you extrapolate that—

[Adam Chambers, Conservative, Simcoe North, ON]

You don't agree with the $15 billion. You think it's less, but you don't know how much it might be.

[Bob Hamilton]

It's hard to say at this stage. Even with the $15.5 billion, I think the Auditor General would agree that's not a—

[Adam Chambers, Conservative, Simcoe North, ON]

You can't provide a number that you think is—

[Bob Hamilton]

I can tell you that about 6% of complaints that we have had so far have been either adjusted or denied.

[Adam Chambers, Conservative, Simcoe North, ON]

We also understand there's a limitation period during which some of these investigations or verifications need to be completed. Are you confident that you're going to be able to complete the ones that you want to within a legislated timeline?

[Bob Hamilton]

Yes, we're very confident of that.

It is true that there are some restrictions after three or four years, but those don't apply in cases where we see fraud or misleading information. It terms of collections, once we establish the debt, we have lots of time to collect. It's conceivable that in a certain circumstance you could run out of time, but we're very confident—

[Adam Chambers, Conservative, Simcoe North, ON]

Would you have time to investigate the $15 billion?

[Bob Hamilton]

I'm actually not 100% sure what you're referring to when you say—

[Adam Chambers, Conservative, Simcoe North, ON]

The Auditor General suggests that $15 billion of the wage subsidy ought to be investigated for verification. Would you be able to complete those audits within the legislated timeline?

[Bob Hamilton]

I would have to turn to my colleague, but if we wanted to, I would expect we could. As I said, if there are issues of fraud or other misappropriate information, then we can extend the time deadline. We'll face that three-year or four-year clock for the majority of the cases—