Public Accounts Committee on Jan. 26th, 2023

[Cathy Hawara, Assistant Commissioner, Compliance Programs Branch, Canada Revenue Agency]

I'm happy to expand on that.

One of the recommendations the Auditor General made to us in her first report regarding the wage subsidy was to look at other data sources, including in particular the GST data. We incorporated the GST data as a prepayment verification control in the context of the Canada emergency rent subsidy.

We found that it identified a high number of claims that appeared to be ineligible, that appeared not to meet the revenue-drop criteria, but upon a manual review of those claims, we found that in fact they were eligible, so we concluded that, on its own, the GST data was not a good indicator of ineligibility. Because we were trying to strike a balance between protecting the integrity of the programs and delivering the funding that was urgently needed, the decision was made not to incorporate the GST data as a prepayment control in the context of the wage subsidy.

However, I think it is important to be clear that the GST data is an important risk indicator. We use it in the context of our postpayment risk assessment, but not on its own. We consider it alongside other data sources in order to identify risk and build our audit plans as a result.

[Han Dong, Liberal, Don Valley North, ON]

Thank you.

I was listening to my Conservative colleague's question, and I want to ask you something also. On November 4, the Conservative Party of Canada passed an opposition day motion calling on the CRA to delay its CEWS postpayment audits. How did the CRA respond to that motion? Of course, that motion was passed, but it's non-binding, so how did the CRA respond to that motion?

That's for Mr. Hamilton.

[Bob Hamilton]

Thank you, Chair.

We remember that. Actually, as part of the wage subsidy, we started the audits quite early, with a pilot project in 2020, and there was some push-back on that. We carried on with it because we thought that even though it was early, it would give us some information we could use down the road, as Cathy said, to build into our audit plan as we go forward, so we basically carried on with that. That was what we called the phase one pilot project. We're now into phase two and have a number of audits under way.

Cathy was just mentioning to me, in the context of earlier conversations, that we have almost $15 billion under audit right now, so, again, to the question of whether we are ignoring it, the answer is no. We have a lot that's under audit right now, and we took a phased approach that started in 2020, as you mentioned.

[Han Dong, Liberal, Don Valley North, ON]

Okay. This is for the Auditor General.

Auditor General, at the House of Commons finance committee on December 13, 2021, you confirmed that stopping the audit would be a bad idea. I want you to tell us this: Had the CRA followed the motion that was proposed and passed in the House by the Conservatives, what would have happened to the overall integrity of the program and would it have seriously damaged the reputation of the CRA in terms of accountability when it comes to these payments?

[The Chair, Conservative, John Williamson]

Thank you, Mr. Dong.

Could you give us a brief response, Ms. Hogan?

[Karen Hogan]

It's very difficult for me to speculate as to what would have happened if someone had not done work they set out to do.

What I would offer up is that needing to do postpayment verification work is essential when you have limited prepayment controls. The clock is ticking on when you can do that. There's a limitation, so the sooner you get to high-risk files, the better.

The last point I'd offer up is that we have a table in our appendix, and I would point members to exhibit 10.F-7, in which we analyze the CRA's second phase of results. While dollar values might be low, it points to the fact that there is an issue with almost two out of three files. When you're doing some sampling, whether it be risk-based or not, that's an indicator that you need to do more work, and that's why more work is being done.

[The Chair, Conservative, John Williamson]

Thank you very much.

Mr. McCauley, you have the floor now for five minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, Chair.

Mr. Hamilton, I want to get back to you. Who will make the final decision to pursue the path that you've stated you're taking on the audits? Is that a CRA decision—

[Bob Hamilton]

Mr. Chair, the decision to carry on with the plan we have—

[Kelly McCauley, Conservative, Edmonton West, AB]

—as opposed to what the AG has recommended? Is that purely the CRA's decision?

[Bob Hamilton]

I would say it's largely the CRA's decision. I suppose somebody else within government could have a different view and tell us not to do anything, but I think in this domain, it is largely we who decide.

[Kelly McCauley, Conservative, Edmonton West, AB]

That's great.

At any point during the program—because the program was updated and extended and changed—did the CRA come back and say, “We've had time—it's been two or three months—so let's seriously up the fencing for the wage subsidy?”

[Bob Hamilton]

Mr. Chair, I don't recall our doing that with the wage subsidy, I'd have to say, because, again, we felt relatively comfortable, given the circumstances, that we had some prepayment checks that were kicking out a lot of claims before we made the payments. We felt we had a pretty good system in place. That was in contrast with the CERB, for which we had fewer prepayment controls. I don't recall our ever saying that. I do recall talking about how we were going to do the postpayment verifications and what the time frame for those was going to be. As the Auditor General said, if you see areas that need more work, then we will do that work.

[Kelly McCauley, Conservative, Edmonton West, AB]

I don't want to put words in your mouth. It sounds as though the CRA is looking at it and saying that this is not an issue. Personally, I think there is a very low bar for accessing the subsidy—an attestation program that is not really based on a lot of proof of dropped revenue or payroll numbers and so on.

Was the CRA comfortable with that?

[Bob Hamilton]

Mr. Chair, I would say there's a lot of space between being comfortable in thinking you have a good plan and not caring or not worrying about it. We care. We worry about this. At the CRA, we have responsibility for delivering benefits, as well as a big responsibility for enforcing compliance so that it's a fair tax system.

[Kelly McCauley, Conservative, Edmonton West, AB]

Was there any discussion about using SIN numbers, as has been suggested by the AG? We've seen Chinese state-owned companies receive this subsidy, but we have been giving money, subsidies, to non-Canadians on payrolls. We saw other issues, such as dead people receiving the CERB, and people outside the country.... Is that an opportunity? Why didn't we use social insurance numbers?

[Bob Hamilton]

Mr. Chair, at the beginning we thought about whether we could use social insurance numbers. There were a few problems with that and reasons we didn't. It would have taken a lot longer to do the systems development that we would have needed to do to incorporate those. It would have placed a burden on employers to provide those, so we didn't do it because it was going to take too long and it was going to delay the program.

You also have to recognize that once you have a program in place, coming in with different measures can be complicating at that stage. Even if you think you might want to do something, once you have it in place and it's running and you're largely comfortable that you'll be able to deal with—

[Kelly McCauley, Conservative, Edmonton West, AB]

A fair amount in subsidies went to companies that ended up insolvent and that were in long arrears with respect to HST/GST remittances or other remittances to the government. Was there discussion or were red flags raised by the CRA, knowing that these were strong indicators of eventual insolvency and that we were subsidizing people who owed the government significant amounts of money?

[Bob Hamilton]

Mr. Chair, we certainly take account of what we observe and factor that in. Where is the risk? Will a company present, potentially, a particularly high risk?

I want to make sure we don't confuse administrative issues with policy issues, because you can get both in here. People might think from a policy perspective that a company should not have been eligible. We administer the legislation as it is drafted, and if it's permitted—

[Kelly McCauley, Conservative, Edmonton West, AB]

I realize you're implementing a policy. Did you recommend to the policy-makers that we shouldn't extend the subsidy to companies that looked as though they were insolvent? I think it was the AG report that said that as of last year subsidy recipients owed $4 billion to the Government of Canada but still got subsidies. Was the recommendation, when this program was being developed, not to subsidize companies that owed the government billions of dollars and therefore—

[The Chair, Conservative, John Williamson]

I'm going to cut if off there, Mr. McCauley. You will have another round and you can come back to this question.

I want to make sure we get another full round in, so I have to be a little more judicious with the time.

We're turning now to Ms. Yip.

You have the floor for five minutes. Go ahead, please.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Thank you.

Like many of my colleagues who have also expressed thankfulness from the small businesses in their ridings, I will say that the small businesses in my riding are very grateful too. I'd like to just acknowledge the Auditor General's comments about how quickly the government issued this program and how grateful the small businesses are that the CRA was able to roll out supports.

Mr. Hamilton, how comprehensive or vigorous do you feel the CEWS compliance program is? Is it effective enough to collect on the remaining outstanding amounts?

[Bob Hamilton]

Mr. Chair, as I've indicated, we feel comfortable with the compliance program and that we will be able to deliver to Canadians an effective compliance program that, using a risk-based method, will get the money back from people who didn't deserve it. I would say that ranges from, as I mentioned, people who were promoting schemes that we know were just trying to work around the system—we need to focus on those—to people who might have just made mistakes. It's a complex program, and they might have a complex business.

We feel that with more time and more resources one could do even more in that space, but we feel as though the balance is pretty good right now in terms of what we had in prepayment and our plan to go into postpayment. In an ideal world, we might have been able to get a quicker start on the compliance just from a CRA perspective, but there was a recognition that, at that time, we had to be sensitive in terms of how we went in and verified businesses and individuals, given the fragile financial state of some of those individuals and businesses. That played into it as well.

There was a reference earlier to the fact that we're going to run out of time. We're not going to run out of time for the reasons I've given, but it is true that the longer you wait, the harder it can be sometimes to collect on a debt or what have you. From our perspective, we might have preferred to start earlier and be a bit more advanced than we are now, but we think we have the time to assess the risks and go after the places that we think present the highest risk. As I said, we have about $15 billion under audit right now, so we're looking at a lot of money out there and testing it to make sure the people or the organizations were eligible for it.

I don't have a degree of discomfort with where we are and where we're going. I think the Auditor General makes some good points about there being risks out there. It's a program that went out quickly. We put some prepayment controls in, but I think there's always an opportunity to look back and learn some lessons about what we might have done a bit better on the prepayment side. We think we're still learning on the compliance side. We're picking up some lessons as we look at companies and assess them—things we can do to improve our audit plan—but beyond that I think we're feeling pretty good that we're doing a good job of striking that balance on behalf of Canadians.

[Jean Yip, Liberal, Scarborough—Agincourt, ON]

Thank you.

Ms. Pranke, could you go into more detail about the risk-based model to determine who gets audited and who doesn't at this stage? In particular I'm curious about how you calibrate that risk and how you adapt your metrics as the audits progress.

[Cathy Hawara]

I think that question might be for me, if that's all right, Mr. Chair.

Our approach when we establish our compliance programs and our audit plans is always to take a risk-based approach. The purpose of taking the risk-based approach is to ensure that we are identifying the highest-risk cases, so that we can deploy our resources there first.

We have access to a number of sources of data or business intelligence, and our job is to deploy a variety of tools that we have available to us—our business intelligence tools—to look at that data, analyze it and identify cases in which we believe there is non-compliance. Some of the things we might look at are tax filings by the claimants or their payroll data as it is updated. We might look at claim periods over the course of time to see trends in terms of the amounts that are being reported as revenues drop from one claim to another, etc., all in view of identifying cases that are risky and that should be audited.

That's the approach we take. As the commissioner mentioned, that approach allows us to evolve our understanding of the risk and adjust our plans as we see the need emerge, so that we can expand our focus in some areas and reduce it in other areas, and so that we are always targeting the highest-risk files.