Public Accounts Committee on Feb. 2nd, 2023

[Bob Hamilton]

Mr. Chair, I can start that one, and Marc may....

As we said last week and now again today, the compliance efforts are still in the early stages. We are going to be continuing these out to 2025. It's very difficult to know what will be left at the end of the day, because our risk-based approach does get adjusted as we move along. We might see things in a particular audit that we do that points to a risk we maybe hadn't seen, so we would adjust our algorithms and our approach going forward.

The point is that, at the end of the day, there will probably be some that don't get looked at because they wouldn't be cost-effective for us to go after. It's very hard to say what that will look like now.

[Adam Chambers, Conservative, Simcoe North, ON]

There is some kind of return-on-investment discussion happening. I'm just trying to understand. What's the level of risk that we're taking, or what's the level of nonrecoupment of potential ineligible recipients that we're trying to get?

Any kind of information that you can provide about how much you've looked at so far, how much you've recovered, what that looks like and what you're planning to do until 2025 would be very helpful for the committee.

[Bob Hamilton]

We can come back to you with more information on that. We do have figures at our disposal about how much has been repaid now and how much we've looked at.

I mentioned last week, in the context of the wage subsidy that we've done over.... Again, it's a graduated approach. We look at everything at the beginning just to see what's there, and then we do audits. We did a pilot phase. We have now done over 4,000 audits. At the moment, we have over $15 billion that we are looking at, and that will continue for the next few years as we complete the process. We put that into—

[The Chair, Conservative, John Williamson]

Thank you. That is the time. I'm sure we'll come back to this line of questioning.

Mr. Dong, you are up next. You have the floor for six minutes.

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

Thank you very much, Chair.

First of all, I want to extend my sincere thanks, through the staff of the CRA, to everyone who worked on the front line and implemented the CRA's various benefits. Thank you very much.

I remember vividly the conversation I had with a young individual who was homeless at the time. I think it was during the first two weeks of COVID's hitting us. I saw this young man. He was in the cold, and I was concerned about him. I went to buy some food to give to him. I asked him how come he was outside and not in the shelter, but the shelter had shut down. There were hundreds if not thousands of individuals like him at the time in Canada who didn't know what to do.

I remember two things, two feelings that I had in my mind. It doesn't matter if you were a politician, a bureaucrat, a person with a job or a person without a job, we were equally vulnerable to COVID risks without the protection of the vaccine at the time. We were equally important. Our health and safety is equally important, because the virus is so contagious that it could affect anybody in the country.

To you, Commissioner, can you describe the importance of getting these supports out to the public and making sure that those Canadians at risk didn't have to worry about going to work to earn that payment to feed their family at that time? How important was it to Canadians as a whole in the first, say, few months of COVID, when we didn't know enough about the virus and how to protect Canadians from it?

[Bob Hamilton]

I would say that it was, obviously, very important to Canadians, but that's reflected in the attestation-based approach of the government in trying to find ways to get the money to the people who needed it as quickly as possible. We were in an extraordinary situation. People were, as you said, in need of these benefits, and one of our main jobs at that moment was to get them out as efficiently as we could.

I think it's been acknowledged that we did a good job of that, despite the fact that we within the agency were—as were those at ESDC—battling COVID ourselves amongst our workforce. It was having an impact on all of us in our lives. We basically had to have most of the staff work remotely, and that was a different situation.

While we were doing that, we still felt that it was really important to have processes in place so that we could get the money out in an efficient and timely manner. We did focus a lot on things like making sure that our web page and that our application process was as smooth as possible. We definitely had to do some verification up front, and that is noted by the Auditor General. It was probably a little lighter on verification up front than a normal program for us, but we knew we would have the opportunity to come back afterwards.

I think that was really key for us, and I would just say that it didn't end in those first few months. Even if you start talking about our compliance efforts as we recognized that maybe some people were getting money that they were ineligible for, we tried to approach that with an empathetic approach, not forgetting about those but also trying to recognize the sensitive situation people were in and to have that reflected in our compliance efforts.

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

It was at a time when the government decided that people's lives and safety were number one. Did the CRA have a process or system at the time that did prepayment verifications, something you could just pick up and start right away in the COVID situation? Did you have anything like that?

[Bob Hamilton]

No. We had to build it, basically. You can take bits and pieces from things we have done, but essentially, that was part of the challenge for us. In a matter of weeks, we had to get this system up—in an area that we wouldn't normally be administering in—and get the payments out.

Let's say you were increasing the GST credit or the Canada child benefit. We have a system in place, and we could use that. However, for this, it was something that we had to create. That's why I say we had very innovative approaches in terms of how we set up our website and how we set up the application process, but it all had to be stood up very quickly.

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

I think this is a very important point. We know that a lot of Canadians live cheque to cheque, and they need their biweekly payments to support their families. Had there been no support at all from the federal government, say, in two weeks or four weeks, I don't know how these families could have survived COVID because, obviously, a lot of businesses had to shut down or be suspended for a time.

Without such a system in place, was it even possible for the CRA to come up with a prepayment verification and at the same time deliver the support as fast as it did?

[Bob Hamilton]

Yes, it was possible because key for us at the CRA is also the integrity of the system. Yes, we need to be timely and to serve the needs of Canadians, but we have to be concerned about the integrity in the system. We did have some prepayment controls up front, and we actually changed them over time, reflecting what we were seeing out there. We had an opportunity to improve them, and we did. At one point in the year, we got tax data from the previous year. That allowed us to go and check the tax information. That was in about July, I think, of that year.

It wasn't like we had it in March 2020 and then didn't do anything with it. We evolved it and improved it somewhat. I mean, there still were gaps, and the Auditor General is absolutely right that it wasn't a perfect prepayment system, but we did—

[The Chair, Conservative, John Williamson]

I'm sorry to cut you off, but I think you responded. I do want to move things along here. I'm sure we'll come back to that as well.

The next speaker is Ms. Sinclair-Desgagné.

You have the floor for six minutes.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Thank you, Mr. Chair.

I'd like to thank all the witnesses who travelled today to attend our very important meeting.

I'll begin with a crucial issue that has not been yet been discussed much here, namely fraud involving identity theft, which accounted for a significant amount of the funds claimed from the CERB. This money was misappropriated from public funds.

I'd like to hear more about this from the Auditor General of Canada.

We are aware, Ms. Hogan, that this was not the main focus of your study. However, I'd like to know what you found in terms of the scale of funds pocketed fraudulently via identity theft from the CERB.

[Karen Hogan]

Towards the end of our audit report, we listed a number of circumstances in which the Canada Revenue Agency and Employment and Social Development Canada exposed cases of fraud. We deemed that they had taken the measures required to deal satisfactorily with these instances of fraud. As you mentioned, our audit was not conducted with a view to finding cases of fraud. However, we identified some recipients who were probably not eligible, because they did not meet the criteria. In the samples we identified, there may be instances of fraud that will require closer review. However, there may also be mistakes made in good faith by applicants. The first step will be to identify those who were ineligible for these benefits. A decision would then have to be made and follow-up action taken to recover the money if required.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Right. Thank you.

Do you feel that there should have been verifications as the program was rolled out? It began in 2020, and we are, after all, in 2023 now.

Should there not have been regular and strict checks throughout the process?

[Karen Hogan]

Yes and no. It needs to be seen in context.

At the beginning of the pandemic, the deadline for submitting personal income tax returns was extended. That meant that the Canada Revenue Agency and Employment and Social Development Canada did not have the required information. That information was not requested when benefit claims were made, because they were personal attestations. Very little 2019 information was available. We found that once the information had been received, the CRA had introduced another form of controls to verify recipient income. In our audit, we found that they stopped payments made in error but did not proceed to recover the amounts paid out.

However, these measures were not used when the 2020 tax returns were received. The system was in place, but was not applied consistently. That's when the Canada Revenue Agency ought to have done careful verifications for recovery purposes.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

All right.

You mentioned several times in your report that the Canada Revenue Agency was lagging behind in conducting verifications. And yet, at the last meeting, Mr. Hamilton said that it was too early in the process to do an estimate of the amount of funds paid to ineligible recipients.

What do you think accounts for these conflicting opinions?

[Karen Hogan]

It's true that we can't know exactly how much was paid to recipients or businesses that were ineligible without doing some post-payment verifications. That's why I feel that the CRA should do more checks, because it's the only way to determine whether a recipient or business was eligible.

There were several causes of the backlog. As I mentioned in my opening address, early in the pandemic, the government decided to extend the deadline for submitting personal income tax returns. This government decision was based on information in hand at the time. There is now a legislated deadline that needs to be taken into consideration. To determine whether what was involved was fraud, a deliberate error, or an error made in good faith, steps will have to be taken to establish the reasons before deciding what action has to be taken for recovery.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

Okay. There is one thing for which I'd like clarification.

Is the verifications backlog the result of a shortage of resources or a lack of will?

[Karen Hogan]

I can't comment on intentions. That's a matter you could ask the two deputy ministers who are here.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

You don't have an opinion on that.

[Karen Hogan]

I can see that there was a delay because they didn't have all the required information. However, I would have liked the programs and verifications to have been adjusted when the programs were in progress.

[Nathalie Sinclair-Desgagné, Bloc, Terrebonne, QC]

I will accordingly ask Mr. Hamilton the same question.

Was the delay the result of a lack of resources or will.

[Bob Hamilton]

We made every possible effort. We determined that there was an increase in fraud because there were greater incentives to defraud. We implemented a number of fraud detection measures.

There are different types of fraud. Some are more serious than others. We froze a number of accounts in instances for which we suspected there had been fraud. We therefore had the will to do something about it.

It is nevertheless true that the number of instances of fraud increased during this period.

Perhaps Mr.…

[The Chair, Conservative, John Williamson]

I'm sorry, but once again, the speaking time is up.

Mr. Desjarlais, you have the floor for six minutes, please.

[Blake Desjarlais, NDP, Edmonton Griesbach, AB]

Thank you very much, Mr. Chairman. I'd like to thank all the witnesses for being present here today.

I want to start by mentioning how concerned I am in regard to an audit like this, one that I think puts regular working class, middle-class Canadians in the crosshairs of the CRA, especially in light of our testimony from the commissioner last week in relation to my question about corporate tax avoidance.

We're facing a unique issue here where we have limited resources. We have finite resources, as much as we'd like to think about the CRA being able to do everything and all things. The reality is that it's a finite resource, and the folks who were able to administer these supports during that time did a remarkable job of getting supports to regular working-class, middle-class Canadians at a time when lots of folks were really nervous about what their tomorrow was going to look like.

I just want to back up for a second and remind folks that this was a time when our economy literally came to a standstill. We had folks who didn't know how to pay rent. We had parents who are now with their kids and couldn't go to work. We had serious interruptions in the everyday lives of Canadians. They were really scared of what they were going to do if they lost their jobs.

During that time folks may remember that this was one of the only lifelines for those who would otherwise lose their homes, lose their cars, lose so much, because they weren't getting paid. This critical support was important for thousands of Canadians. Yes, some folks made mistakes. That is a true fact. Many made mistakes, but these in many ways were the honest mistakes of folks who were scared.

With the limited resources at the CRA, we can't avoid the fact that we have billions of dollars—billions—in corporate tax avoidance. We talked just last week when the CRA commissioner was here about the numbers: $4 billion to $7 billion in lost revenue between 2014 to 2018 in corporate tax avoidance. That's money that should be going to schools, hospitals, roads, our public health care system—real things Canadians rely on. When we're talking about the efficacy and efficiency of our CRA system and the systems that Canadians should be trusting, these are some of the questions Canadians have.

When I go and talk to folks about what's the most important thing on the CRA's agenda, yes, the CERB payments get brought up, for sure. Some people, of course, took those payments when they weren't eligible to. Our tax laws should permit fairness in that. The Auditor General made mention of the importance of making sure there's tax fairness, but where's that fairness when it comes to some of these corporations that are gouging Canadians out of billions of dollars?

I just want to put that on the record here today. What we're really talking about is trying to recoup funding that Canadians are owed, and some of the biggest losses are by corporations that avoid paying their taxes.

I asked the CRA commissioner last week about how we can prioritize this, particularly because the CRA was already doing so much work. This was during 2014 to 2018 when there was a capacity issue of trying to get that tax avoidance going—then COVID, and now this. I'm concerned about the capacity here and how CRA will actually be able to do the work of making sure that all of these cases can be reviewed. If it becomes a question of which ones we have to prioritize, I say we go after the ones where the opportunity costs are greatest, and that's with corporations.

We talked about the opportunity costs here. I'll ask a question maybe directed to the CRA about some of those opportunity costs. My question, of course, would be to Commissioner Hamilton. You might remember, during our meeting just last week, you acknowledged that there's an opportunity cost to where the CRA applies its limited resources, and that corporate Canada is dodging billions of dollars in taxes every single year.

How do we actually square that circle? How do we focus on both recovering the pandemic benefits, while also making sure that, with these corporations that have largely benefited during this same time—when regular working class and middle-class folks were suffering—we have the kind of capacity the CRA needs to do its job in a credible way that Canadians can trust when considering both cases? There's one where we have billions of dollars in tax avoidance in this area. The opportunity costs of going after that would be great for Canadians. This is versus going after little old ladies who may be over their limit.

When the New Democrats fought for this plan, we fought to actually use the tax system to be able to do this, a much easier system in the model of our “guaranteed livable basic income” work, making sure we used the existing tax system to recoup some of those funds. Those would have been good solutions, and now we're dealing with this.

I digress in some ways.

Commissioner Hamilton, how has your department been monitoring, since 2018 to 2022, some of the corporate tax avoidance?