Don't be so quick to judge CERB recipients as fraudsters, experts say

The topic of fraud surrounding the Canadian Emergency Response Benefit (CERB) has been one of the top stories in Canada since the pandemic began, but the coverage might be overblown given the success of the program, one expert says.

According to government statistics, almost 6.73 million Canadians had filed for the CERB by mid-April. The CRA estimates a fraud rate of 1 to 2 per cent in high-risk programs similar to CERB, which would mean approximately 67,300 to 134,600 potential fraud cases. Taking into account the benefit is available for 16 weeks, that means there could be potential losses of $673M to $1.34B due to fraud. But, in this case, the estimates could be a little higher than expected, according to UBC Economics Professor Kevin Milligan.

“My analysis of the Labour Force Survey data suggests that well over 6 million Canadians who were employed and at work lost that status in March and April. This lines up fairly closely with the administrative counts of CERB recipients, suggesting fraud is not widespread,” he said.

The Liberal government is proposing legislation that would punish fraudulent CERB applicants who intended to cheat the system. The penalties could range from a fine of up to $5,000 to imprisonment for up to six months, as well paying back the income support claimed.

Yahoo News Canada reached out to the CRA following many claims from small business owners that people were trying to game the situation to get the $2,000 benefit.

In a tweet, Aaron Wudrick, Federal Director of the Canadian Taxpayers Federation, said he received an email from someone suggesting an individual filed CERB claims in his horses’ names.

The CRA has said that without a valid social insurance number, it would not be possible for a claim to be approved.

While Wudrick and the media have focused a lot of their attention on CERB fraud, there has been little discussion about a much larger problem plaguing Canadians: tax evasion.

In May, the CRA claimed that $4.4 billion was being hidden by companies and individuals in tax evasion cases.

The number pales in comparison to the 2018 figure the CRA established the richest Canadians are hiding in foreign countries to avoid paying annual taxes: $240.5 billion.

Milligan, who is one of Canada’s top minds on the economy, feels it’s easier to judge CERB recipients rather than those hiding millions abroad.

“The way humans judge fairness is complex, and sometimes we are more interested in what our own neighbours are doing than in others who are very different than us,” Milligan said.

While it’s easy to bash CERB for making itself open to fraud, Milligan maintains the rollout was done without delays and in a manner in which Canadians who needed money could receive it promptly.

“My greatest concern going into the CERB rollout was delays in delivery of benefits to families who needed it. I think the administrative process ended up being fairly quick,” he said.

As of June 3, nearly 8.37 million Canadians had applied for the stimulus money, meaning that nearly a fifth of Canadians were out of work due to COVID-19. While looking at CERB in a reflective sense, Milligan notes all programs will have some problems, but the handling by the federal government eased some pains.

“As an emergency program, I think it was viable and mostly effective. Some weakness on 'effectiveness' comes from people who were in difficult circumstances who fell just outside the rules for being eligible,” he said.

Safeguards against fraud

While there is concern about fraud, the CRA said they’ve installed some safeguards against limiting double dipping, so people couldn’t get four months of CERB, and then receive the Canada Emergency Student Benefit.

“We exchange files with Service Canada, so if somebody applies with the CRA we make sure that they haven't applied with Service Canada,” they said.

Seniors’ accounts were flagged to ensure they weren’t being taken advantage of after dozens were scammed.

“We lock their account and require the taxpayer to contact us to provide more information to validate their claim,” they wrote.

The agency is working with numerous collaborative internal and cross-government groups to track fraud and suspicious activity. It won’t be until next year that the CRA will be able to perform audits and recoup some of the fraudulent claims or ascertain how many were not valid.

“To maintain the integrity in the tax system, we are introducing additional reporting requirements for T4 slips which will allow us to compare payroll records with information provided by claimants in their applications. This will assist us in verifying that those who received payments were eligible,” a CRA representative wrote in an email response.

For those who are cheating the system, Milligan insists that it isn’t the brightest thing to be doing, as eventually they’ll catch on.

“I have confidence that the CRA will be able to adjudicate cases of incorrect or fraudulent receipt of CERB in the months that come and at tax time next year,” Milligan said.

Counting on the honesty of Canadians

To manage the high number of cases it’s receiving, the agency’s approach has been to approve all the claims that were made by placing the onus of responsibility on Canadians.

“The CRA knows that in general Canadians are honest. Over the years, we have seen a very high voluntary compliance rate from Canadian taxpayers with only a very small percentage trying to cheat the system,” the agency wrote in an email.

The agency indicated they will be relying on information from previous tax years to “determine whether claimants met the income threshold.”

Anyone who fails to determine if they are indeed eligible will be required to pay back the money. The agency says 70,000 people have used the repayment option on their Service Canada account so far, even with limited promotion of the service.

“We expect more of those who are ineligible will voluntarily pay it back before we need to contact them,” they wrote.

The agency normally has around 3,000 employees working during tax season, but it received a significant boost by more than doubling its workforce to approve CERB payments.

“Over 7,500 CRA current employees, working on other non critical files, offered to become temporary call centre agents, many working from home. In fact, it was beyond our current needs, meaning we selected the most uniquely qualified based on skillsets, many of whom have previous work experience in our call centres. The CRA has mobilized like never before to put in place sweeping measures to help Canadians in these unprecedented times.”