Tax agency lacked tools to keep wage subsidy away from ineligible employers: AG

·4 min read
As of March 21, the Canada Emergency Wage Subsidy had paid out $71.48 billion. (Erik White/CBC  - image credit)
As of March 21, the Canada Emergency Wage Subsidy had paid out $71.48 billion. (Erik White/CBC - image credit)

Canada's auditor general says the Canada Revenue Agency lacked controls and the up-to-date information it needed to properly assess applicants when the federal government launched its wage subsidy program at the start of the pandemic — putting the integrity of the program at risk.

In a new report released today, Auditor General Karen Hogan said CRA needs to bolster its tax compliance wing.

Hogan today tabled three performance reports in the House of Commons on the government's response to the COVID-19 pandemic. One of those audits looked at the Canada emergency wage subsidy (CEWS) — a program that, when it was first launched a year ago, subsidized up to 75 per cent of wages for workers who were kept on their employers' payrolls.

To get the program out the door as quickly as possible, the CRA was only able to conduct limited tests before approving payments, said the audit.

"Without effective controls for validating payments, the integrity of the program is at risk and ineligible employers might receive the subsidy," said the audit report.

The AG also said CRA did not have all up‑to‑date earnings and tax data when assessing applicants.

For example, 28 per cent of applicants did not file a GST/HST return for the 2019 calendar year.

"We noted that the subsidy was paid to applicants despite their history of penalties for failure to remit and other advance indicators of potential insolvency," said the audit.

"Indeed, the agency held no legislative authority to deny access to the subsidy on the basis of an employer's history of non‑compliance with tax obligations.

Auditor General Karen Hogan holds a press conference after releasing a report in Ottawa on Thursday, Feb. 25, 2021.
Auditor General Karen Hogan holds a press conference after releasing a report in Ottawa on Thursday, Feb. 25, 2021.(Sean Kilpatrick/The Canadian Press)

"It is our view that this situation presented a risk that the subsidy program would not achieve its goal of maintaining the employee‑employer relationships needed to support economic recovery because it may have subsidized applicants that were operating non‑viable organizations."

Hogan wrote in a press statement that the sprint to get the program launched highlighted existing weaknesses within the CRA.

Her team reported that the 273 employees the CRA had enforcing GST/HST delinquent filer compliance earn about $27.7 million in total annual salary — but had a fiscal impact of $3.2 billion for the 2019–2020 fiscal year.

"These amounts represent a return on investment of more than 100 to 1," said the audit.

"The fiscal impact includes the federal tax, provincial tax, interest and penalties collected. Given the good return on investment, we encourage the agency to do more of this work."

National Revenue Minister Diane Lebouthillier said the CRA is committed to following the AG's recommendations by, among other things, strengthening tax compliance.

She said more audits are underway to make sure there is no abuse of the program.

Separate audit looked at CERB

The team of auditors also found the CRA didn't take steps to prevent Canadians from receiving both the wage subsidy — which as of March 21 has paid out more than $71 billion — and the Canada emergency response benefit (CERB).

"The agency decided that it would not ask employers applying for the subsidy to provide their employees' social insurance numbers, though this information could have helped the agency prevent the doubling-up of financial support," notes the audit.

In a separate audit, Hogan also looked at the CERB program, which paid $2,000 a month to millions of Canadians who were either out of work or had lost work due to the pandemic. The most recent figures show the program, which was wound down last fall, had spent about $74 billion as of 4 October 2020.

Hogan said that while the federal government will have to check up on Canadians who received emergency benefits during the COVID-19 crisis, it did well to get the money out the door and into Canadians' wallets quickly.

Federal departments relied on applicants' attestations — that they did not quit their jobs voluntarily and that they had stopped working because of the COVID-19 pandemic — when the emergency benefits were issued.

Hogan's team found that the government knew that relying on applicants' honesty and limiting the number of prepayment controls meant some payments would be issued to people who were not entitled to the benefit. She said accepting a degree of risk in order to get help to those in need was consistent with international best practices.

Employment and Social Development Canada and Canada Revenue Agency said they are working on collecting ineligible payments.