Thousands of businesses that received CEWS may not have been eligible

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More than 50,000 businesses that received emergency wage subsidy payments worth $9.87 billion from the federal government during the pandemic may not have been eligible for the support, Canada’s auditor general said Tuesday, raising questions about the efficiency of the program and the future potential of similar interventions.

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The Canada Emergency Wage Subsidy (CEWS) program started in March 2020 and provided remuneration to eligible employers with an aim to prevent layoffs and terminations. The subsidy was replaced in October 2021 with two new programs offering wage and rent support to employers.

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“Our analysis identified 51,049 employers … whose monthly GST/HST filings did not demonstrate a sufficient revenue drop to be eligible for the subsidy,” the auditor general’s report stated.

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The report added that if the estimated potential ineligibility rate of 15.37 per cent were applied to the full population, it would amount to “$15.5 billion of payments that represent a risk of being ineligible.”

The report published by auditor general Karen Hogan on Tuesday was her first look into the $210 billion in payments made via the government’s six COVID-19 aid programs during the pandemic. She said that a minimum of $27.4 billion worth of payments made during the pandemic needed to be investigated.

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“I am concerned about the lack of rigour on post-payment verifications and collection activities,” Hogan said in a statement.

“The Canada Revenue Agency and Employment and Social Development Canada need to act now to expand their post-payment verification plans to include all recipients identified as being at risk of being ineligible for benefits, then the department and agency need to carry out their plans and recover COVID-19 benefit amounts owed.”

Dan Kelly, chief executive of the Canadian Federation of Independent Business, said that the auditor general’s numbers weren’t a “shock” since the government, at the start of the pandemic, was focused on getting “money out the door” to support struggling businesses.

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“I think there is no question that there were some problems with the early version of the wage subsidy,” said Kelly. “Many of the problems stem from the early months of the pandemic before the government started to listen and put in a better approach…. The problems started to go away then.“

Brett House, an economist and fellow at the Ottawa-based non-profit Public Policy Forum said that “speed and scale were very critical in the wage subsidy program.” But he added that the challenge is to “create the infrastructure and the platform” with more diligence.

Certain businesses whose revenues declined due to the pandemic were eligible to apply for CEWS, a program geared to cover part of the cost of employee wages.

Some have argued that programs like CEWS could have a permanent role to play in the economy, kicking in during downturns to reduce the risk that temporary layoffs lead to longer-term, structural problems in the labour market.

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House sees the potential for CEWS as part of an ongoing conversation about employment insurance reform. Job sharing has been a beneficial tool to split full-time positions into more part-time positions to keep more people employed and engaged in the workforce, he said. Once people are out of work, it does not take long before getting back in the permanent workforce becomes a challenge.

“(It’s) not just a wage subsidy to keep people employed, but to keep more people engaged in the workforce…. Beyond the six-week point (where someone is out of work), their capacity to get back in the workforce falls precipitously,” House said.

Michael Smart, a professor of economics at the University of Toronto, said the auditor general’s report as a whole was “good news and bad news.”

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“The bad news is that they identified some cases where people got paid, and we cannot be sure they deserved to get paid,” Smart said. “That’s not good, but it is not surprising.”

The upside was that, overall, the excess spending was limited.

“There was bound to be some people who got paid and didn’t deserve to get paid. If that only affects 10 to 15 per cent, then it is not that big a deal,” he said. “Billions of dollars, to be sure, but still not that big a deal.”

In December 2020, a Financial Post investigation revealed that dozens of publicly traded companies continued to pay out dividends while receiving CEWS. At the time, the government had not disclosed which companies were receiving the benefit.

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