The Liberal government dished out an estimated $3.5 billion from the Canada Emergency Business Account to businesses that did not meet the program criteria.
The Auditor General tabled a report on Monday criticizing the Liberal government’s management of the CEBA program, highlighting flaws in oversight and spending.
According to the report, $49.1 billion in loans were distributed to small businesses to cover expenses that could not be deferred during COVID-19’s business closures.
“Of those loans, 91% went to eligible businesses. As of 31 March 2024, approximately 83% of the total loan amounts originally disbursed had been repaid, with a portion forgiven. Based on our audit work, we estimated $3.5 billion went to ineligible recipients,” reads the report.
Karen Hogan, the Auditor General, highlighted some of her concerns during a press conference on Monday.
“Regardless of the situation, and I’ve said that before, the pandemic wasn’t a reason to throw rules out the window,” she said. “I would expect a basic level of due diligence and monitoring of expenditures, regardless of whether a pandemic exists.”
She said there were positives, given that $49 billion was quickly rolled out to small businesses. However, she was concerned that Export Development Canada relied too heavily on one vendor—Accenture—to deliver the program, and the two departments monitoring it failed in their oversight responsibilities.
Hogan said that 92% of the noncompetitive contracts were awarded to Accenture at a value of $342 million. She added that Export Development Canada gave Accenture too much control over key aspects of the contracts, like the scope of work and pricing.
“We identified several problems with this process, including the fact that Accenture had a commercial interest in the outcome of the selection but was designing criteria and evaluating vendors. In our view, this was a conflict of interest that EDC did not manage,” reads the report.
The Auditor General said that the Department of Finance Canada and Global Affairs Canada did not effectively oversee that the program was managed with “due regard for value for money.”
“As a result of unclear roles and responsibilities, neither department took accountability for the program, leaving many basic program elements, such as program lifecycle planning, either delayed or incomplete,” said Hogan, “Further, the Department of Finance Canada did not provide effective oversight of EDC’s administrative spending. No overall spending limits were set, and it did not challenge administrative spending on the program.”
Initially, one in five Canadian restaurants faced closure over their inability to repay CEBA loans.
CEBA loans initially offered interest-free loans up to $40,000 for small businesses and not-for-profits. The amount was increased to $60,000 on December 4, 2020.
Approximately 25% of the 898,271 CEBA loan recipients missed the deadline to repay the loan by Dec. 21, 2023.
The government’s decision not to extend the CEBA deadline was “the straw that broke the camel’s back,” said Simon Gaudreault, chief economist and vice president of research at the Canadian Federation of Independent Businesses.
Hogan said that CEBA is a loan program unlike others because it will continue for several years. As of Mar. 31, 2024, $8.5 billion in loans remained outstanding.
“Some repayments are ongoing, while taking action on defaulted loans has just started. We found that EDC’s plan to collect defaulted loans lacked forecasted costing, performance management, and other key elements,” said Hogan. “The Canada Revenue Agency, which is supporting EDC in collection efforts, had a more detailed plan but was missing targeted timelines.”
The interest-free loans of $40,000 to $60,000 were provided to eligible businesses. Up to $20,000 was forgiven if the rest of the loan was repaid on time.
Across the country, 898,000 small businesses received $49.1 billion in loans. Of the total, around $45.6 billion went to recipients that the Auditor General deemed eligible.
The bureaucratic costs to administer CEBA were $853 million as of Mar. 31, 2024, including $575 million to financial institutions and $248 million to Export Development Canada to administer the program.
Only 57.2% of the loans, or $28.1 billion, have been repaid. Over a quarter, $12.4 billion, was forgiven, while 17.3%, $8.5 billion, remains outstanding.
Hogan said 77,160 ineligible recipients, or an estimated 9% of total loan recipients, received around $3.5 billion.
The Auditor General offered various recommendations in her report.
“Export Development Canada should work with the Department of Finance Canada to consider appropriate actions, including legal implications and options to recoup loan forgiveness from ineligible small businesses. Export Development Canada should then identify the full population of ineligible recipients in the non-deferrable expenses stream,” reads one recommendation.
“I am concerned that EDC only partially agreed with our recommendation that it should carry out additional work to identify all ineligible recipients and recover the amounts involved,” said Hogan.
