Briefing binder created for the Deputy Minister of Finance on the occasion of his appearance before the Standing Committee on Public Accounts on December 9, 2024 on the Auditor General of Canada's report 8, entitled “Canada Emergency Business Account” - part 1

Opening Remarks

Issue

Opening remarks for the Deputy Minister at House Committee on Public Accounts on December 4, 2024.

Opening Remarks

• Thank you for the invitation, mister chair, to speak with the committee today on the audit of the Canada Emergency Business Account program.
• I would like to thank the Auditor General and her team for her work on this file. They worked closely with our team as they put the audit together. 
• There are four specific recommendations for my Department, and I will come back to those.  I would first like to note, however, that the context in which this unprecedented program was delivered, as its impacts on the Canadian economy are absent from the audit.  The CEBA program made an important contribution to ensuring the resilience of the Canadian economy during the pandemic and its aftermath.  
• In the spring of 2020 the Government  quickly stood up this program whose goal was to ensure that Canadian small- and medium-sized business could survive the pandemic.
• No government department was positioned to deliver a program of this size and scale; EDC was selected given its expertise in loan delivery and administration, as well as the possibility to use the Canada Account to fund CEBA transactions.
• At launch, the economic situation was highly uncertain. As more became known and in response to the evolving needs of businesses during this time, CEBA was rapidly expanded and fine-tuned over the course of 2020.
• For instance, after stakeholders such as Indigenous groups flagged that not all businesses use business accounts, the requirement for a business account was removed. After agriculture groups, among others, flagged that some businesses do not have significant payroll expenses but does have other non-deferrable expenses, the non-deferrable expense stream was created. After groups such as the Canadian Federation of Independent Business highlighted the need for additional support, the amount of CEBA loans available expanded from $40,000 to $60,000.
  • In the end, the total CEBA loan amount available was $60,000, program applications were open from April 2020 to June 2021, and the deadline to repay the loan and receive partial forgiveness was January 18, 2024 (or March 28, 2024, for those that applied for refinancing with their financial institution on or before January 18, 2024).
• Loans that were not repaid by the forgiveness deadline have been converted to three-year loans at a 5% interest rate. The final deadline for loan repayment for all remaining loans is December 31, 2026. However, collections activities by the CRA have already begun for loans that in default – for example when loan holders are not making their monthly interest payments, or ineligible loan holders that did not repay by the deadline.
• An important point is the timeliness of the support delivered under the CEBA program.  Business insolvencies, particularly for small businesses, were dramatically reduced during the first two years of the pandemic – a reduction of nearly 25% in 2020 and a further 11% in 2021. Over 55% of CEBA loan holders reported that the amount received from CEBA was necessary to maintain their operations during the pandemic.
• It is also positive that over 80% of loan holders fully repaid their loan by March 2024, and received partial loan forgiveness. Repayments have continued, and the current outstanding balance dropped from $8.5 billion at the end of March to just over $8 billion at the end of November, even though the final repayment deadline for eligible loans is only December 31, 2026.
• In their report, the Office of the Auditor General (or OAG) provided Finance Canada with four recommendations. We agree with three of them – to consider appropriate actions for potentially ineligible loan holders identified by the OAG, to prepare analysis to support the development of a complete plan for CEBA, and to work with Global Affairs Canada to clarify the lead for program activities.  However, Finance Canada disagrees with one recommendation – that Finance Canada addresses the accountability and oversight gaps of the CEBA program, including oversight of administrative expenses; and we have several concerns with the report.
• For instance, while the OAG has taken issue with the oversight of administrative expenditures, it did not evaluate how reasonable those expenditures were. Over the lifecycle of the CEBA program, average annual administrative costs have accounted for 0.84% of overall expenditures. When compared with other government loan programs, the administrative costs of the CEBA program were significantly lower than others offered by EDC, Business Development Canada, and Farm Credit Canada, which range from 0.96% to 1.73%.
• Also, as I noted before, the CEBA program was highly successful from an economic effectiveness standpoint, driven in part by the speed at which loans were disbursed. The OAG makes no evaluation of the economic effectiveness of the CEBA program, leading to missing context and an incomplete evaluation of value for money.
• The Auditor General's report raises an important question about the current oversight and accountability mechanisms around the Canada Account and whether they are well-suited for the management of a large Government program such as the CEBA program.  We do agree that there are likely opportunities to improve the oversight of Canada Account transactions, like CEBA.
• That being said, Finance Canada disagrees with the recommendation that Finance Canada should address the accountability and oversight gaps for the CEBA program, including oversight of administrative expenditures that are paid through the Canada Account. It must be noted that EDC, as the program administrator, was responsible for its own decisions regarding administrative expenditures. Finance Canada does not have the legislated authority to evaluate or provide direction on those expenditures, and as such cannot agree to the recommendation.
• Thank you, I'd be happy to take your questions.