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 12
Questions and Answers
Issue
This issue note contains all the questions and answers from the rest of the briefing binder.
Anticipated Questions and Answers
Background
1. Did the CEBA program help small businesses during the pandemic?
Yes, it was a very effective pandemic support program. Statistics Canada surveys and data show that 55.9% of businesses who received a CEBA loan reported that the CEBA loan was necessary and sufficient to extend operations during the pandemic, while 26.1% reported that other forms of government support were required. Corporate insolvencies in 2020 and 2021 dropped nearly 25% compared to 2019. These data suggest that the CEBA program, alongside other government support programs, played a critical role in providing liquidity for businesses and preventing unplanned business exits in the pandemic context.
2. What happened to businesses that did not repay by the applicable deadline?
EDC is best placed to respond to this question.
(If pressed)
The loan holder has interest payment obligations, which accrues at 5%, and their principal is due December 31, 2026.
If the loan holder does not meet their interest payment obligations, the financial institution that issued the loan will undertake efforts at collection. If the loan holder has still not repaid, their loan will be assigned to the CRA for collection efforts.
The CRA will work with each business to determine its ability to repay, emphasizing fairness, empathy, and putting people first. The CRA will review the loan holder's circumstances on a case-by-case basis and may work with them to establish a payment arrangement or repayment plan tailored to their ability to repay.
3. How many CEBA loans are outstanding?
EDC is best placed to respond to this question.
(If pressed)
The vast majority of loans (over 80%) have been repaid.
Eligible loans that were not repaid (approximately 175,000 loans) by the forgiveness deadline converted to 3-year term loans at 5% interest rate.
There are currently around 70,000 loans assigned to the CRA as they are in default (e.g., the loan holders are not acquitting their monthly interest payments on their loans or ineligible loan holders that had to repay their full loan by December 31, 2023), representing $3.4 billion in unpaid CEBA loan debt. The CRA is in the beginning phase of collections efforts, and it is expected that the number of repaid loans and payment plans will increase over time.
4. Were any CEBA loans referred to law enforcement for fraud?
EDC is best placed to respond to this question.
(If pressed)
468 loans were investigated from November 2020 to December 2023 where there was a suspicion that fraud or other illicit conduct may have occurred. A disclosure to the RCMP was made on August 4, 2022, related to 17 funded loans ($980,000). After disclosure, it is the responsibility of the RCMP to investigate and determine if charges should be laid.
5. What role did Finance Canada take in monitoring program effectiveness?
Finance Canada led work with Industry, Science and Economic Development Canada and Statistics Canada to conduct surveys of CEBA loan recipients to understand the impact of the loans on small businesses. The Department also worked with EDC to monitor the needs of small businesses during the pandemic to inform program change, including regular communication with stakeholders including the Canadian Federation of Independent Businesses (CFIB), and monitoring data on corporate insolvencies and business exits.
Costs/Administrative Fees
6. What are CEBA administrative costs incurred by EDC and CRA?
EDC is best placed to answer this question.
7. What are the total administrative costs for CEBA (including FI fees)?
EDC is best placed to answer this question.
(if pressed)
Administrative costs (including FI fees)
Incurred - $871 million (March 2020 – March 2024)
8. Why were fees paid to financial institutions?
This was a voluntary program for FIs to participate in and these fees compensate the FIs for the issuing of the loans, communications with loan holders, and initial collection activities. Financial institutions have been paid 0.41% on a quarterly basis for managing the CEBA loans, as determined by a third-party fairness opinion. As of September 2024, FIs have been paid approximately $608 million.
9. Why didn't the Department oversee EDC administrative costs for CEBA?
There is no legislative authority that allows Finance Canada to override the decision-making of a Crown corporation over its operations. While the Export Development Act provides that the Minister of Finance can authorize EDC to recover expenses and overhead, the Act does not allow the Minister to specify which expenses are eligible. The Minister likewise cannot set EDC's budget for its administrative costs; the Minister can only specify through the Ministerial Authorizations how EDC is to recover the costs of program administration through repayments to the Consolidated Revenue Fund.
10. Are the CEBA administrative costs higher than other programs?
There is no example of a loan program with similar scale (e.g., nearly 900k loans, $49 billion), urgency (e.g., pandemic), and sensitivity (e.g., vital for economic interests of Canada). That said, EDC administrative costs as a ratio of assets (i.e., the amount of loans, $49 billion) were substantially lower than other comparable loan programs – administrative spending, including fees paid to FIs, totalled just 0.84 percent of the overall program budget, compared to between 0.96 per cent and 1.73 per cent for other loan programs administered by EDC, Business Development Canada and Farm Credit Canada. Also, CEBA administrative costs are not relatively high compared to administrative costs for other Government of Canada programs.
11. Why did Finance Canada not establish a budget for the CEBA program at the outset?
CEBA was introduced in the beginning days of the COVID-19 pandemic. At that time, how the pandemic would evolve or how long it would last was unpredictable.
As the pandemic developed, CEBA was repeatedly adjusted to ensure it best responded to the needs of small businesses. This included expanding eligibility, lengthening the time to apply for CEBA, increasing the amount businesses could borrow and extending the dates for when the loans had to be repaid.
Each change to the CEBA program resulted in additional administrative expenses, costs which could not have been forecasted at the beginning. Once program requirements were stabilized, EDC – in its role as program administrator – developed overall budgets and forecasts and shared those with Finance Canada to inform ongoing policy development. While the changes made it harder to control costs, EDC nevertheless managed to hold spending to 0.84% of the overall program budget, lower than comparable programs.
12. Was Finance aware of escalating administrative costs for the CEBA program?
Forecasted administrative costs did increase over the course of the CEBA program, as the program became more complex, and as it was adapted to the evolving needs of loan holders (such as the call centre to provide information), and as requirements around collections activities became clear. However, these costs have always tracked with increasing needs and have remained less than comparable programs.
EDC – in its role as program administrator – kept Finance Canada officials informed of administrative costs incurred through monthly reports. They also developed overall budgets and forecasts and shared those with Finance Canada to inform ongoing policy development.
Administrative costs as a ratio of assets is substantially lower for CEBA than other comparable loan programs. EDC's administrative annual spending averages 0.84% of the overall program budget over the expected life of the CEBA program, compared to between 0.96% and 1.73% for other loan programs administered by EDC, Business Development Canada and Farm Credit Canada.
13. The OAG report makes clear that EDC, in the early days of the program, indicated to FIN officials concerns that it did not have the capacity to undertake such a program. At what official levels were these discussions happening? What did FIN do in response to these expressed concerns?
These discussions occurred at various levels of senior management. Prior to and after the launch of the CEBA program, departmental officials at various levels were meeting daily with EDC officials.
It was well understood at the time that EDC would need to rely on a third-party to deliver the program. However, there were no other reasonable alternatives identified at the time given the need to implement rapidly.
14. As the policy lead, FIN was aware that businesses, provinces, opposition parties were all pushing for a further 12-month extension of the forgiveness deadline for CEBA loan holders, what was the rationale to not grant that extension?
Finance Canada was aware that many stakeholders were advocating for a further extension. Finance Canada considered the views of stakeholders and the economic and fiscal environment in providing advice to the Deputy Prime Minister.
Some considerations included costs (including administrative costs) associated with a one-year extension, ability for businesses to repay (and providing the right incentives for repayment), operational considerations, as well as the current economic conditions.
Ultimately, however this was a policy decision by the government.
Economic Effectiveness
15. What role did Finance Canada take in monitoring program effectiveness?
Finance Canada led work with Industry, Science and Economic Development Canada and Statistics Canada to conduct surveys of CEBA loan recipients to understand the impact of the loans on small businesses. The Department also worked with EDC to monitor the needs of small businesses during the pandemic to inform program change, including regular communication with stakeholders including the Canadian Federation of Independent Businesses (CFIB), and monitoring data on corporate insolvencies and business exits.
Canada Account
16. What is the Canada Account?
The Canada Account supports transactions in line with EDC's mandate that exceed the financial or risk capacity of EDC's corporate account but are deemed to be in the national interest. EDC administers Canada Account transactions on behalf of the Government with funding provided from the Consolidated Revenue Fund. Transactions are authorized by the Minister of International Trade, with the concurrence of the Minister of Finance, as per section 23 of the Export Development Act.
17. Why was the Canada Account used to administer the CEBA program?
The Canada Account was chosen because it was a mechanism that could provide the government with the flexibility needed to quickly stand up a large-scale loan program and EDC had existing and strong relations with the Canadian banking sector that would be needed to achieve speed of deployment and national coverage.
18. What governance measures are in place for Canada Account transactions?
Under section 23 of the Export Development Act, the Minister of Finance and the Minister of International Trade must authorize EDC to undertake transactions using the Canada Account. Ministerial authorizations outline the parameters for each transaction and outline how EDC is to be reimbursed for expenses to administer the transaction. In accordance with section 23 EDC maintains decision-making power for all decisions, including expenses, that are consistent within the Ministerial Authorization. In the case of CEBA, a ministerial authorization provided authority to EDC to provide a line of credit to eligible financial institutions based on parameters set by the Government and, due to the notable size and rapid implementation of the program, a subsequent ministerial authorization was provided updating the manner in which EDC can recover costs to ensure the Crown would be appropriately compensated for their administrative costs.
Recognizing the extraordinary nature of the CEBA program, the government established additional governance committees specifically for the CEBA program that included representatives from EDC, Finance Canada, Global Affairs Canada, the Canada Revenue Agency, and Innovation, Science and Economic Development Canada. The Deputy Minister committee and Assistant Deputy Minister committee provided a space for implementation plans, financial updates, program changes, roles and responsibilities, stakeholder issues, etc. to be discussed and the Assistant Deputy Minister committee is still ongoing.
CEBA Performance Audit
19. Is there disagreement on any of the findings of fact or how the information is presented in the report?
The government disagrees with the overall tone of the report and believes that some critical context is missing. For example, there is no consideration given to the economic effectiveness of the program – Statistics Canada data suggests that corporate insolvencies, particularly for small businesses, were dramatically reduced during the first two years of the pandemic. This is attributable to CEBA and other support programs put in place at the start of the pandemic, as well as the speed at which these programs were stood up.
Similarly, while the OAG has taken issue with the oversight of administrative expenditures, it did not evaluate how reasonable those expenditures were. 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.
It is also clear that Finance Canada is not responsible for overseeing the administrative expenditures of EDC relating to CEBA. EDC, as an arms-length Crown corporation, is responsible for program administration and administrative expenditures. Finance Canada has no authority to oversee, evaluate or direct EDC's administrative expenditures.
The OAG has made changes to the report to reflect feedback from Finance Canada and other implicated parties. However, the OAG did not make sufficient changes to reflect the lack of context as stated by the Department.
Oversight/Governance
20. Does Finance provide operational oversight of the CEBA program?
Finance Canada is not responsible for CEBA program oversight. Finance monitors program operations to the extent appropriate for a Canada Account transaction program administered by EDC. Finance does receive regular (monthly) reporting on administrative expenses, loan disbursements, outstanding loan balances, and collections efforts. Finance also receives information on key CEBA processes and workflows. However, this information is used to inform further policy development and report to decision-makers. Finance does not have a role in overseeing, evaluating or directing on EDC administrative costs or operational policy decisions.
21. Can Finance restrict EDC's administrative spending?
Finance Canada does not have a role in overseeing, evaluating or directing EDC's administrative expenditures. Finance Canada does provide advice to the Minister of Finance on authorizations (including maximum spending amounts) for Canada Account transactions, including the CEBA program. However, under the relevant legislation, it does not have the authority to input into or otherwise restrict EDC's spending decisions. It is the responsibility of EDC and its Board of Directors to ensure that CEBA administrative spending remains appropriate.
22. Could Finance Canada stop EDC from contracting Accenture?
Finance Canada does not have a role in overseeing or evaluating administrative policy decisions made by EDC. EDC is a Crown corporation operating at arm's length from government. Under the Export Development Act, it is responsible for undertaking contracting as necessary to administer Canada Account transactions and related programs.
23. Was the Department of Finance aware in the Spring of 2020 that EDC was going to award a sole source contract to Accenture
Yes, the Department was aware of the need to aware a sole source contract, and that Accenture had been identified by EDC.
At the beginning of the program, there were daily calls between EDC and department officials.
24. Was the Department of Finance also aware that Accenture had selected themselves for a sole source contract? If so, did the Department of Finance raise this conflict-of-interest issue to EDC?
To my knowledge and based on documents available to us, the Department of Finance was not aware of the situation identified in the OAG report.
Finance Canada does not have a role in overseeing or evaluating administrative policy decisions made by EDC. EDC is a Crown corporation operating at arm's length from government. Under the Export Development Act, it is responsible for undertaking contracting as necessary to administer Canada Account transactions and related programs.
25. Why was decision-making on collections delayed?
At the outset of the CEBA program, the public health and 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 the pandemic.
The context was not conducive to early complete program lifecycle planning, including early planning and decisions on collections.
Moreover, planning and decision-making around collections necessitated coordination across government departments, which required machinery of government decisions that were not made at the outset of the program.
There were also other external events such as the 2021 federal elections that contributed to delays in a decision being made.
26. Why was EDC chosen to administer CEBA?
As it became increasingly clear that the economic fall out of the pandemic would be dire, it rapidly became apparent that a critical need to provide liquidity quickly to Canadian businesses to support them during, what was expected to be at the time, a short lockdown.
However, there were limited tools at the federal government's disposal to deliver this critical liquidity quickly, as speed of execution was a priority to keep Canadian businesses afloat. Federal financial crowns are well-positioned to address extraordinary liquidity issues. However, EDC was identified as the only organization capable of facilitating federal supports in the form of loans at large scale through Canadian deposit-taking financial institutions. Federal crowns are positioned to address extraordinary liquidity issues. If any other organization were used, it is likely that there would have been a delay of at least several additional weeks, if not more, prior to CEBA loans being disbursed.
27. Why were other Crown corporations not considered? Why was EDC chosen over BDC?
Other Crown corporations were considered. However, the only Crown corporations determined to be positioned to deliver a large-scale loan program were the Business Development Bank of Canada (BDC) and EDC. A key qualification of any organization was that it had existing relations with Canadian banking sector to achieve speed of deployment and national coverage.
BDC and EDC advised that given the scale and the scope of a program that provided loans on non-commercial terms, the initiative could not be supported on their Corporate Accounts.
However, given that neither Crown could support the program on their corporate Accounts, and EDC was able to use the Canada Account, it made EDC the obvious choice for rapid implementation.
28. Why was a government department not chosen to administer the CEBA program?
It was determined that a Crown corporation would be best positioned to administer a significant value loan program due to the large volume, operational experience and industry connections. There was also an element of path dependence once the program had begun under EDC; there would have been significant costs if the administrator changed mid-way.
29. Did Finance know about EDC's reliance on Accenture, and that it would not be able to deliver the CEBA program entirely itself?
The department was aware of EDC's reliance of third-party service providers, including Accenture – the scope of the reliance on third-party service providers grew significantly as the program was expanded, both in size and scope of activities such pre- and post-funding verifications.
As EDC is a crown corporation and operates at an arms-length, the department does not play any role in EDC's procurement decisions. All contracting decisions and disclosures were made independently by EDC.
Ineligible Loan Holders
30. How many ineligible CEBA loans are outstanding?
As of October 31, 2024, there are approximately 30,300 ineligible loans outstanding representing $1.1 billion, based on the work that EDC has done to date to identify ineligible loan recipients.
It is important to recognize that the outstanding $1.1 billion are all loans and are due back to the government. Since all these loans are ineligible, they are not allowed any forgiveness and will be repaid to some extent. For example, of these 30,300 ineligible loans, approximately 11,000 have made partial repayments, representing $113 million.
31. Can you explain why such a large number of ineligible applicants received CEBA loans?
Right at the onset of the pandemic, to ensure small businesses had access to much needed support, eligibility checks were conducted after the funding was released. As soon as possible, a pre-funding validation process was established, including a website for uploading documentary evidence of eligible expenses and pre-funding checks applicable to payroll stream applicants such as for duplicate business numbers.
All applicants to the non-deferrable expenses stream had pre-funding checks as this stream was introduced in June 2020. The verifications of eligibility in the non-deferrable expense stream involved the review of over a million documents, which was a substantial effort. However, the Department will work with EDC to consider appropriate follow-up actions to the OAG finding that there may be more ineligible CEBA loan holders.
32. Were ineligible CEBA loan holders offered a chance to demonstrate their eligibility?
Yes, two major processes were launched in mid-2021 for ineligible loan holders to demonstrate their eligibility. Financial institutions offered this opportunity to all ineligible loan holders.
Remediation process: to change/correct the Business Number associated with a CEBA loan, which was a common error
Reclassification: to allow loan holders that originally applied under the Payroll Stream in CEBA 1.0/2.0, and were deemed ineligible under those streams, to requalify under the Non-Deferrable Expenses Stream criteria
EDC, as the program administrator, would be able to provide more information on the eligibility demonstration process for ineligible CEBA loan holders.
33. Does Finance Canada believe that the OAG audit report is correct in suggesting that there are more ineligibles than were previously identified?
Finance Canada does not dispute the fact that there may be more ineligibles than previously identified. However, it is unclear from the sample examined by the OAG whether a significant portion of loan recipients were ultimately ineligible. Some loan holders may be eligible but had simply submitted incorrect or incomplete information as part of their application, and if given a chance to submit additional information would be found to have been eligible.
34. EDC representative (M. Lavery) mentioned that they partially agreed with recommendation 8.4 as they were waiting for FIN policy guidance. Can you expand on that?
Finance Canada was not aware of the ineligibility issues identified by the OAG. Finance Canada will work with EDC to consider appropriate follow-up actions.
This work will include examining legal implications and options to recoup loan forgiveness from these potentially ineligible CEBA loan holders. We will provide advice to the Minister of Finance, however we understand that a policy decision would eventually be required before EDC undertakes work to identify the full population of ineligible recipients.
35. What actions does Finance Canada expect to take in respect of the ineligible loan holders identified by the OAG?
Finance Canada will work with EDC to consider appropriate follow-up actions. It is not possible to speculate, at this juncture, on which actions may be considered.
36. As the policy lead, was Finance Canada aware of the ineligibility issues found by the OAG, in particular with regards to the NDE stream?
Finance Canada was not aware of the ineligibility issues identified by the OAG. However, we would note that it is not clear to what extent the small number of loans verified by the OAG are actually ineligible or whether those results would apply to the broader population. Finance Canada will work with EDC to consider appropriate follow-up actions.
37. How would Finance Canada qualify EDC's implementation of eligibility checks?
The Department is supportive of the OAG's recommendation to work with EDC to consider appropriate follow-up actions.
Next Steps / Actions in Progress
38. What actions is the government taking to collect on unpaid CEBA loans?
When FIs determine that a CEBA loan has defaulted, the FI attempts to contact the loan holder. If this is unsuccessful, the loan is assigned to EDC and CRA for collections. CRA then seeks a repayment in full or offers a payment plan, depending on the circumstances of the debtor.
There are currently 69,000 loans assigned to the CRA, representing $3.4 billion in unpaid CEBA loan debt. Of these, 991 payment plans have been established. The CRA is in the beginning phase of collections efforts, and it is expected that the number of repaid loans and payment plans will significantly increase over time.