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 7

CEBA Administrative Costs

Issue

Administrative costs related to the CEBA program are incurred by Export Development Canada (EDC), the Canada Revenue Agency (CRA), and fees paid to financial institutions.

Key points

• CEBA is a low-administrative cost program.  Administrative costs as a ratio of assets are substantially lower for CEBA than other comparable loan programs. Administrative annual spending (including fees paid to financial institutions) 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.
• The main component of CEBA administrative costs are fees paid to financial institutions for managing the CEBA loans, including for issuing 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 March 31, 2024, this composes $575 million out of $853 million in administrative costs.
• While CEBA administrative costs as a ratio of program expenses have risen over the course of the program, these costs were driven by how the program expanded and became increasingly complex, and as requirements around collections efforts became clear.
• Finance Canada has no legislative authorities to provide oversight of EDC administrative expenditures. As the administration of the CEBA program was delegated to EDC, the Board of Directors of EDC is responsible for providing oversight of the administrative expenses of the CEBA program. 
• EDC is best placed to answer questions on specific administrative costs.

Anticipated Questions and Answers

1. What are CEBA administrative costs incurred by EDC and CRA?

EDC is best placed to answer this question.

2. 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).

3. 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.

4. 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.

5. 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 per cent 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.

6. 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.

7. 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.

Background

Administrative costs incurred by EDC related to the CEBA program have grown over time as the scope of activities have similarly grown. Early in the program (2020-2021), the focus was disbursements, with costs related to loan holder support, eligibility validation, loan integrity, and payments facilitation. As the program moved to a program build phase (2022-2024) to build a loan accounting system to enable collections efforts, overall costs grew because of the additional technology build costs, including loan databases and integration with CRA technology systems for collections.

EDC, as administrator of the CEBA program, relies almost entirely on Accenture for its delivery. Accenture provides advisory and governance support, and operational services such as the building of the loan accounting system and running the CEBA call centre. In addition to the costs associated with the Accenture contract, there are costs for internal resources and other external contracts, however these costs incurred by EDC are small relative to the size of the Accenture costs.

EDC and CRA administrative costs associated with the administration of the CEBA program have evolved over time, primarily driven by policy decisions. Factors include:

• The growth of the CEBA program (e.g., the series of expansions of eligibility, including the $20,000 CEBA expansion)
• Extensions of the program (e.g., the postponement of repayment deadlines)
• The decision to undertake a remediation and reclassification process for ineligible loans
• The assignment of collections assistance to the CRA

EDC conducts internal forecasting for and reporting on CEBA administrative costs. Administrative costs have generally fallen within forecasted levels throughout the duration of the program, once operational requirements were known, though cost forecasts have not always been possible for future years due to significant program changes. The 2024-2025 forecast includes sustainment activities (i.e., call center, data management, and costs expected to be incurred by the core CEBA Program related to the continued build of a collection solution for loans in default). The CEBA program will continue to require external support through third-party vendors, which represents 90% of the total EDC cost.

There are additional costs associated with collections activities undertaken by the CRA. These costs are reimbursed from funds repaid in relation to Canada Account transactions. These costs are expected to total up to close to $18 million annually, however it is ultimately dependent on the number of defaulting CEBA loan holders.

Finally, there are also costs paid to financial institutions through EDC for their role in administering the program – including the costs of issuing the loans, communications with loan holders, and initial collection activities. This was a voluntary program for financial institutions. Financial Institutions have been paid 40.1 bps (or 0.41%) on a quarterly basis for managing the CEBA loans, as determined by a third-party fairness opinion. EDC does not forecast FI costs as it is calculated on the outstanding balance, which cannot be predicted. As of March 31st, 2024, FIs have been paid approximately $575 million.