Canada Missed Billions in Covid-Era Business Loans, Auditor General Says

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(Bloomberg) — The Canadian government rolled out C$49 billion ($34.8 billion) in loans to businesses during the Covid-19 pandemic without “due regard for value for money,” the country’s auditor general said.

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About C$3.5 billion was paid out to more than 77,000 ineligible businesses that applied to the Canada Emergency Business Account (CEBA), Karen Hogan concluded in a report on Monday. That’s 9% of the nearly 900,000 Canadian businesses that received loans through the program, which was introduced by Prime Minister Justin Trudeau’s government in 2020.

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Interest-free loans of up to C$60,000 were issued immediately to help small and medium-sized Canadian firms with wages, rent and insurance as businesses were closed to control the spread of the coronavirus. Up to C$20,000 was forgivable if firms were repaid by a certain date.

But while the government has been quick to support struggling businesses, the program has been plagued by “systemic mismanagement and oversight failures,” Hogan’s office said in a statement.

“Unlike other Covid-19 programs, CEBA is a loan program that will continue for a number of years while defaulting loan activity begins,” he said in the release. “The value of the currency will again be at risk without better supervision and improved systems for recovering defaulted loans.”

The report also criticizes Export Development Canada’s procurement practices, which the auditor general said “did not follow the principles of fairness and transparency” as it selected the vendor for its accounting system.

The government agency “prioritized the rapid implementation of program changes by relying on single-source and single-vendor contracts without rigorous checks and balances,” the auditor said. It relied on Accenture to manage the program and used a “series of non-competitive contracts,” which eventually led the company to award a large contract to one of its subsidiaries.

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“The EDC gave the vendor great control over important aspects of contracts, such as scope of work and prices, and failed to control basic aspects of contract management, such as monitoring that the prices paid correspond to the work being done,” the report said. .

Accenture did not immediately respond to a request for comment.

The auditor general also criticized the Department of Finance and Global Affairs Canada for failing to “effectively” oversee the CEBA, saying that “no department is accountable for the program, leaving many of the program’s fundamentals, such as life cycle planning, delayed or incomplete.”

Taken together, the report’s findings provide further evidence of the effects of the rapid rollout of credit and compensation programs during the pandemic. Combined with other direct transfers to individuals, it is becoming increasingly clear that some money is going to business owners and workers who should not have received the money in the first place.

The government postponed the CEBA loan repayment deadline several times, until the firms had to repay the money in Jan. 18 of this year to receive the forgiven part, or on March 28 if they want a refund from the financial institution. After that, the loans are converted into long-term loans at a rate of 5%, and full repayment is due by the end of 2026.

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At the end of March, there was about C$8.5 billion in CEBA loans outstanding, Hogan said in the report.

In 2022, the auditor general released a report showing more than C$ 4.6 billion for ineligible recipients of the Canada Emergency Response Benefit, a program intended to support individual workers during the Covid-19, and certain costs of $ 27.4 billion ” should be investigated in detail.” Spending increased the federal government’s debt levels by nearly two-thirds, pushing the country’s debt to GDP ratio to over 40%.

Business defaults increase in early 2024, coinciding with the CEBA loan repayment deadline. Some economists have suggested that the bankruptcy is evidence of so-called “zombie” companies that were financed with loans during the violence but closed after paying off.

—Courtesy of Jay Zhao-Murray.

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