John Ivison: The Liberals’ multi-billion-dollar COVID-aid cockup is just the beginning

“We did our best in the situation we were in. People today forget what it was like,” Frank Vermaeten, a deputy commissioner at the Canada Revenue Agency told National Post reporter Chris Nardi last week.

Vermaeten was referring to the extraordinary circumstances the agency found itself in when the pandemic hit in spring 2020.

In a matter of weeks, benefit programs that would have taken months, or even years, to roll out were distributing payments to keep Canadians solvent.

The Canada Emergency Recovery Benefit (CERB), the Canada Emergency Wage Subsidy and other programs handed out $210.7 billion between March 2020 and May 2022, achieving the objective of helping Canada avoid a serious economic contraction. Just 20 months after COVID hit, economic activity was back at pre-pandemic levels. None of that should be forgotten.

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But, as the auditor general revealed in a stark report on Tuesday, mistakes were made in both the program design phase, and in the post-payment verification process, that resulted in billions of dollars in overpayment, potentially tens of billions of dollars.

Worse, the government does not appear to have learned its lesson and is intent on using the same “good faith” attestation process for its dental-benefit program and the new housing-benefit payment: simply say you are eligible and claim the cash.

As Karen Hogan’s report points out, the decision was made early by Employment and Social Development Canada (ESDC) and the Canada Revenue Agency that to simplify and accelerate the benefit payment process, applicants would simply attest to their eligibility. For the CERB, that meant saying you had earned at least $5,000 in the 12 months leading up to the application. The idea at the time was to recover overpayments after the fact. But, as the auditor discovered, there was no comprehensive plan to verify the eligibility of recipients before or after payment.

Hogan’s team found that $4.6 billion of overpayments were made to ineligible recipients of benefits for individuals. Another $27.4 billion of payments to individuals and employers should be investigated further, the report said, calling it “the minimum amount that should be investigated.”

The post-payment verification process has just started — CRA said it has recouped $2.3 billion — even though the legislation means the agency has just three years after payment was made to verify eligibility (unless CRA believes the recipient misrepresented themselves, in which case the timeline is extended to five years).

CRA says it has sent out 825,000 debt notices to Canadians suspected of receiving ineligible or excess payments.

But the auditor is skeptical about the chances of recovering the bulk of the money owed.

“The department (ESDC) and the agency (CRA) will face significant challenges completing all the verifications before the expiry of the legislated time frames for most of the individual benefits programs,” the report said.

On the program design front, the biggest criticism leveled is that the individual benefits were over-generous and acted as a disincentive to low-income workers to go back to work.

The Liberals and the NDP appeared to have viewed COVID as an opportunity to engage in a spot of social engineering to reduce income inequality. Not only did government transfers replace lost income, they exceeded losses in wages, salaries and self-employment income for all earners.

Between 2019 and 2020, income rose across all brackets. After-tax income increased by 16 per cent for the lowest-income workers and rose by two per cent for even the highest earners. This was mainly thanks to government transfers that at the median level doubled to $16,400 from $8,200.

The impact was clear at an early stage — lower-income workers were making more than they had lost in wages and were not keen to go back to work. Two million people stayed on CERB for the full 28-week eligibility period.

While program design was an issue, it was the lack of post-payment verification that was the main focus of the auditor’s review. The report suggested that 366,000 recipients, not identified by the agency, did not appear to meet the income threshold of $5,000 in previous-year earnings requirement. Only 12 per cent of individuals who received individual benefits were selected for post-payment verification by CRA, the report said. Problems were compounded by shortcomings in the agency’s information technology system at the time of the audit, which meant CRA did not have the ability to apply future government payments, such as an income tax refund, against amounts owed for COVID-benefit overpayment.

Neither was there any validation of revenue declines for companies that applied for the wage subsidy (one of the eligibility criteria).

“In our opinion, the department and agency had not adopted a rigorous and comprehensive approach to post-payment verification, considering the limited pre-payment controls,” the report concluded.

That brings us neatly to the Canada Dental Benefit for under-12s and the Canada Housing Benefit. Applicants for the dental payment earning less than $90,000 must attest that their child is receiving dental care not covered by private insurance. In a warning that is sure to strike fear into the hearts of even the most hardened criminals, the claim form asserts that “the CRA regularly checks to confirm people were eligible for the payments they received” Those sitting on ill-gotten COVID benefits — including 23,000 cases of identity theft — know better.

Dental care was not mentioned in the Liberal platform in 2021. It is entirely the product of the supply-and-confidence agreement with the NDP. Next year, it will be expanded to cover under-18s, seniors and people with disabilities, with full implementation set for 2025.

Yet, the Liberals have introduced a program that is an entirely political construct designed to keep them in power.

The government wasn’t ready to bring in dental care and has been forced to adopt a payment system that was born in a national emergency — one the auditor general suggests has a questionable track record, where at least 15 per cent of all spending may not have gone to the intended recipients.

The efforts of the people who kept the country afloat when the COVID tidal wave hit should not be forgotten. But neither should the lessons that have been learned since. Trust but verify.

jivison@postmedia.com

Twitter.com/IvisonJ

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