COVID-19 loan program paid $3.5 billion to ineligible recipients: AG

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OTTAWA — The federal government “compromised” its emergency COVID-19 loan program because of “poor” management, non-competitive contracts that paid hundreds of millions of dollars to a single vendor and a lack of oversight that led to $3.5 billion in loans to ineligible companies, says auditor general Karen Hogan.

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The auditor general report on the Canada Emergency Business Account (CEBA) offered a biting review of the government’s handling of the program, from contracting to recovery of ineligible payments.

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Established early in the COVID-19 pandemic, CEBA offered emergency loans of $40,000 to $60,000 to small businesses and forgave $10,000 to $20,000 if the sum was reimbursed by a certain date. Administered by Export Development Canada (EDC), the program doled out $49.1 billion in loans to nearly 900,000 small businesses.

“The program was not managed with due regard for value for money,” Hogan told the public accounts committee Monday.

EDC’s poor management “compromised” the value for money of CEBA, Hogan concluded. That included distributing $3.5 billion to ineligible recipients and granting over $300 million worth of sole-source, non-competitive contracts to global IT giant Accenture to run the program on EDC’s behalf.

The report revealed some staggering “mismanagement” by EDC of its contracting with Accenture, such as allowing the company to essentially write its own contracts for years and failing to ensure the government had full ownership of program data.

Overall, the audit found that the program disbursed loans quickly and in a timely manner during the pandemic. It also found that the vast majority (91 per cent) of loan recipients audited were eligible, though the remaining nine per cent of ineligible recipients represented a $3.5-billion expenditure.

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In a joint statement, Liberal ministers Chrystia Freeland and Rechie Valdez defended CEBA as a “critical lifeline” for small businesses during the pandemic and took a swipe at Hogan’s report. They said the audit “fails to properly acknowledge that CEBA was designed and delivered during a global pandemic.”

Conservative MP Kelly McCauley criticized EDC for throwing away taxpayer’s money to Accenture.

At committee, Liberal MPs Iqra Khalid and Nate Erskine-Smith took issue with the fact Hogan emphasized the nine per cent of ineligible recipients as opposed to the 91 per cent of eligible small businesses who received a loan.

“This report … is taking the 9 per cent and really highlighting what went wrong when we know that 91 per cent of it went right,” Khalid told Hogan.

In a statement, EDC senior vice-president Todd Winterhalt said the agency was “very proud” of its work on CEBA, a “net-new program with no precedent or instruction manual to follow.”

He also said EDC had already begun implementing most of that OAG’s recommendations, such as strengthening its contract and vendor performance management practices for current and future contracts.

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Hogan was critical of EDC’s decision to immediately outsource delivery of the CEBA to Accenture through a series of sole-source, non-competitive contracts originally valued at $1 million but that eventually ballooned to $313 million. The agency failed to “exercise basic controls” in its contracting with the global IT giant, she said.

“We found significant weaknesses in EDC’s contract management,” Hogan told MPs. “The non-competitive contracts awarded to Accenture represented 92 per cent of the total value of $342 million in contracts related to the CEBA program.

“EDC failed to exercise basic controls and contract management, such as monitoring whether amounts paid aligned (with) the work performed,” she added. “Since ongoing program delivery uses Accenture’s proprietary IT systems, EDC will have to rely on these non-competitive contracts until at least 2028.”

At one point, Hogan said EDC even asked the company to run a “quasi-competitive” bidding process that was ultimately won by an Accenture subsidiary.

“It is that kind of lack of managing a conflict-of-interest that I would have expected EDC to have done better,” Hogan said, noting that it was “unacceptable” that Accenture and its subsidiary were not removed from the process.

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“The mismanagement of those contracts leads me to conclude that the government compromised that value for money. It could have been done for less in a more efficient way,” Hogan told MPs.

EDC contracted out CEBA’s delivery because it quickly realized that it did not have the internal capacity to operate the program, the report reads.

Roughly one year after granting the sole-source, non-competitive contract to Accenture, EDC planned on launching a competitive bidding process, but ultimately “abandoned” the idea to focus on collection of the first set of loans in default, the auditor general said.

“As a result, EDC’s sole-source relationship with Accenture was solidified rather than mitigated,” reads the report.

EDC also approved loans based on assessments made by Accenture even in cases where documentation submitted by the business applicant “clearly” showed it was ineligible or failed to provide basic information, the OAG noted.

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“For example, documents were accepted without a business name or for expenses outside of the eligible period of the program. EDC’s 2021 internal audit also found similar issues in its review of expense documents submitted, but the corporation decided to consider these loans as eligible,” reads the report.

Hogan also criticized Finance Canada and Global Affairs Canada for failing to properly oversee EDC’s work.

Hogan told MPs she was also concerned with the fact EDC only “partially” agreed with her recommendation that the agency consider all options to recoup loans from ineligible small businesses.

“I’m concerned that there is a resistance to want to follow up on recovering funds, and if the government doesn’t want to do that, they should just be transparent with Canadian taxpayers,” she told MPs.

“Unlike other COVID-19 programs, CEBA is a loan program with repayments that will be ongoing for several years while action on defaulted loans is just beginning. Value for money will be further compromised without better monitoring and improved plans to recover on defaulted loans,” she added.