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CWELCC guide · 2026
CWELCC compliance engagements and cost reviews: what gets checked.
Three different things get called "the audit" by operators, and they are not the same: the reconciliation your service manager performs on every centre, the compliance engagement a small sample goes through each year, and the cost review that targets centres with large top-ups. Knowing which one you are in tells you what is being tested and what evidence settles it.
Three processes
Which one are you in?
| Process | Who is selected | What it tests | Who performs it |
|---|---|---|---|
| Reconciliation | Every centre and agency, every year | Actual eligible costs and actual base fee revenue against the allocation and the expected offset | Your service manager, from your reported figures |
| Direct Engagement to Report on Compliance | A 5% sample of centres and agencies that received cost-based funding, selected after year-end | Whether the costs and offsetting revenue on the Standardized Financial Report were eligible and compliant, and whether prorating was reasonable | An independent third-party practitioner under CSAE 3531, arranged and paid for by the service manager |
| Cost review | The top 10% of existing centres by top-up ratio, where that ratio exceeds the service manager's growth multiplier. Engaged by March 31, completed by December 31, once per centre | Whether high costs are ineligible, or could be incurred more efficiently | Your service manager, working with you |
A fourth thing sits alongside them: the annual attestation, signed by a director or equivalent officer, confirming the funding was used for its intended purpose. And in Peel, the guideline reserves the right to ask for further documentation at any time, and expects cooperation with the Region's own third-party auditors for compliance audits and cost reviews.
What gets tested
The questions behind the document requests.
Almost every request traces back to one of the three cost principles, or to one of the specific rules that sit on top of them.
- Is the cost attributable? Related to delivering care to CWELCC-eligible children and included in the base fee. This is where costs for children aged six to twelve get separated out, and where a reasonable, written prorating methodology earns its keep.
- Is it appropriate? Necessary and practical for the program, including for health and safety or for cultural and religious needs.
- Is it reasonable? At fair market value for what the program needs. A reviewer who finds a cost attributable and appropriate but excessive does not remove the whole cost — they reduce it to a reasonable amount and remove the rest.
- Was it an arm's-length purchase? Transactions with family, friends, or related companies — including rent paid to an entity the owner also controls — are eligible only at or below fair market value. In Peel, two quotes must be in hand before the purchase, and the quotes, receipts and paid invoices kept.
- Is it on the ineligible list? Owner bonuses, dividends, perks and in-kind benefits; costs funded by another public source or reimbursed by insurance; income tax; loan principal; penalties and fines; interest above Canada Small Business Financing Program rates; professional body membership fees paid for staff; donations and fundraising costs; amortisation on assets bought after August 15, 2024.
Where a reviewer identifies an ineligible cost, they must document the rationale and adjust your actual program costs — removing the cost where it is unattributable or inappropriate, or trimming it to a reasonable amount where it is merely excessive. If you disagree, the dispute resolution process is the one your service manager has established, so ask for it in writing rather than arguing the point informally.
Ask before you spend, not after
The provincial guideline invites licensees to seek guidance from their service manager before incurring a questionable cost. It also says plainly that such guidance is not a final determination — eligibility is settled at reconciliation. That is still a far better position than discovering the answer a year later.
Independence matters
The compliance engagement is performed by an independent practitioner, not by whoever keeps your books. Where an auditor also prepares the records, professional independence rules restrict what they can do — which is why we keep the books audit-ready and the audit is done by an independent auditor we work with.
What to keep
The file that answers the questions.
- Cost support: receipts, invoices marked paid, contracts, and the two quotes for any non-arm's-length purchase, kept with the reason for the purchase where the cost is unusual.
- The prorating methodology: written down once, applied consistently, showing how shared costs are split between eligible children and children aged six to twelve.
- Payroll, staff by staff: base wage, GOF, WEG, WCF and any wage stability amount, showing the enhancements were paid on each cheque, with overtime at the same hourly rate, and the floors met.
- Planning time and professional learning: the communications to staff and proof they were sent, the policy, the amounts spent, and the count of individuals supported.
- Enrolment and occupancy: the data reported through your service manager's system, reconciled to the fees billed.
- Fees: the current parent handbook and fee schedule, including any penalty fees, and evidence they were communicated to families.
- Closures: a log of paid planned closure days against the 20-day maximum, and notice given to families.
Records are also a licensing matter, not only a funding one, and the CRA expects business records to be kept for six years from the end of the tax year they relate to. In practice one well-organised year-end file satisfies all three audiences.
Quick answers
What operators ask when the letter arrives.
How likely is my centre to be selected for a CWELCC compliance engagement?
Service managers must select a 5% sample of the centres and agencies that received cost-based funding each year, after year-end. Separately, they can follow up with any centre where the Standardized Financial Report suggests a risk that costs were not eligible.
Who pays for the compliance engagement?
The service manager arranges and pays for it, and may treat the cost as an eligible cost attributed to the centre for its own reporting to the ministry. The licensee does not report it as one of its own eligible costs, and it should not affect the centre's actual cost-based funding.
What is a cost review, and why were we picked?
It targets centres whose top-up is large relative to their benchmark allocation. Divide the top-up by the benchmark allocation; if that ratio exceeds your service manager's growth multiplier, you can be selected, and each year the top 10% by that ratio are engaged by March 31 and reviewed by December 31. It is a once-only selection while you keep working on the agreed actions.
Can a cost review cut our funding?
It can, where it finds costs that were in fact ineligible — those are removed and the allocation adjusted going forward. Where costs are eligible but could be incurred more efficiently, the outcome is an agreed plan rather than a cut, and the guideline accepts that sometimes no reduction is possible, for example under a long-term lease or where specialised staffing costs more.
We rent from a company the owner controls. Is that allowed?
It is eligible only at or below fair market value, and verification may be required. In Peel, at least two quotes must be obtained before the transaction, and the documentation kept. Rent at market, supported by evidence, is a normal cost; rent above market is the part that gets trimmed.
How long do we have to keep the records?
Keep cost, payroll and enrolment support with the year-end file. The CRA's general rule is six years from the end of the tax year concerned, and your service manager may ask for documentation supporting cost calculations and service delivery at any time.
Sources: Ontario Ministry of Education, CWELCC Cost-Based Funding Guideline (July 2026), Part 3 — accountability framework, compliance assurance and cost reviews; Region of Peel, 2026 CWELCC funding guideline, centre-based, sections 10 and 12; CRA record retention guidance. Selection and dispute processes are administered by each service manager, so Peel, Halton and Toronto will not run these identically. General information, not advice for your situation.
Selected for a review, or want the file ready before you are?
Call 647-870-8498 or email info@ghayurtax.com. We keep CWELCC books so the support exists before it is asked for, and we work through review requests with operators in Peel, Halton and Toronto.