We covered what a CWELCC cost review is and how to build your defence in an earlier post. This one is about what actually happens when the review concludes, because not all outcomes are equal. One outcome you can recover from. The other permanently reduces your funding and there is no path back.
Understanding the difference between these two outcomes, and knowing which one you are at risk of, is the most important thing a centre facing a cost review can do right now.
Who Is Actually Being Reviewed
Before getting into outcomes, one clarification worth making: cost reviews do not apply to every CWELCC-enrolled centre. CMSMs and DSSABs are directed to select the top 10% of centres ranked by top-up ratio for review. That means the only centres subject to a cost review are those who received either a legacy top-up in 2025, a growth top-up in 2025, or a rolling top-up in 2026, and whose top-up ratio places them in the highest percentile within their region.
If you received no top-up in 2025 or 2026, you are not in the cost review pool. If you did receive a top-up and your ratio is high relative to other centres in your service area, you should assume you have been selected or will be selected before December 31.
Outcome One: Ineligible Costs Found in 2025
This is the outcome that cannot be undone.
If a cost review identifies ineligible costs in your 2025 eligible cost claim, the consequences flow in two directions simultaneously.
The first consequence is a recovery for 2025. Your Actual Program Costs for 2025 are reduced by the amount of the ineligible costs. That reduction flows directly into your Actual Cost-Based Funding for 2025, which means the funding you received exceeds what you were entitled to. Your CMSM recovers the difference. That money is gone.
The second consequence is where the permanent damage occurs. Your 2026 rolling top-up was calculated using your 2025 actual eligible costs as the numerator in the rolling top-up ratio. The formula is: actual eligible costs minus benchmark, divided by benchmark. If your 2025 eligible costs are reduced because ineligible costs were removed, that ratio decreases. And a lower ratio applied to your 2026 benchmark produces a smaller rolling top-up for 2026.
But it does not stop at 2026. The rolling top-up carries forward each year based on the prior year's actual costs. A permanent reduction in your 2025 eligible cost baseline resets the rolling top-up ratio at a lower level, and that lower level propagates into 2027, 2028, and every subsequent year until your cost structure changes. You do not just lose the recovery amount once. You lose a portion of your rolling top-up every year going forward.
This is why the eligible cost framework, and specifically the three tests of attributable, appropriate, and reasonable, matters so much before a cost review begins. A cost that fails any of these tests, even a cost that seems minor in isolation, does not just create a one-time recovery. It permanently reduces your allocation base.
Outcome Two: Eligible Costs, Efficiencies Identified
This is the better outcome, though it is still not ideal.
If a cost review finds that all your costs are eligible but identifies opportunities for improved efficiencies, the CMSM does not make an immediate recovery. Instead, they work with you to develop a schedule for reducing your cost structure over a period that can extend up to three subsequent calendar years, as late as December 31, 2029 for reductions agreed to in 2026.
This outcome gives you time. It gives you the ability to honour existing contractual obligations like leases, staffing agreements, and supplier contracts before reducing costs. It gives you the runway to transition your cost structure without disrupting your programme. And critically, it does not trigger a 2025 recovery or a permanent reduction to your rolling top-up baseline.
The reduction still happens. Your allocation will come down on the agreed schedule. But the path is negotiated, the timeline is reasonable, and you have the opportunity to make changes in an orderly way rather than absorbing an immediate clawback.
This is the outcome every centre facing a cost review should be working toward. All costs eligible, no recovery, and if efficiencies are identified, a phased schedule on terms you helped negotiate.
The Gap Between the Two Outcomes
The difference between these two outcomes is not luck. It is preparation and documentation.
A centre that enters a cost review with organized, complete documentation for every significant cost line is in a fundamentally different position than one that has to reconstruct its records after the review begins. The costs may be identical. The outcome will not be.
When a CMSM reviews your 2025 eligible costs, they are applying the three tests to every line item. Attributable to the provision of child care included in the base fee. Appropriate for an ordinary prudent operator in a comparable business. Reasonable in quality and amount having regard to all relevant circumstances.
Every cost that cannot be clearly documented against those three tests is a cost that is vulnerable. Not necessarily ineligible, but vulnerable. And in a cost review, vulnerability without documentation becomes finding.
The costs most commonly identified as ineligible are costs that serve dual purposes where the child care portion has not been documented, costs paid to related parties at above-market rates where arm's length pricing has not been demonstrated, costs that are recurring but claimed as non-recurring, and costs that are appropriate in nature but unreasonable in amount where no competitive pricing evidence exists.
None of these need to be found as ineligible if the documentation is in place before the review begins.
How to Prepare Before the Review Starts
The single most effective thing a centre selected for a cost review can do is have someone review their 2025 transactions before the CMSM does.
Not after the CMSM makes contact. Before.
This means going through every significant cost line in your 2025 standardized financial report and asking the same three questions the CMSM will ask. Is this attributable to child care included in the base fee? Is it appropriate for a comparable operator? Is the amount reasonable and supported by documentation?
For every cost line that cannot answer all three questions clearly, you need to either gather the supporting documentation that makes the case or understand in advance that this cost may be challenged. Going into a cost review knowing which costs are your strongest positions and which are your most vulnerable ones puts you in control of the conversation rather than reacting to findings you did not anticipate.
The practical steps require someone who knows exactly what a CMSM is looking for and can apply the eligible cost framework to your specific transaction detail before the review begins. This is not a process that benefits from a generic checklist. It requires judgment built on deep knowledge of the April 2026 guideline, the benchmark components driving your top-up ratio, and the specific cost categories most commonly challenged in cost reviews across Ontario service areas.
Getting this right before the review starts is the difference between controlling the narrative and responding to findings. Your CMSM already knows your top-up ratio and which components are elevated. You need someone on your side who knows the same things and has prepared a response to each of them before the first meeting.
The cost review deadline is December 31, 2026. If your review has not started yet, it will. And when it does, the documentation you have assembled in advance will determine whether you are negotiating a phased efficiency schedule or absorbing a permanent reduction to your funding baseline.
ChildcareFundingIQ provides direct cost review support for Ontario operators. We review your 2025 transaction detail against the eligible cost framework before your CMSM does, identify the costs most likely to be challenged, and prepare the documentation strategy and cost narrative you need to walk into that review prepared, not reactive.
We work exclusively for operators. The time to engage us is before your first meeting with your SSM, not after they have already formed their findings.
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