The City of Ottawa’s auditor general has found that a city employee was engaged in a kickback scheme with a group of four local landlords, collecting thousands of dollars in payments in exchange for more favourable rental rates under specific housing benefit programs administered by the city.
In her report, Nathalie Gougeon said a call to the city’s fraud and waste hotline earlier this year alleged that the scheme was underway. Gougeon’s office immediately began an investigation and informed the city solicitor, the city manager, the general manager of the Community and Social Services Department and Ottawa police.
Due to the complexity of the investigation, the AG also hired Ernst & Young LLP to assist.
What the investigation found was more than $22,000 in payments from the landlords (referred to as the Landlord, in the report) to the city employee in question (Employee A) between Nov. 14, 2023 and Oct. 1, 2024. Several of the payment records reviewed referenced addresses of units that the employee assisted the landlord with as part of the employee’s role at the city. Furthermore, the investigation found a family member of the employee in question, who was also employed by the City of Ottawa (Employee B), knew of the scheme and did not disclose it, and was directly involved in collecting the money from the landlords.
“From our analysis of chat and messaging data from Employee A’s mobile device, we observed several messages between Employee A and the Landlord that would indicate that these payments were made by the Landlord with the intention to utilize Employee A’s role at the City to provide a financial benefit to the Landlord,” the report says. “This included messages where the Landlord told Employee A if they could get the Landlord ‘higher rent’, ‘the bonus will be much larger.'”
Employee A was found to have negotiated rental agreements on behalf of housing clients – an apparent breach of city process – and helped clients sign leases for rentals with the landlords that were actually well above market rates.
Examples provided in the report show leases signed with rental prices that were 38 to 63 per cent above the average market rates for their respective areas. A three-bedroom unit in the Heron Gate area was negotiated at a rent of $4,050, well above the average of $2,491.
“Without information to legitimize the payments made by the Landlord to Employee A, we observed multiple factors that indicate that these payments are consistent with a kickback scheme designed to provide a benefit to both the Landlord and Employee A,” the report said.
During the investigation, the auditor general’s office also learned that Employee B and the landlords began operating a moving company, which moved a housing client of Employee A.
“We further observed that Employee A submitted an invoice on behalf of the Moving Company, which was paid by the City for moving services rendered,” the report states. “We observed that Employee B and the Landlord both financially benefitted from a portion of the profits of this transaction.”
Neither the employees nor the landlords were identified in Gougeon’s report.
City staff told Monday’s Audit Committee meeting that one of the employees was fired and the second employee resigned.
Gougeon recommended the city cut all business relationships with the group of landlords, which city management said it is doing.
“A plan is underway to terminate all existing business relationships with the landlord as it relates to housing allowance programs. Tenants in receipt of housing allowances, that are currently residing in units owned by the landlord, will be supported to transition to alternate accommodations in a manner that will not put them at risk of homelessness,” the city’s response said.
The investigation also identified gaps in city processes including the absence of: appropriate monitoring processes to deter and assist in the detection of unusual or irregular transactions; a fraud risk assessment to ensure necessary controls were in place to deter, prevent and detect fraudulent activities; and a consistently applied accountability mechanism to ensure all staff have completed the required Code of Conduct training.
City management says it will be addressing these gaps.
Ottawa Police Chief Eric Stubbs told reporters at a media availability Monday afternoon that he could not confirm whether a police investigation was underway into this incident, but said it would not be any different from an investigation triggered by the private sector.
“Whether it’s internal theft at a business or corruption within a business, whether it’s the auditor general, or an accounting form, or Walmart… it doesn’t matter what the company is, we have to receive the information, assess what evidence they’ve gathered and determine if a criminal offence occurred,” he said. “Receiving something from the auditor general is no different from any other criminal investigation that we might launch.”
An Ottawa police spokesperson later confirmed the police service will be commencing an investigation into the matter.