Auditor general finds 'kickback scheme' between landlords and city housing worker

The city of Ottawa's auditor general has uncovered a "kickback scheme" that resulted in the city paying inflated rents through housing allowance programs.

The investigation, tabled at the city's audit committee on Monday, looked into a tip through the fraud and waste hotline that a city case worker "received kickback payments from a group of landlords in exchange for these landlords receiving more favourable rental rates under specific housing benefit programs administered by the City."

Auditor general Nathalie Gougeon told councillors she was able to substantiate the allegations. Her office observed "multiple factors that indicate that these payments are consistent with a kickback scheme designed to provide a benefit" to both the landlords and the case worker.

The inflated rents were as high as 63 per cent above market rates. Through the investigation, the auditor general's office found that the landlords paid more than $22,000 to the case worker from November 2023 through this October. 

The audit also found the city case worker worked part-time for the landlords, but did not disclose that relationship to the city.

The investigation looked at banking records, as well as chat and messaging data from the case worker's mobile device. Gougeon's presentation to the committee cited one message that directly asked for "higher rent."

"If you get me the rent, of course the bonus will be much larger," it said.

Inflated rents

Her report provided examples of the inflated rents: for a three-bedroom unit in the Heron Gate area, the negotiated rent was $4,050 per month compared to average market rents of $2,491.

For a two-bedroom in Beacon Hill South, the negotiated rent was $2,900 while average market rent was $2,100.

The oversight wasn't there.- Coun. Cathy Curry

Clara Freire, the city's general manager of community and social services, said she and her team were "absolutely horrified" by the revelations, but she added there are no signs it's anything more than an isolated case.

City manager Wendy Stephenson agreed. "I don't believe that this is a pervasive issue," she said.

But Kanata North Coun. Cathy Curry, who chairs council's audit committee, worried it might just be the tip of the iceberg.

"I'm really, really upset about this particular investigation. I hate to see money wasted, and definitely more so when it's the vulnerable populations that we deal with," she said. "The oversight wasn't there."

Moving company also involved

Housing case workers are supposed to help clients with their search for housing, but are not responsible for negotiating rental agreements. But the investigation found evidence that the case worker did negotiate agreements, which appeared to be a breach of city policy and a conflict of interest, given the payments.

According to the investigation, the scheme involved a second city employee, a family member of the case worker. The investigation found that the second employee was "directly involved" in collecting payments from the landlord.

The second employee also began running a moving company with the group of landlords. The company moved the belongings of a client of the case worker, who submitted an invoice to the city.

Neither employee disclosed their relationship to the moving company, according to the investigation report.

The investigation faulted city processes, including a lack of monitoring to ensure that rental payments are reasonable. Had such a system been in place, the investigation found, "management may have detected irregularities in these transactions sooner."

It also found that a different city employee had already flagged concerns about the landlord group trying to extract higher rental rates, in an email that reached a supervisor just two weeks before the kickback payments began.

"As a supervisor had been made aware of these concerns, we would have expected to see appropriate steps implemented to guide staff and furthermore, to detect potentially inflated rents," the investigation said. "We saw no evidence of such actions being taken."

6 recommendations

The auditor general made six recommendations to city management, including to ensure better monitoring and training.

Management accepted all six, has "halted" all business relationships with the landlords going forward, though it will take time winding down existing business to make sure no one ends up homeless.

The city said Monday the case worker in question is no longer employed there, while the second employee resigned. The supervisor is on leave "for other reasons," Freire said.

The auditor's office said it's in touch with Ottawa police, and Gougeon was planning to meet with them Monday afternoon.

The Ottawa Police Service said in an email to CBC that it had been contacted by the auditor general's office about the matter and will be commencing a police investigation.

Freire said her department will be doing its own audits to close gaps in its processes.

"We have a zero tolerance for any fraud, unethical behaviour, anything that puts our program at risk," said Freire.

"We have checks and balances across the entire system," she added. "In this case, we believe there could have been a greater supervision of the decisions that were being made by housing case workers in terms of assessing reasonableness of rents."

Gougeon said she will be following up to ensure management has taken appropriate action on the recommendations, but her office has no current plans to investigate the possibility of further fraud in the city's housing programs.

Councillors call case 'disgusting'

Gougeon said her office has not calculated how much excess money the city paid due to the inflated rents.

The money comes through several housing subsidies intended to help low-income people afford rent on the private market. Some of the funding comes through provincial and federal programs.

Curry worried that could put the city's access to funding at risk.

"That is highly distressing," she said. "I wonder, when we ask for additional funds for things, if the provincial and federal [governments] don't look at this and think, maybe not, maybe we go to another municipality where we can be assured that money is being managed properly."

She also noted that the scheme could have pushed up rents elsewhere, as other landlords see the inflated rates and act accordingly.

Beacon Hill-Cyrville Coun. Tim Tierney called the case "absolutely disgusting" and "stealing from the most needy." Kanata South Coun. Allan Hubley called it a clear abuse of taxpayer dollars, and asked how the city will act to recover the money.

City solicitor Stuart Huxley said the city will co-operate fully with any police investigations and examine all available civil remedies.

Gougeon said she decided not to share the identity of the employees since it's a labour relations matter, nor the identity of the landlords, in order to protect the city from "litigation risk."