City of Ottawa worker fired after audit uncovers kickback scheme with landlords

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A city employee has been fired and another has resigned after a city audit discovered a kickback scheme to fraudulently pay landlords inflated rents for housing families in need.

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Auditor general Nathalie Gougeon launched her investigation after receiving a tip to the city’s fraud and waste hotline earlier this year. Her investigation, with help from forensic auditors at Ernst & Young, found a city caseworker had colluded with landlords to pay rents from an emergency housing fund administered by the city that were as much as 63 per cent above market value. In return, the landlords paid more than $22,000 to the caseworker in kickbacks.

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Gougeon delivered her report to the city’s audit committee at its Dec. 2 meeting. That afternoon, city managers were to meet with Ottawa police who will decide whether to begin a criminal investigation.

Gougeon’s investigation found that, beginning as early as October 2023, six landlords — four individuals and two corporations — began receiving inflated rent payments. All six were overseen by a single individual landlord.

The caseworker is identified only as Employee A in the report. Employee A had a family member who also worked for the city, identified as Employee B, who received the kickback payments from the landlords beginning in January 2024.

Both Employees A and B had previously worked with the landlord, but never disclosed that relationship to the city, a breach of the city’s code of conduct policy, Gougeon said.

Investigators also examined text messages between Employee A and the landlord.

“Is there anyway you can put a couple in there and get me a higher rent like $2300 or what can we do on this thing? It’s a one bedroom apartment, if you get me the rent, of course the bonuses will be much larger,” read one such message.

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“Without information to justify the legitimacy of 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,” Gougeon wrote in her report.

The rents were paid with federal, provincial and municipal money through emergency housing programs administered by the city.

Gougeon said her investigation was limited in scope, but identified “in excess of 20” rental agreements linked to the kickback payments. The report included three examples: a two-bedroom unit in Beacon Hill South that rented for $2,900, or 38 per cent above the $2,100 market value; a three-bedroom unit in Pineview that rented for $4,050, or 46 per cent above the $2,775 market value; and a three-bedroom unit in Ledbury/Heron Gate/Ridgemont that rented at $4,050, or 63 per cent over the $2,491 market rate for similar units in the area.

The city has terminated all relationships with the landlords involved, as recommended by the auditor general, and is developing a transition plan for tenants who were affected.

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“This is going to be a slow process. We’re not looking to see any people back out on the street,” Gougeun said. “It’s being done to ensure the city’s reputation is kept intact.”

The investigation also found that Employees A and B started up a moving company during the kickback period that profited by moving clients into the apartments with inflated rents.

While caseworkers are supposed to examine lease agreements and provide clients advice on whether the rent being charged is fair, ultimately it is the clients themselves who decide whether to accept the agreement. Nevertheless, the city says it will do whatever it can, including civil lawsuits, to try to recoup the money.

“As you can imagine, I was, and our team was, horrified when we were told by the auditor general of this investigation,” Clara Freire, general manager of the community and social services department, told the committee. “We took action right away.”

The auditor general made six recommendations to the city to improve record keeping and staff training about the city’s code of ethics, all of which were accepted.

The fraud and waste hotline receives about 1,000 tips a year, of which about 350 are investigated, Gougeon said.

River Ward Coun. Riley Brockington asked Gougeon if the kickback scheme would ever have been detected if the whistleblower had not contacted the fraud and waste hotline.

“Very bluntly — highly unlikely,”  she replied.

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