Item - 2021.AU8.7

The Audit Committee recommends that:

1.  City Council request the General Manager, Economic Development and Culture to improve the existing training of Business Improvement Area Board members to:

a.  ensure that all Business Improvement Area Board members are provided with the opportunity to receive relevant training in relation to strengthening financial governance, internal controls, and fraud prevention for Business Improvement Areas; and

b.  consider leveraging Internal Audit to help review key financial controls in support of Business Improvement Areas and provide support and/or guidance in this area.

2.  City Council request the General Manager, Economic Development and Culture to improve the existing training of Business Improvement Area Board members by ensuring that all Business Improvement Area Board members:

a.  are made aware of their responsibility before issuing payments to ensure supporting documentation is obtained and that services have been provided; as well as perform monthly bank reconciliations to ensure that payments processed were approved; and

b.  are supported to ensure that there is appropriate segregation of duties, including potentially hiring someone to assist all Business Improvement Areas in performing bank reconciliations, where necessary.

3.  City Council request the General Manager, Economic Development and Culture to consult with Business Improvement Area Board members to identify any other emerging needs that the City can support Business Improvement Areas on including, but not limited to, information technology security support.

4.  City Council request the General Manager, Economic Development and Culture to assist the City of Toronto's Business Improvement Areas to work with the City's Open Data technology staff to provide, in a suitable format and to be placed on an annual basis on the City's Open Data Portal, the following:

a.  all publicly disclosed financial information from the Business Improvement Areas' Annual Reports and financial filings that are submitted to the City for income and expenses; and

b.  all publicly disclosed financial information pertaining to major projects that the City of Toronto has partially or fully funded.

The attached report summarizes the results of the Auditor General's review of allegations of fraud. The case involved two BIAs resulting from the actions of a consultant who worked for each Business Improvement Area (BIA) at different times beginning in 2017. This investigation was initiated based on concerns raised by the City's BIA office of the Economic Development and Culture Division.

After concluding our investigation but before our public report was issued, we were apprised by law enforcement that "the police conducted their investigation independently of the Auditor General. The suspect has been identified and arrested by police, and has been charged with fraud."

The consultant was not interviewed as part of the Auditor General's work in order to retain separation of the work conducted by the Auditor General's Office and the criminal investigative process.

The Board members at BIA 1 should be commended for catching and pursuing this matter once it was detected.

The purpose of this report is to identify areas where BIAs in general can improve internal controls to prevent similar situations from occurring, and to identify opportunities for the City to support the BIAs in doing so. While we recognize that Boards are comprised of volunteers who already spend considerable personal time on these activities, information about key internal controls is relevant and critical to any enterprise that relies on volunteers, consultants and other professionals for support. 

The Association of Certified Fraud Examiners (ACFE) in its 2020 Report to the Nations notes that:

"Non-profit organizations can be more susceptible to fraud due to having fewer resources available to help prevent and recover from a fraud loss. This sector is particularly vulnerable because of less oversight and lack of certain internal controls."

The Auditor General has made three recommendations to lessen the risk to other BIAs. Note that although these recommendations relate specifically to either BIA 1 or BIA 2, the lessons learned should benefit all BIAs and all City organizations. Management has agreed to all three recommendations.