​​The Costly Parking Lot

The price of municipal land deals can go up fast when conflicts of interest and governance lapses are involved.

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A 10-month audit investigation has questioned the CAN$12 million price tag for a proposed land purchase by the Toronto Parking Authority ​(TPA), as well as the process the authority used to put the deal together, the Toronto Star reports. The Auditor General's report to the  city's audit committee noted that parking authority executives discussed the deal in secret, and there were possible conflicts of interest involving lobbyists and consultants with previous connections to the owner of the five-acre plot. An independent appraisal ordered by the TPA valued the land at CAN$7.5 million, but the audit report points out that one of the consultants who had helped determine the value of a digital sign located on the land had put together the original deal for that sign for the landowner. The Auditor General concluded that the TPA's actions created "unnecessary risk" of overpaying for the land, but that there was no evidence that TPA staff members or the sign consultant would directly benefit from the deal. The deal is currently on hold.

Lessons Learned

Since this story was written, an interim board overseeing the TPA has appointed an interim president, and Toronto's city council has voted to suspend TPA board members over the questionable land deal. An independent investigation is also underway, which could result in authorities filing fraud charges.

In any event, several systemic issues arising from this complex case need to be addressed — all of which fall into the broad subject of preventing fraud, bribery, and corruption in local governments. In outlining some of the key issues illustrated by this story, I've drawn upon a few resources. Although it is focused on Canadian examples, internal auditors may find one resource particularly useful, Municipal Best Practices — Preventing Fraud, Bribery, and Corruption (PDF), which was published by the International Centre for Criminal Law Reform and Criminal Justice Policy.

Organizations need to identify, assess, and implement measures, such as policies, system controls, monitoring, and disciplinary measures, to mitigate key risk issues. These measures include:

  • Review all procurement and contracting policies and processes for municipal services and infrastructure projects. Misconduct can take the form of kickback brokers, bid rigging, and the use of front or shell companies. Corrupt tendering practices, kickbacks from suppliers, unfair procurement (intervention within the municipality to ensure outcome), irregular municipal purchasing procedures, side payments to municipal purchasers, and procurement dealings based on insider links and arranged tender dealings are all variants of the kind of misconduct noted in this story.
  • ​Look for potential conflicts of interest. Several forms of nepotism or cronyism may have been at play in this story, such as favoring family members, friends, and business contacts in municipal land deals. Hiring decisions and zoning regulation changes based on friendships among colleagues rather than disinterested analysis are additional risks. Where large sums of money are involved, strong conflict-of-interest policies need to be in place and followed strictly. The Toronto case is full of various conflicts of interest — several people had a personal interest in the land deal who might reasonably be expected to have influence over an elected official's performance of his or her duties. There were obvious close links between developers and city officials. Objective processes for establishing the fair value of property must be backed by requirements for detailed assessments, rather than informal estimates written on the backs of envelopes.
  • Assess governance and accountability processes. There are numerous lapses in governance and accountability processes that need to be fixed. Local government officials appeared willing to ignore basic principles, if not legislation, that require land deals to be priced at fair market values through objective and independent decision making. There also are indications of misuse of authority and a lack of transparency such as inappropriate use of on-camera meetings by TPA officials. A governance review of the city's decision-making bodies and authorities with a view to identifying gaps may be necessary. ​
Art Stewart
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About the Author

 

 

Art StewartArt Stewart<p>​Art Stewart is an independent management consultant with more than 35 years of experience in internal audit, financial management, performance measurement, governance, and strategic policy planning.​​​</p>https://iaonline.theiia.org/authors/Pages/Art-Stewart.aspx

 

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