​Unsafe Inspections

Strong record keeping and internal controls can help safeguard city governments from damaging vendor fraud and abuses.

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​Toronto's auditor general (AG) says poor record keeping by city officials may have enabled three vendors to commit multiple frauds related to fire safety inspections, according to a Toronto City News report. AG Beverly Romeo-Beehler alleges three companies controlled by the same individual — Advance Fire Control, Advanced Detection Technologies Corp., and York Fire Protection — engaged in double billing, overcharged for work, double bid for city contracts, and used multiple false identities in their business with the city over a decade, the National Post reports. The AG's report notes a missing audit trail, and only about half of invoices were documented by the city's Facilities Management division. A lack of a documented inspection trail may mean fire alarm inspections were not carried out and those buildings are not safe.

Lessons Learned

Because of poor or nonexistent record keeping and management controls at the city of Toronto's Facilities Management division, it is not clear whether this case will result in criminal charges. Nevertheless, auditors should take note of the many measures the city could have taken to help prevent what happened.

First among other measures, the city should pay for a comprehensive new audit of fire and safety at city facilities, as noted in the National Post story. That is likely to reveal a great deal about what went wrong and why, even if the audit trails are weak. This should have been done a long time ago.

According to public records relating to audits of city services and administration conducted over the past several years, Toronto Fire Services was last audited in September 2013, with a focus on "improving the administration and effectiveness of firefighter training and recruitment." However, under these circumstances of apparent poor management controls, the proposed new audit and its results should be managed and received by Toronto's city manager — or, even better, by the mayor and council, themselves. And the city and its AG should take a good look at its fraud risk assessments and priorities. Seemingly lower value, repeating activities that are contracted out often are overlooked as higher risk for fraud.

Secondly, it appears managers within the city's facilities management department needed much better training in the awarding and management of contracts, documentation and related controls, and fraud awareness and fraud risk assessment techniques. The long list of specific improvements needed includes:

  • Probing the backgrounds of companies bidding on contracts to verify ownership and qualifications, including of key employees. For the city of Toronto, this measure might need to include face-to-face meetings with vendor company officials to ensure they are distinct and have real employees. In fairness, this also is somewhat of a Province of Ontario matter, as the certification of fire safety inspection technicians falls under its jurisdiction.

  • Reviewing contract-bidding policies and procedures to avoid, restrict, and scrutinize situations where the same companies successfully obtain the same contracts year after year.

  • Regular review and updating of contract performance standards for the quality, completeness, and timeliness of expected work and its documentation. The city also should more rigorously monitor the inspection work as it is being performed and require interim progress reporting by the successful bidding companies.

  • Enforced requirements for full and accurate invoicing of work performed. The city needs verification routines and other internal controls to help avoid and detect fake, duplicate, overbilled, and other illegal practices. Partial information is not sufficient, and cut-and-paste sign-offs for the work are unacceptable.

  • Where performance or other standards, such as for work documentation, are not being met, clear and timely sanctions are needed, along with documentation of these events.


Third, the city's oversight, accountability, and management culture seem overdue for improvement. Management of the city's Facilities Management division appears to have been aware of many issues in this case, but it continued to award the contracts to the vendors in the same way. Inspection reports and related documentation were not reviewed closely enough. This would have enabled the division to uncover faked signatures by nonexistent inspectors, inspections of facilities where sprinklers supposedly existed (but didn't), and other fraudulent activity much earlier. Expectations for accountability and consequences where these expectations are not met seem badly needed.

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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