Released on August 01, 2013, 11:00 PM EDT
Tag #: 659
Inside and Out
Transit Ticket Scandal:
Nadorozny’s Sorry Saga
CAO Nadorozny, City Solicitor Canapini and Director Human Resources,
Fowke should step down
Left - Canapini: Bad legal advice; Nadorozny:
Lack of accountability, Fowke:
Incompetent and negligence
The scandal concerning the contracts between Zio’s and the City of
Greater Sudbury is a perfect example of how business malpractices leads to
loss that is difficult to repair. This case also brought to light the
importance of accountability, which has been neglected for far too long on
behalf of the City. No one is held accountable for public funds. This
allowance of no accountability, could obviously lead to additional fraud
in the future. It is therefore necessary to ensure that accountability
takes place. To aid with the recognition of when such a malpractice
arises, there should be transparency regarding public funds. This monetary
information should be available and open to public. Furthermore, officials
working for the City should be more thoroughly investigated or be shown
disciplinary action against them, as rather than attempting to find a
solution, they have tried to cover up this issue. Kevin Fowke, for
example, attempted to defend any disciplinary actions against employees
involved in the Transit scandal. There should be no tolerance for such a
mismanagement of public funds and for such unprofessional misconduct.
City and Zio’s First Contract
Tony Sharma is a director, president and
secretary of the downtown transit kiosk. Under the company number 1211250
Ontario Inc., city signed its first contract with Zio’s In-Transit Cafe.
Expiry of the City-Zio’s
company numbered 1211250 Ontario Inc., is now operating as Zio’s Tuck
shop. The contract between this company and the City of Greater Sudbury,
which permitted them to sell transit tickets on consignment at a kiosk at
a downtown transit terminal, expired. Upon expiry of the contract, the
company was more than 142,000 in arrears.
New Approved Contract
new contract, allowing the company to sell transit tickets on consignment,
had improved terms for the contractor compared the one prior. This
contract, which was approved by the council, includes provisions for two
Zio's new services
new contract that the City signs with Zio’s allowed them to run a ticket
counter and information boot. The contract’s renewal was based on
adequate performance for the duration of the contract. During this period,
Zio’s already owed $262,000.
company was close to $215,000 in debt.
Zio’s owes money to the
this point, Zio’s owes the city $142,459.
Extension of Contract
this point, the company owes the city more than $340,000. The 2004 signed
contract expires yet it is extend again, for the third year.
company is close to $334,000 in debt. Still, the contract is extended for
a fourth year.
Continued Debt Growth
debt has reached $387,634.
has reached $428,578.
Debt Rises Again
has reached $581,818
1, 2007 — December 31, 2007
review of the revenue processes is initiated at Greater Sudbury Transit by
the city’s external auditor, KPMG. Some months later, it was discovered
that the 1211250 Ontario Inc. owed more than $800,000. This discovery was
made upon the City’s development on reporting and monitoring procedures
related to ride card and pass inventory.
Debt Nearly $1
company reached $850,602 in debt.
first year transit kiosk extension expires. The City extends the contract
for a second year. The company is $737,047 in debt.
second year transit ticket kiosk extension expires. City extends the
contract yet again, in attempts to regain their monetary loss. The company
is now $824,025
Debt climbs to $1
company reaches more than $1.1 million of debt owed to the City.
After receiving only
one applicant (Zio’s), City cancels transit kiosk bid
issuing a tender for the new ticket kiosk contract, the city cancels it
due to its only applicant being 1211250 Ontario Inc.
Notice of default
providing post-dated cheques, the company agrees to pay the $832,050 it
owes the city by September 10. This was in response to the Notice of
Default letter that was sent to them from the City giving it two days to
repay the debt.
Zio's sells more
than $22,000 worth of bus tickets is issued by Greater Sudbury Transit to
this date, the city had not been paid since April 28, 2009 and is owed
$866,537. $287,910 was recovered by the city through letters of credit, a
certified cheque cash on hand and $96,000 in unsold transit tickets. The
contract with Zio's Tuck Shop is henceforth terminated.
of Greater Sudbury wins $578,816 through a judgment. They additionally
gain costs of $1,211 against 1211250 Ontario Inc., money the city has
still not been able to collect.
Bigger, Auditor General, handed in his audit concerning the Greater
Sudbury Transit Kiosk to city management. Management’s delays in getting
back to him with comments, caused his plan to present the report at the
August 9 Audit Committee to fall through.
deadline for the city to sue Sharma to get its money back is quickly
approaching. When Bigger informs Mayor Marianne Matichuk, an emergency
meeting is held the next day, to discuss the matter.
Audit is presented.
than a month ago, the two-year deadline for the city to sue Sharma has
expired. Bigger finally gets to present his report to the Audit Committee
staff who has had an involvement in the matter acknowledges, as we did in
2009 when the matter was first brought to council, that better business
decisions could have, and should have, been made.” This is the statement
issued by the city to apologize for how staff handled the transit tickets
handed to OPP.
following is a statement made by Greater Sudbury Police Chief Frank Elsner
when, at a city council meeting, he informed the councillors that Ontario
Provincial Police investigators were in town to look into what happened
with 1211250 Ontario Inc.:
“I've asked them to do whatever they can to expedite this, as ... we
could really use some closure,” he says.
12, 2012 — May 10, 2013
April, the OPP was asked for an update on the situation. The response was
simply that it was still ongoing and had no additional information to
following is a statement that Greater Sudbury Police Service Chief Frank
Elsner read to city council from a letter from the OPP:
has revealed there was evidence of poor business practices and a lack of
management oversight with the vendor,". Furthermore, the letter
states that “Evidence also confirms both the vendor and the City of
Greater Sudbury failed to follow the terms and conditions set out in the
contract, which allowed this situation to manifest to the extent that it
statement was made after a year-and-a-half investigation when the OPP
determined that there were no grounds to criminally charge anyone,
including city staff.
Kevin Fowke attempted to defend any disciplinary actions against employees
involved in the Transit scandal.
is yet another attempt at an internal cover-up by the Human Resources
intends to apply Freedom of Information request.
intends to apply for Freedom of Information request. Bureaucrats working
for the City are likely not allowing proper procedures to follow, and are
likely setting obstacles to prevent the release of this information to the
(1) Who altered the cheques that were originally issued to the account
of 1211250 Ontario Inc. and instead deposited them into Tony
Sharma’s personal account?
Why did City staff not notice this practice in advance? Who is
responsible for the lack of oversight?
Who is responsible for the continuous renewal of the contracts?
Why did City want to hide any disciplinary actions taken against
(5) Did the man at the centre of the scandal –
Nodorozny - receive any disciplinary actions against him?
(6) Did the man who attempted to cover up this scandal – Canapini -
receive any discipline?
(7) Did any of the missing money divert to City's bureaucrats private
(8) Should their personal property and any bank account information be
revealed to public, and should it be investigated?
(9) How is it still a mystery how this much money went missing from
public funds, and how is no one responsible?
City of Sudbury Citizens have the right to know the answers to all of
these questions. On this note, Nodorozny, Canapini, Fowke must stepdown.
It is incredible that the city waited until 1211250 Ontario Inc. reached
arrears of over $1.1
million before even attempting to take any actions. They have shown a
disservice to the public by wasting public funds and must thus be held
based on the official wall of silence that surrounds the investigation,
discipline, and alleged missing
of transit ticket money, it seems inevitable that someone knows more than
they are saying.
Lawyers representing several media groups and civil
organizations are fighting in court and with City hall bureaucrats for
details of the case to be released to the public.
The waiting game continues.
Released on August 01, 2013 at 11:00 PM
original article initially published on Regulation
& Governance, 5, 368–385. and Journal
of Public Economics, 96 (9-10),712-726. Excerpts from the
article as follows.
public procurement regulation: A study of rationality in local decision
The use of private contractors engaged through procurement is common in
most public sector areas. One major goal of public procurement through
competitive tendering is to increase public sector (cost) efficiency,
reducing costs while keeping quality constant or getting higher-quality
service at the same cost as before. The laws and regulations pertaining to
public service procurement are designed to ensure that the objective –
increased efficiency – is attained. Although research has demonstrated
that costs usually fall by 20–30 percent as public procurement is
introduced, the process does entail some problems. One problem is that
government officials are tempted to give preferential treatment to special
interests. These actions usually take the form of giving local firms
preferential treatment to foreign firms or firms from elsewhere in the
showed that contracting provides new opportunities for special interests
to influence policymaking.
will be demonstrated here, local officials are tempted to take measures,
some straight forwardly illegal, others on the borderline between legal
and illegal, to circumvent procurement regulations, often resulting in
local firms being awarded contracts. The aim of the article is to examine
the strategies used by local governmental decision makers to bypass
procurement regulations and to analyze the rationality underlying their
actions. It has also been demonstrated that decision makers favor local or
domestic firms. A substantial amount of cases where the local government
has deviated from (or broken) procurement regulations or competition laws
can be found in many public undertakings, such as child and elder care,
research findings highlight the complexity underlying decisions to deviate
from procurement regulations. It will demonstrate that deviation from
procurement directives is often not due to mistakes or lack of knowledge,
but reflects intentional strategies and can therefore be seen as the
product of rational decisions and actions. From the legislators’ point
of view, these actions undermine the intent of the law, and the public in
these municipalities will have to pay more for services than otherwise.
The facts also suggests that regulations stressing economic efficiency
alone, to the exclusion of other values, are not infrequently regarded by
local governmental officials as impeding their efforts to serve what they
see as their communities’ public interest, even if it is not
economically efficient to do so. Studies of these practices are therefore
of general interest both in terms of the implementation of laws and
regulations and from an accountability point of view.
main tool of the central government for promoting the use of public
procurement is passing laws that demand the local level authorities to use
competitive tendering when procuring goods and services. The policymaking
by the local government is subject to central government regulations, but
at the same time the central government’s ability and possibility to
realize its own goals is dependent on the cooperation of the local
government. This means that the local government has to undertake tasks
that are based on the central’s government orders/decisions where the
central and local goals and interests are converging as well as tasks
where central and local interests/preferences do not coincide. In addition
to the tasks delegated by central government, local authorities have the
responsibility to take initiatives on matters of local interest.
are examples of when a local government deviates from procurement
regulations, so it would be of interest to determine whether there are
instances in which such actions might be optimal in terms of economic
efficiency (i.e. obtaining the best possible service at a given cost). If
decision makers deviate from procurement principles for such reasons, they
are in violation of the spirit of the law, but are actually increasing
efficiency. Therefore, actions taken for such reasons are desirable in
terms of economic theory and could be seen as motivated by the efficiency
value of local self-government, despite the deviation from the procurement
consider the case when the number of competing firms is small. If there is
only one outside bidder with costs well below those of local firms, it has
the incentive to enter a bid just below the expected bids of local firms
to secure the contract and still make a substantial profit. In such a
case, giving local firms a discount when bids are compared (violating the
first principle) would force outside bidders to make lower bids, closer to
their actual costs, thereby saving local taxpayer money. Note that the
discount must be known in advance and that, if the strategy succeeds, the
outside firm will still end up with the contract. If the contracted firm
is located far away, it might be more expensive to monitor its actions and
harder to enforce any needed sanctions; this could be especially true if
the outside firm is from another country. This might form the basis of an
argument for preferring local firms, as using local firms might reduce the
costs of monitoring the compliance of contracts and the costs of
enforcement in the event of breaches, resulting in a lower total cost even
though the price of the service itself might be higher.
there are situations in which deviations from procurement regulations
might be theoretically optimal, the overall conclusion in the literature
is that such situations are rare and that the benefits of favoring local
firms are small even in those cases. Allowing preferential treatment of
local firms may give rise to rent-seeking behavior that reduces economic
growth, leading to higher taxes and distorted resource allocation. Overly
rigid procurement laws might result in the shutdown of businesses in
unexpected areas if some firms lose contracts in other areas. The
possibility of such occurrences raises the question of whether current
procurement laws might be harmful to economic activity and overall
efficiency in rural areas. The answer to that question, however, exceeds
the scope of this article and must be saved for another time.
August 01, 2013
L., Holmgren, J. (2011). Bypassing public procurement regulation: A
study of rationality in local decision making. Regulation
& Governance, 5, 368–385.
C.; Finan, F.; Moreira, D.B. (2012). Corrupting learning:
Evidence from missing federal education funds in Brazil. Journal
of Public Economics, 96 (9-10),712-726