Audit finds Toronto overpaid by millions for shelter overflow hotel rooms

The City of Toronto overpaid by millions of dollars for hotel rooms used to shelter those experiencing homelessness before and during the COVID-19 pandemic, according to the city’s auditor general.

An audit published toward the end of May found the city overpaid by $13 million for charges that should have been covered by its contracts with hotel owners.

It also found Toronto paid up to $3 million for vacant rooms at the start of contracts and another $5 million-plus for empty rooms at hotels rented under a pay-per-use agreement.

Social distancing requirements as a result of the pandemic at the beginning of 2020 saw Toronto dramatically ramp up the number of hotel rooms it used to accommodate people experiencing homelessness.

Before the pandemic, the city relied on around 700 hotel rooms as part of its shelter system, the auditor general’s report said. These rooms were meant primarily for families and refugees, while others were accommodated in the city’s standard shelters.

By March 2022, after two years of pandemic protocols, the city recorded 3,900 people staying in 2,900 hotel rooms across 29 locations, the report said.

The figures suggest hotel rooms rented by the City of Toronto’s social services and housing staff shot up by more than 300 per cent in 24 months.

The report found that, in 2021, Toronto spent roughly $320 million on hotel space associated with its shelter operations. Of that, $118 million was spent on rooms themselves and $29 million on meals.

“The City of Toronto implemented the most comprehensive response to the COVID-19 pandemic for people experiencing homelessness in Canada,” a spokesperson for the city told Global News.

“(Toronto) moved quickly in 2020 to open 48 new temporary shelter sites to provide additional space for physical distancing, avert potential outbreaks in shelters, save lives and minimize the spread of COVID-19 in shelters and the community.”

The auditor general acknowledged that the pressure of rapid transition during the pandemic made keeping track harder for city staff but said some issues existed before the pandemic began.

“Every dollar matters when it means more funds can be used directly towards making sure there are enough emergency shelter beds in the winter months or more funding can be redirected towards creating additional permanent housing to address homelessness,” the report emphasized.

Apparent overpayment of a local tourism fee was identified as a key area of overspend.

The report said $13 million plus tax was charged for DMF, a destination marketing fund collected by hotel associations to boost tourism and regional marketing.

The charge, levied by some hotels at three per cent for the city, was not in the city’s contract with hotel companies, the report found.

“Some staff who process invoice payments were not familiar with the contracts or whether a particular charge should apply,” the city’s auditor found.

The uncontracted spend amounted to 52,000 nights in a room or 140 rooms with food and wraparound support for an entire year, the report calculated.

According to the report, the hotel operator stopped charging the fee for all hotel rooms beginning in January 2022 and agreed to refund a three-month period of the fee against future invoices.

The charge, according to the report, began appearing on invoices in August 2019 and before. “These charges are not related to the pandemic,” the report said.

It noted that contracts “clearly state the price (i.e., the room rate) is all-inclusive except for taxes.”

The DMF fee is not a tax.

“(The city) appreciates and welcomes the findings of the Auditor General (AG) in both the Case Management and Hotel Operations audits,” Toronto’s spokesperson said.

They said the city’s solicitor was working to review the terms of contracts with hotels and to “recover any costs, where applicable.”

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The auditor general’s report also criticized the city for paying for rooms without filling them.

“We note that the vacant room charges do not appear to have been discussed and that the City continues to pay for vacant room charges even when the contract does not specify that vacant rooms are to be paid for,” the report said.

The report estimated between $2 and $3 million was spent on rooms that were unused at the start of their lease “while new programs were ramping up, as well as for a variety of other operational reasons.”

The report also found that hotels — referenced in the report simply as Hotel C and Hotel D — charged the City of Toronto for vacant rooms at pay-per-use hotels. This practice cost the city $5.4 million plus tax between April 2020 and Aug. 2021, the auditor general said.

“At Hotel C and Hotel D, we observed that the hotel operator charged the City the full room rate of $114 per room night for vacant rooms from April 2020 to August 2020 even though vacant rooms should not have been charged at all,” the report said.

The audit also found the city paid $840,000 for storage space at one hotel between August 2019 and 2021, alongside a $68,000 payment to use up to four hotel printers over two years.

A motion will be considered at the next audit committee meeting to request an update on the issues laid out in the report. If approved, staff would report back in July.

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