The City of Greater Sudbury fell victim to a $1.5-million fraud in which a payment was made to an alleged fraudster posing as a contractor for the Lorraine Street transitional housing complex.
“The illegal activity was caught quickly by staff, and we are confident that we will be able to recover the majority of these funds,” the city noted in a media release issued this afternoon.
“The process to recover these funds is lengthy and involves several outside agencies, such as the contractor, our insurer, banks and courts. We are very thankful for the quick and supportive actions from these partners, and from the police.”
The city reported that the fraud took place in December, and that Greater Sudbury Police Service is investigating it.
Municipal staff are also performing “a detailed internal review of the matter.”
“While we proactively work to prevent these types of occurrences, and are continuously evaluating and implementing changes to address them, fraud events are becoming increasingly sophisticated,” the city noted in their media release.
They also clarified that the timelines for the Lorraine Street project completion are unaffected by the fraud, and that work has continued on site.
In a statement of claim filed by the city in a Toronto court on Jan. 15, it’s noted the city issued an electronic funds transfer of $1,501,380.66 on Dec. 21, 2023.
The statement of claim, filed against several banks, aims to recover these funds.
An unknown fraudster is alleged to have opened a Bank of Nova Scotia account, and infiltrated the network and email accounts of Flex Modular, which is the general contractor in charge of the municipal Lorraine Street transitional housing complex project.
The email account of a Flex Modular senior project manager who was in regular contact with the city regarding the project was included in the alleged hack.
Using this email address, the fraudster reportedly sent the following message to the city:
“So sorry for the confusion, but our accounting department just confirmed we changed our bank recently from RBC (Royal Bank of Canada) to ScotiaBank which I have re-attached the correct information for the EFT (electronic funds transfer) along with the requested documents for your reference.
“Please can you confirm receipt and have it updated as soon as possible. Also, can we get an expected time frame for the payment?
“Please let me know if you need anything else.”
This email included an entire legitimate chain referenced, and some documents previously submitted by the project manager.
The fraudster is alleged to have intercepted follow-up emails from the city to facilitate the banking change into their account.
The funds were sent by the city via electronic funds transfer on Dec. 21, and municipal staff learned on Dec. 28 that Flex Modular did not receive payment.
It was at this point they realized they were victims of a fraud.
In their claim, the city seeks information from banks which they require to trace the funds, freeze the proceeds of the funds and return them to the city.
This isn’t the first financial pitfall to befall the Lorraine Street project.
Its original general contractor, Nomodic Modular Structures Inc., declared bankruptcy on October 6, 2023, grinding the project to a temporary halt.
After an almost two-month pause, Flex Modular was installed as the new general contractor.
When its groundbreaking ceremony was held this summer, the four-storey, 40-unit transitional housing complex was expected to open by the end of 2023.
The latest update provided by the city in early December has the building opening by “early- to mid-2024.”
— Sudbury.com
