Ontario Provincial Police are investigating an aborted $12-million deal by the city of Toronto's parking agency to buy an empty strip of land next to Highway 400 — a deal the city's top auditor said was riven with conflicts of interest and had taxpayers on the verge of overpaying by more than $2.6 million.

A scathing report last summer by city auditor general Beverly Romeo-Beehler found that executives at the Toronto Parking Authority worked behind the scenes to inflate the price the agency could justify paying for the land at 1111 Arrow Rd., then backdated and even deleted key documents and gave contradictory answers when her staff began scrutinizing.

A provisional agreement to buy the land for $12.2 million had been signed, but it was scuttled after Romeo-Beehler intervened.

OPP spokesperson Staff Sgt. Carolle Dionne confirmed Wednesday that a full investigation has been launched but it is still at a very early stage and no persons of interest have yet been identified. The case was referred to the OPP by the Toronto Police Service because it felt it could have a potential conflict of interest, she said.

"We determined, yes, there was possible criminal activity there, so that's why we took on the case and are investigating," Dionne said.

Toronto police would not say how the matter landed on their desk.

The city's integrity commissioner and lobbyist registrar have also been asked to investigate by city council. Neither office would provide any update on their probes in response to questions from CBC News.

By law, both officials have to refer a case to "the appropriate authorities" if they deem there's enough evidence of a criminal or other offence.

'Such significant questions'

Coun. Josh Matlow, who sits on the city's audit committee and who openly wondered last summer whether police shouldn't take a look at the deal, said he's not shocked at this latest development.

Coun. Josh Matlow says there were 'such significant questions' raised about the land deal that he's not shocked it's under police investigation. (Garry Asselstine / CBC)

"There were such significant questions raised to the auditor general regarding the land deal itself, the valuation, and the relationship between many of the parties, including the participation of the local councillor," Matlow said.

The councillor for the area, Giorgio Mammoliti, had no comment when reached by phone.

Mammoliti also sat on the Toronto Parking Authority board while the land deal was being hatched, and is named in the auditor general's report 28 times. The report says he approached the parking agency in summer 2015 about buying the property — a parcel of fallow land wedged between Finch Avenue on the north, Highway 400 on the east, Arrow Road to the west and the Prayer Palace evangelical megachurch to the south.

Years before, in 2009, Mammoliti had successfully pushed, against city staff's recommendation, for the owner of the land to be able to erect an advertising billboard on the property. Revenue from that billboard was the main reason Toronto Parking Authority executives cited as justification for paying $4 million above the appraised value of the land alone, which was around $8 million.

Coun. Giorgio Mammoliti, who represents the ward where the land is located, sat on the Toronto Parking Authority board while the deal was being hatched. (Christopher Katsarov/Canadian Press)

In the end, the auditor general determined the fair value of the billboard to be $1.6 million, and the overall fair price to be about $9.6 million — or $2.6 million below what the parking agency was in line to pay.

The main reason to buy the land in the first place was to build parking for a Finch LRT station, expected at the intersection in 2022. The local business improvement area in Mammoliti's ward has also had its eye on the space as a potential site for its vision of building the world's tallest flagpole, which it hopes will draw tourists to the area.

In an emailed statement Wednesday evening, city of Toronto spokesperson Wynna Brown said the city and the Toronto Parking Authority "take this matter very seriously" and "both city staff and staff of the TPA will co-operate fully with all authorities as requested," but she would not comment further on the news of the OPP investigation.

Contact Zach Dubinsky (zach.dubinsky@cbc.ca, 416-205-7553) or John Lancaster (john.lancaster@cbc.ca, 416-205-7538) if you have a tip on this or any other story.