Toronto Community Housing Corp. alleges two former executives oversaw the filing of more than $1 million in fabricated costs in connection with reconstruction work after a fire at 200 Wellesley St. E.

That’s according to statements of defence filed by the city-owned social housing agency Monday in Superior Court, in response to lawsuits launched by Lou Canton and Roman Mesec alleging they were wrongfully dismissed.

TCHC assigned the pair to work at its for-profit subsidiary, Housing Services Inc., in 2007. In 2010, they had responsibility for overseeing HSI’s role in the reconstruction of the TCHC apartment building at 200 Wellesley after a fire displaced many of its 1,200 residents for weeks.

Canton and Mesec allege they were fired last fall without cause and without being given reasonable notice. They say they performed their responsibilities “in a highly competent and professional manner.”

The men also challenged comments made by former TCHC CEO Gene Jones, who said publicly that a forensic audit found evidence of wrongdoing by several employees. Jones said the findings would be turned over to police. No criminal charges have been laid.

Jones resigned after the city ombudsman released a scathing report about hiring and firing practices at TCHC.

Toronto Police spokeswoman Meaghan Gray said Tuesday the force’s financial crimes unit has completed its review into the actions taken at 200 Wellesley. “At this time, there is no active investigation,” she wrote in email.

In its statement of defence, TCHC alleges Canton and Mesec were responsible for “overseeing, acquiescing and carrying out fraudulent conduct … resulting (in) the submission of over $1 million in undisclosed, unauthorized and, in some instances, completely fabricated costs to the 200 Wellesley Insurance Claim.”

None of the allegations has been proven in court.

The two men “jeopardized TCHC’s critical insurance coverage and caused significant harm to TCHC’s reputation,” the court document says.

As a wholly owned subsidiary of TCHC, HSI was not permitted to profit from the work performed in connection with the 200 Wellesley insurance claim.

“The significance of this prohibition against an insured party profiting from an insurance claim was always clearly communicated to Canton and to other HSI executives,” the statement of defence says.

TCHC’s insurance claim relating to 200 Wellesley is “currently under review,” TCHC spokeswoman Sara Goldvine said. She declined to say if allegations of fraud could jeopardize the claim.

“We cannot presuppose what the insurer’s decision will be,” she wrote in email.

TCHC suggests in its statement of defence that Canton and Mesec stood to gain financially by making the struggling HSI appear profitable. Established in 2004 as a money-making venture for the TCHC, HSI’s mandate was to act as a for-profit corporation providing construction, property maintenance and call centre services to TCHC and other Ontario landlords.

It folded at the end of 2012 due to poor fiscal performance.

Canton was earning $135,660 and was eligible for a discretionary bonus up to 15 per cent of his base salary based on HSI’s performance. “Notably, the bonus was not payable if HSI did not meet its annual external revenue and margin targets,” the court document says.

Loading... Loading... Loading... Loading... Loading... Loading...

Mesec’s bonus was up to 10 per cent of his $140,000 salary based on HSI’s performance and other agreed upon conditions.

According to the statements of defence, Canton and Mesec “formulated rates for HSI tradespeople that would be charged to the 200 Wellesley Reconstruction Project that included a 10 per cent mark-up for HSI’s overhead and 10 per cent mark-up for HSI profit.

“At the direction of Mesec and Canton, HSI actually charged $75 per hour for all trades people … regardless of skill and experience,” says the statement of defence, adding that some trades people were charged out at more than double their actual rate.

An estimated $136,000 was inappropriately charged to the 200 Wellesley insurance claim, it alleges.

The statement of defence also alleges that Canton and Mesec directed that HSI charge fees for individual apartment reconstruction that earned HSI profits between 15.5 per cent and 181 per cent.

“As a result, approximately $621,000 was inappropriately charged to the 200 Wellesley Insurance Claim.”

In addition, the statement says that under Canton’s “explicit direction” HSI fraudulently charged unrelated costs to the insurance claim by:

Modifying 16 invoices totaling $174,018 “from unrelated jobs that had already been paid by other parties to appear to relate to 200 Wellesley.”

Causing two invoices for $106,500 connected with an unrelated and unprofitable project in Ottawa to be processed and reallocated as 200 Wellesley project costs

Causing approximately $619,000 in other unrelated costs to be reallocated as 200 Wellesley project costs.

The TCHC says both men were terminated for just cause and are not entitled to the close to $700,000 in damages they are claiming. The agency is asking their lawsuits to be dismissed with costs.