BC Business
Paul Teichroeb, chief licence inspector for the City of Vancouver
What’s the worst thing that could happen if, while running your business, you searched for a few “efficiencies,” maybe found a cheaper “supplier” of goods, ignored some of the more annoying regulations or took just a few extra risks with your workers? You could end up talking to this guy.
FOILED. BY A FIVE-POUND BLOCK OF BLACK-MARKET MOZZARELLA It’s happened to more than one unscrupulous pizza joint owner in Vancouver’s Downtown Eastside. Buying shoplifted cheese from a drug addict desperate for a fix is irresistibly cheap. Losing a business licence for three months is not. The catalogue of small-business-owner bad behaviour—the kind that results in a padlock on the door and/or punishingly severe financial penalties such as a licence suspension—is no slim volume. It includes more than criminal activity, health infractions and tax evasion. Are businesses strong-arming their customers with high-pressure sales tactics? Are they endangering their employees? Selling cigarettes to minors? Enforcing the rules and regulations falls to a small army of inspectors, investigators, auditors and sundry control officers. In many cases, they’re responding to a complaint. Sometimes they just follow their noses. Here’s a look at a few of B.C.’s busiest bloodhounds:
DIRTY DEEDS DONE DIRT CHEAP Back to the mozzarella story. Recalls Paul Teichroeb, chief licence inspector for the City of Vancouver, “We had a pizza place in the Downtown Eastside that was basically making all their pizzas with stolen cheese. They were, in a way, hiring people to steal because on the street everyone knew they’d pay $2 for a $10 block of mozzarella.” A steady supply of cut-price mozzarella, usually lifted from a local Safeway, ensured that the shop owners could undercut their competition with 99-cent slices of pie that cost only pennies to produce.
The gig was up after police followed a couple of cheese thieves from the grocery store to the pizza outlet. In 2003 the city slapped a three-month licence suspension on Adham Abdullah, owner of Adam’s Pizza at 151 East Hastings. He appealed the ruling, and at a subsequent hearing at city hall, civic lawyer Catherine Kinahan presented an armload of uncomplimentary reports from the health, police and licence inspector’s office, not to mention six witnesses to support allegations “that a large amount of stolen cheese had been found on the premises,” posing both “a serious health risk” and undermining legitimate vendors in the area.
The witnesses included Vancouver Police Sgt. Doug Fisher of the anti-fencing unit, senior health inspector Richard Taki of the Vancouver Coastal Health Authority and Grant Hardman, director of security for Canada Safeway. Abdullah’s wife represented him at the hearing and agreed that the business had not been properly managed. She then pleaded for a shorter suspension, citing family hardship and her belief that other shops in the area guilty of the same behaviour had received lighter penalties. Her claims were rejected.
There are currently about 43,000 licensed businesses in the city of Vancouver, and Teichroeb anticipates that in 2005, 40 to 50 of them will be revoked or suspended—for anywhere from a day to the rest of the year. Hundreds more will receive warning letters or be issued compliance orders regarding improper signage, parking violations, offensive odours and more serious contraventions.
“On occasion [we’ll shut down] something like a hotel or rooming house, more often than not in the downtown eastside,” he says. But most of the culprits are small fry, among them rental property owners, retailers, restaurateurs, pawnbrokers, escort-service operators and those whose businesses belong to the optimistically named ‘health enhancement’ category, i.e., body rub salons, reflexology clinics and the like. (In April of this year, a Richmond massage parlour, Holiday Body Care, was shut down for 30 days for numerous bylaw contraventions including failing to require masseuses to wear proper clothing. Or, in this case, any clothing at all.)
“We are having difficulty enforcing. Additional inspectors would help,” Teichroeb admits. “More and more of the inspectors’ time is being taken up with problem premises and the poor maintenance of those premises.” Depending upon the circumstance— and in large measure, to what degree the business is negatively impacting the neighbourhood—Teichroeb’s team of 28 inspectors will target particular “problem locations.” Inspections of those sites may occur on a scheduled or drop-in basis, and can be triggered by a phone call to City Hall from a concerned citizen or the Vancouver Police Dept.’s problem-premise coordinator.
Violations by home-based businesses are the most difficult to track. Inspectors must give notice before entering a private home, giving the owner time to tidy up any incriminating evidence. In Vancouver, where each inspector is assigned his or her own district to police, nothing beats a years-old familiarity with a neighbourhood when it comes to sniffing out trouble. For instance, why did Joe X, who purchased a residential business licence in 2004, not renew for 2005? A note on file for the home reveals a noise complaint by a nearby resident regarding “incessant hammering.” In the back lane, the trash cans are overflowing with sawdust and empty tins of varnish. By all appearances, Joe’s carpentry venture is alive and well. After further verification by the property inspector, Joe is given a few days’ notice to cease work or eventually answer to a court injunction.
City inspectors are granted much freer access to commercial businesses, which makes gathering evidence easier. Storage units can be opened, furniture and appliances moved, photos taken, and where multiple and recurring bylaw breaches are noted, Teichroeb will call for a coordinated inspection. Reminiscent of The Untouchables, except with clipboards, flashlights and thermometers substituting for Tommy sub-machine guns, a determined group of health, property, building and fire-safety inspector— sometimes joined by a VPD officer—will descend on a business to inventory its failings.
“If it’s a serious life safety issue,” Teichroeb says, “we have the authority to ask BC Hydro to cut power to the building. We do it sometimes on rental housing, or with a grow-op.” In mid-September, city staff on a routine safety check suspected they’d stumbled on a crystal meth lab when they found two propane tanks in the basement of the Pender Hotel. Firefighters were summoned—several of whom were overcome by noxious fumes emanating from the building—which prompted the arrival of a Hazmat team and a complete evacuation of the tenants. No lab was found and accommodations on the upper floors of the hotel, whose street-level retail operation was closed by the city last June, remain open.
Typically, the worst offenders are invited to meet with Teichroeb or his associates at city hall, where they are warned that their licences are in jeopardy. “They will quite often try to sell the business at that point,” he says, “which kicks in the process of looking at new applicants. It’s not unusual for somebody already connected with the business to pretend that they’re the new owners. So we run a criminal background check, ask them to submit a business plan and tell us who is going to be employed. We might get two or three people coming in for the same business, trying to convince us they’re legitimate operators. But they don’t even know how much they’re buying it for. And we’ll just say, ‘Sorry, this isn’t going to cut it.’ ”
Teichroeb admits unscrupulous business folk “have underestimated us in the past. Butt the word is getting out. We’re cracking down, monitoring, talking to new applicants. We do a lot more of this now than we did 10 years ago.”
THE SECRET SAUCE? RAW SEWAGE According to Nick Losito, regional director of health protection for Vancouver Coastal Health, “with basic costs going up all the time, restaurant owners start getting ‘creative.’ They cut corners by understaffing, turning the hot water tank down 10 or 20 degrees and cutting down on their cleaning and pest control.” And, pointing another finger at pizza-slice shops, Losito reports, “they’ll use cheese substitutes or buy it at the back door. There’s an active black market in stolen cheese now.”
VCH issued approximately 3,500 operating permits to Vancouver restaurants in 2005, a number which has grown by an average of 100 new permits per year in the last decade. The one-per-cent closure rate seems a staggeringly small percentage, but Losito says, “It’s in the ballpark compared to other jurisdictions we’ve looked at such as Toronto, Calgary and Seattle. I’m not shocked by it. I don’t think we need to defend it.”
He does admit that the addition of five new inspectors next year, returning the VCH to its 1995 staffing level, is a relief. “When we get above 150 restaurants per inspector, we’re not able to meet the frequency of inspections we prefer.” Restaurants must renew business licences and health permits annually ($528 for the former; $150 or $250 for the latter, depending on the number of seats) and over the year can expect to be paid at least one surprise visit by one of Losito’s environmental health inspectors.
Depending on the relative risk of the establishment, some places receive up to four inspections. On average, based on an inspector’s findings, 30 city eateries annually are forced to lock their doors for failing to meet health standards. Dozens more receive warnings (and follow-up visits) if conditions are found to be lacking but don’t pose an immediate health risk. Unapproved food sources such as that stolen cheese or a cured sausage the owner’s granny cooked up in her kitchen at home or “anything that’s questionable, where there are no labels or receipts to back it up” earn a definite thumbs-down and will be whisked directly into the restaurant’s garbage bin. Inspectors often douse the food with bleach or dye to deter restaurant staff from retrieving it later.
“If it’s a pigsty, we will close on the spot,” Losito says. Particularly, “if there’s no hot water, the dishwasher is broken or there’s an infestation to the point where the safety of the food can’t be guaranteed, like mouse droppings on a prep surface.” It happens. A mouse infestation closed the Shining Garden on Victoria Drive for nine days last June. Losito, who has worked in the health department since 1974 and spent 10 years on the inspection circuit, recalls a Chinatown restaurant kitchen where workers silently carried on even as raw sewage from a leaking pipe flowed across the floor.
About 75 per cent of restaurant closures are less than a week in length, time enough to sanitize the facility, repair faulty equipment and train staff in safe food handling practices. A week’s lost revenue and the ignominy of a public health notice plastered on the front door is usually enough incentive for restaurant owners to toe the line. “Only two or three times out of a hundred cases do we end up closing an establishment for a second time,” says Losito.
In early July of this year, Mother India Foods in North Vancouver was summarily shut to the public by a VCH inspector who observed six separate health violations, not to mention the lack of a valid operating permit. The report noted, “Spices infested with grain beetles… Premises filthy! Equipment, floors, walls, microwaves, shelves, etc. covered in grease and food debris.” Plus this head-scratcher: “Clutter and excess items [are] stored on this site… Remove suitcases, construction equipment, stereo equipment, jumper cables, microphone, wood, newspaper and all other personal items.”
Mother India reopened two days later, but on September 30, VCH inspectors returned and temporarily closed it again for unsanitary conditions, among other reasons. Vancouver’s multi-ethnic culinary scene requires that Losito and his inspectors (several of whom are fluent in Mandarin and Cantonese) walk a fine line between allowing the sale of certain traditional foods and insisting that others be banned as a health hazard. One example is the popular Chinese barbecue pork bun and “basically any baked product with meat inside. We tested them and figured out that they could be safely held at room temperature for four to six hours. So we pretty well resolved that one,” Losito says. Pork buns and their brethren are safe to eat, when stored correctly.
Unpasteurized milk, however, preferred by some Indo-Canadian chefs for use in dairy-based desserts, remains strictly off-limits. “A few years ago there was an injunction against the farmer who was supplying it to the community but one owner was very crafty and continued to use it,” Losito recalls. “We were tipped off by his competition.” The medical health officer yanked his licence immediately.
JOBS TO DIE FOR The president and CEO of WorkSafeBC, David Anderson, shared an extremely sobering thought with his audience at a public safety forum in Vancouver last July. “I wrote 134 condolence letters to widows last year,” he announced. The fatalities included accident victims and those who succumbed to workplace diseases, seven due to asbestos inhalation. (Chilliwack-Fraser Canyon Conservative MP Chuck Strahl, 48, is currently battling lung cancer linked to his exposure to asbestos-lined industrial brake pads two decades ago.)
Among other powers, WorkSafeBC’s 181 safety/hygiene officers and 15 investigators can shut down all or part of your workplace if there’s a death, serious injury, near miss or an immediate danger “such as asbestos being disturbed,” explains Donna Freeman, manager of corporate public affairs. But with 176,000 registered work sites around the province, the former WCB also relies on phone-in tips to collar negligent owners. Its call centre receives up to 800 every month, each one followed up by a safety officer.
In August, at Viceroy Homes in Richmond, a 22-year-old from Saskatchewan was crushed to death when a dolly of heavy wooden trusses suddenly tumbled on him during unloading. He’d been on the job less than week. WorkSafeBC has yet to release the results of its investigation of that incident. But earlier this year the board did make public its findings on the Sea Link Rigger barge tragedy, which claimed multiple lives in 2003. When a supervisor went missing during repairs of the vessel in New Westminster, several workers descended into a confined space in the hull to rescue him. Within minutes, four men died of oxygen deprivation.
Westminster Marine Services was found at fault for failing to identify the hazards of confined spaces or properly instruct its employees in how to work inside them. The board recommended an administrative penalty against the company of $130,000. General penalties can be steeper than this and are issued against firms with subsequent convictions or in the case of a continuing offence.
In 2004 WorkSafe BC issued penalties exceeding $1.8 million against B.C. companies. The amounts varied according to the scope and seriousness of the incident, whether the employer was a repeat, willful non-complier and the size of the firm’s payroll. Under the Worker’s Compensation Act, the board can impose a general penalty (for a second conviction) of up to $568,000 and a further $26,000 per day for each day of a continuing offence. Bonus castigation: a possible 12-month prison sentence.
REVENGE OF THE SPOUSE Cheating the tax collector. It’s the biggest, dirtiest, worst-kept secret in the world of small business. An internal report prepared for the Canada Revenue Agency (CRA) and released this fall singled out the construction sector for a significant part of the blame. The country’s 266,000 construction firms earn about $135 billion annually; most of these businesses consist of fewer than 10 employees. And despite a 1999 federal ruling that contractors report all payments made to sub-contractors —a tax law that has so far helped Ottawa unearth $650 million in monies owed by “underground operators” who failed to file returns—the lure of the unrecorded cash transaction remains.
Looking back on 40 years of managing (or disentangling) the financial records of small entrepreneurs, Vancouver chartered accountant Norm McKinnon says, “You try to set them on the path of righteousness.” But for those who stray, “it’s the aggravation. They figure they’ve got a refund coming anyway and they can’t be bothered to file a tax return. We had someone come in who hadn’t filed since 1977. My blanks only go back to 1998.”
Non-filers or “ghosts” who drop off the rolls, perhaps by changing their address or joining the self-employed to conduct business without a paper trail, are difficult for the CRA to nab. But the 4,500 federal workers, who toil in collections for the agency’s Pacific region, and specifically those in the investigations and enforcement divisions, have more than a few resources for identifying transgressors. “We’re bound to find out,” promises Kareen Dionne, communications manager for the Vancouver Tax Services Office. There are anonymous tips, of course. “If it’s solid, specific information, we take the call seriously and it may warrant an audit,” she says. McKinnon refers to this as the “revenge of the spouse” hotline, since people have been known to divulge their ex-partners’ unreported income out of spite.
The more sophisticated red flags are generated by computers programmed to spot irregularities in tax returns, GST payments and, if you have employees, remittances of source deductions like the Canada Pension Plan or unemployment insurance premiums. When the numbers look suspicious, a human steps in.
In the mid-’90s, Abbotsford poultry farmer Rolf Van Nuys incorporated a fictitious company called Valley Heavy Equipment and registered it under the GST Act. Over three years he filed 14 GST returns, based on non-existent sales totaling $7 million, and received $460,000 in GST refunds. When CRA investigators asked to see his books, Van Nuys “was singularly uncooperative,” as Judge Peder Gulbransen noted in his citation, “and engaged in a desperate attempt to avoid an audit by trying to ignore and then stall any inquiries.” In February of this year he was found guilty of 14 counts of fraud, fined $501,830 and sentenced to 30 months in jail.
Not being able to substantiate your claims will certainly trigger an examination of your tax file, but what really gets the tax collector’s goat is when you manufacture or tamper with invoices, receipts, supplier quotes, etc. Shunting your aberrant, Liquid Paper-spotted paperwork aside, experienced auditors can independently reconstruct your entire income, probe unexplained bank deposits and apply a standard-of-living test to prove how much you must have earned to pay for the expenses you’re claiming.
Think you can hide your earnings offshore? Think again. Reciprocal agreements between Canada, the U.K. and other nations allow the CRA to match up Canadian social insurance numbers with income reports from outside the country. In August, Vancouver realtor Michael Chang was fined $75,000 after he failed to report four years of interest income on his bank account in Hong Kong. This was Chang’s second appearance in court; in 2000, the CRA nailed him and his company, park City Realty, for $256,000 after he falsely reduced the firm’s taxes by claiming personal expenses as business ones.
STEAK KNIVES AND SLEAZEBAGS Garry Spence, director of investigations and enforcement for the province’s Business Practices & Consumer Protection Authority (BPCPA), wonders how some people sleep at night. “I sometimes go home and shake my head,” he says. “How can you take money from an elderly man or woman? Why convince someone who is obviously in poor health to sign up for a credit card to pay for a vacuum cleaner they don’t need?”
Spence’s unit enforces a 2004 provincial act that consolidates B.C.’s previous consumer protection laws. The BPCPA issues, refuses, suspends and cancels licences for debt collection, bailiff, debt-pooling, travel agency, cemetery and funeral service businesses. Among other unfair business practice complaints, Spence and his five-member team also investigate consumer complaints regarding direct-sales contracts. One such complaint is what led the BPCPA to a Nanaimo-based, in-home vacuum sales company. Using the “You’ve won a prize!” tactic, sellers would call seniors, arrange to drop by within hours to present them with their promised set of knives, then spend up to three hours aggressively pitching them a $2,700 vacuum cleaner. Not surprisingly, the knives failed to show up.
In September, David Bertolo and his companies Healthy Air Distribution and MG1 AirTech were ordered to cease direct sales in B.C. for five years, to cancel contracts and to make refunds and provide compensation to specific consumers who were pressured to buy a vacuum. “In cases like this we can also request recovery of investigational costs,” Spence points out. “Say, $10,000, and issue an administrative penalty if they don’t comply, which is up to $50,000 per company per day for a continuing offence.”
Depending on the circumstances, BPCPA investigators, most of whom have law enforcement backgrounds, are authorized to interview witnesses, secure copies of Telus phone records, bank statements or Western Union money orders and even put suspected fraudsters under surveillance. In its first six months of operation last year, the BPCPA fielded almost 7,000 phone calls, launched 113 investigations and paid out more than $2.1 million in restitution to consumers.
A summary of inquiries and complaints to the Victoria-based office puts public disgruntlement with debt collection agencies at the top of the list, but in terms of what industry is really getting spanked, it’s travel agencies that account for four of the five licence cancellations or suspensions on BPCPA ’s 2005 business closures and licensing actions list. “Sometimes they’re a bit surprised when we come knocking on their door,” Spence says. Bottom line? “If one business has to play by the rules, they all should.”
A word to the wise: Don’t assume your lucrative but unethical telemarketing scheme is safe, the boiler room hidden away in a building across town from your upscale home in Oak Bay, Shaughnessy or West Vancouver. Thanks to ongoing cooperative efforts with the RCMP and the U.S. Federal Trade Commission, Garry Spence may already have your number.