The reports says as many as 800 Toronto taxi drivers may be involved in collecting benefits to which they're not entitled. (CBC)

An investigation is underway into an alleged widespread fraud against the city involving people who claim to make no income and then file for income support.

The city's auditor general will report next week on whether some people who have business licences are also receiving social assistance — people like burlesque dancers, restaurant owners and hairdressers — who claimed they had no income and received assistance from the Toronto Employment and Social Services.

The auditor general says there could be more than 1,500 people cheating the system — and it could be costing the city more than $20 million annually.

Although owning a business licence isn't "a guarantee of additional income," the auditor's office said it found 1,539 individuals who applied for TESS and had a business licence.

"We reviewed a sample of 30 of these clients and noted that the majority of them had not advised TESS that they held a business licence," the auditor says in an executive summary of the report.

TESS not only provides employment services, it also supplies income support and health benefits to eligible residents.

According to the report, one of the biggest groups claiming TESS benefits is Toronto taxi drivers.

There were 800 claiming benefits in 2010-11.

"For some of them it might be true. But 800 taxi drivers? I find that hard to believe," said Coun. Denzil Minnan-Wong.

"I heard from hard-working taxi drivers in the industry that there were a lot of people who were both driving cabs and collecting welfare and I think when the public hears about this, it just sickens them," he said.

Deputy Mayor Doug Holyday says if there's fraud, something will be done.

"If we have to take criminal action against some people, then we will," Holyday said.

The total cost of the program in 2011 was $1.1 billion. After cost-sharing with the province, the net cost to the city was $193 million.

Among the auditor general's recommendations is establishing a better system for identifying whether or not people receiving assistance have a business licence.

The city's audit committee will review the report and its recommendations next week.