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City officials say $1.76 million bank fraud was largely recovered; new controls ordered
Summary
City staff told the commission that $1,760,490.25 was misdirected in a fraud scheme; with FBI assistance and insurance the city recovered about 97% and adopted tighter payment controls and bank safeguards.
City officials told the Pittsburg City Commission on June 9 that a bank fraud scheme led to an unauthorized transfer of $1,760,490.25 but that staff, investigators and insurers recovered most of the money.
Darren, a city staff member leading the response, said the transfers were detected quickly and that investigators, including the FBI, were able to freeze accounts and recover funds. "Within about 30 to 40 days maybe we recovered 97% of the funds," Darren said, crediting coordinated work by finance staff, investigators and the city’s insurance carrier.
Commissioners heard that the fraud began when a change to a vendor banking instruction was accepted and an ACH transfer went to an account controlled by fraudsters. Staff said the vendor notified the city when expected funds never arrived, which accelerated the response and retrieval efforts.
Missy, the city’s finance director, described controls the city will impose and tools the new bank will provide. She said the city will restrict ACH transfers above a set threshold and implement positive-pay and other bank-side exception checks. "I absolutely cannot guarantee that [fraud] is not going to happen again," Missy said, but added the city will require verification for vendor-bank changes and daily exception reviews once positive-pay is in place.
Don Nance, who took the criminal investigation lead, and staff described procedural changes including stricter vendor-change verification, limits on large electronic transfers and additional staff training. Staff also said the city is changing banking providers; commissioners approved selection of GN Bank earlier in the meeting to provide local treasury services and fraud controls.
Officials said insurance and recovered funds covered the loss; staff reported most funds were recouped and that lessons learned prompted policy changes, expanded training and tighter transaction approvals to reduce future risk.
The commission did not take additional formal action at the meeting beyond directing staff to continue implementing safeguards and to keep the commission informed.
