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City nearly scammed out of $1.9M

Copyright © 2021 Albuquerque Journal

Four years after the city of Albuquerque paid a scammer hundreds of thousands of dollars in a vendor fraud scheme, it nearly fell prey to a similar ploy due in part to city employees' “neglect and complacency,” according to a new investigation.

In fact, a swindler was set to get $1.9 million from the city until a bank flagged the transaction, according to a recently released investigation by the city's Office of Inspector General.

“It was determined that staffs' (sic) neglect of duties, complacency and the deliberate deletion of records all played a part in the fraudster nearly succeeding in its attempt to defraud the City,” the OIG report says. “Two of the three staff involved in processing the paperwork relating to this transfer demonstrated a dereliction of their duties.”

The city's Department of Finance and Administration – where the breakdowns occurred – is conducting an internal investigation and considering discipline for two employees, Director Renée Martinez said in a statement.

The department agrees with the OIG's finding that the employees' neglect and complacency enabled the scam, but disputes that protocol is lacking.

“The City has policies and procedures in place for verifying requests to change bank information, and in this case they were not properly followed,” Martinez said, adding that the employees involved had undergone “a detailed review” of the city's electronic funds transfer policy in January 2020.

According to the OIG report:

A crook impersonating a legitimate city vendor emailed a city accounts payable coordinator in November requesting to change the bank account where the city transfers payments to the vendor.

The request had typographical errors, including the writer identifying himself as the “present” of the company.

The accounts payable coordinator ultimately processed the request, and the city issued a $1.9 million payment to the account.

In March, Wells Fargo Bank contacted the city about possible fraud in the payment file. The city's assistant controller called the vendor and learned the company had not requested the bank account change. The bank initiated a fraud fund recovery and ultimately recovered the money.

The OIG's investigation found that the accounts payable coordinator “violated procedure and practice on three occasions” leading up to the payment.

That includes signing a form that said the banking change had been verified, which was not possible, “as the vendor would not have verified this fraudulent information included on the request form,” the report states.

A city accounting manager, meanwhile, approved the banking change but failed to thoroughly review the request and “did not appear to understand the levels of review expected of his position,” the OIG determined.

“Further, the request letter itself (if properly reviewed) might have raised a red flag, as it was on a bank letterhead but included spelling and grammatical errors that might alert a reviewer to the possibility for fraudulent activity,” the OIG report says.

A city spokeswoman said the city has reported the incident to the FBI and the Office of the State Auditor but have not heard whether a suspect has been identified.

Con artists have perpetrated related scams multiple times around New Mexico in recent years.

In 2017, the city paid a swindler $420,000 in a similar vendor fraud scheme. That prompted then-State Auditor Tim Keller – now Albuquerque's mayor – to issue a fraud alert.

“Unfortunately the city of Albuquerque was hit by a scam that cost it over $400,000 in taxpayer dollars,” Keller said in a news release in April 2017. “This is now the second entity in New Mexico that we are aware of that was tricked into diverting money to imposters posing as legitimate businesses.”

And just last year, Bernalillo County publicly announced it had transferred $447,000 to a fraudster posing as a vendor.

Asked whether the city had specifically warned accounts payable staff about such schemes, a city spokeswoman said “this type of fraud” was covered during the aforementioned January 2020 policy review with accounts payable staff.

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