Fraud costs county thousands
July 3, 2008 · Updated 11:30 AM
A case of fraud reportedly orchestrated north of the U.S. border could put Island County out more than $28,000.
A day in late August marked the genesis of the crime when the Island County Auditors Office issued a warrant a voucher authorizing payment or receipt of money for $28,665 made out to a Toronto-based asphalt company.
The warrant was cashed at a bank and cleared our bank, Key Bank, on Sept. 14, said Treasurer Linda Riffe.
An employee from the company contacted the auditors office in October, stating that the payment never arrived. The county then sent an affidavit to the firm that, when returned, would report the issue and request a replacement warrant.
The company did not return the signed affidavit to the county until Nov. 16, at which time the document was routed from the auditors office to Riffes department. She was notified almost two weeks later that the warrant was fraudulent and the payees name had been altered.
Riffe immediately contacted Key Banks fraud department as well as its vice president, who also acts as the countys banking relationship manager. Next in line was the Island County Sheriffs Office, which assigned a detective to the investigation.
Finally, the Secret Service of the U.S. Treasury has been notified, Riffe said, adding that the county auditors office also brought the state auditor into the loop.
The banks policy dictates that a fraud claim must be reported within 24 hours or the victim is stuck with the bill. Island Countys warrant cleared in September, leaving them holding the bill.
I am currently working closely with the bank and investigators and hope to recover the funds, Riffe said. This is a good reminder to individuals and businesses that should payment not be received when they are expecting it, they need to report it immediately to the issuer rather than waiting several months, as happened in our case.
The monetary loss could have been even worse, as a warrant for $45,000 had preceded the
misappropriated money. However, the treasurer immediately cancelled the warrant and issued a stop payment.
County Commissioner Mac McDowell said that around the same time in August, several other warrants made out for inordinately large amounts were flagged, averting further losses. And arguably even more disturbing than the stolen $28,000 was the interception of a box of forged Island County checks at the U.S. - Canadian border.
Its much bigger than we previously thought, McDowell said.
The commissioner suggested closing out the account, but Riffe was told by the detective and the banks fraud department that the tactic is not effective.
They hit for a very short period and then they move on, she said. Even if we change the number, the next claim that goes up to Canada allows them to start all over again.
The account involving the fraud is for warrant clearing only, Riffe clarified, it is not the treasurers main bank account.
Riffes office receives an electronic file every morning with a list of warrants that have cleared and those still outstanding.
The information received includes the warrant number and dollar amount, Riffe said. We match this against the warrant register provided to us by the auditors office. The bank does not provide us the payee name in the report; we match the warrant number and dollar amount, not the name on the warrant.
Once the county first learned of the fraud, they immediately began to develop safeguards to staunch any further monetary wounds. At the time of the crime, the county lacked the programming and technology necessary to catch a problem of that ilk at the front end.
We are taking every step we possibly can, said Riffe, who has become well-versed in fraud through continued education. I try to apply best practices and follow the recommendations of the experts in the field.
The treasurer has been working with Island County Central Services and the bank to implement a positive pay system that will include the payee name and utilize a three-way check system.
This will be activated shortly, Riffe said. In addition, we are taking other steps in the short interim to protect county funds. Because we do not want to jeopardize the ongoing investigation, I cannot release more information at this time.
Setting up the positive pay system has been an involved process, but Central Services Director Cathy Caryl and Network Administrator Stan Bradshaw have persevered over the last three months, running tests and dealing with multiple agencies and banks.
This is to prevent it from happening again, Caryl said.
Island County has not been the only jurisdiction hit, Riffe said. She has spoken with personnel from three other counties that have been victims of similar incidents. The recent fraud cases should serve as cautionary tales for businesses and organizations that take unnecessary risks by delaying deposits.
When deposits are not made daily, businesses are putting themselves at risk for fraud or theft, she said. If there is a problem with a check or warrant, depositing daily will ensure that the problem is caught early and more easily resolved.