The MuniBlog will publish an ongoing series on issues that may face municipalities in 2020. This posting is part of that initiative.

What happens when a seemingly legitimate request becomes a million-dollar mistake?

Late last year, a Colorado town was conned into wiring just over $1,000,000 to a bank account intended to pay for construction services related to bridge work. The reported fraud started in late October when a person claiming to be an employee of the contractor submitted a form requesting payment by wire rather than by check. While prior payments had been made by check, the form submitted was a form created by the municipality. Staff reviewed the form and found all to be in order – but did not confirm with the contractor (such as by placing a call) that the request was legitimate.

Within a few days, the municipality had made two payments by wire for the legitimately submitted invoices to the fraudulent bank accounts. Upon receipt of the wires, those funds were reportedly wired out of the country. About two weeks later, municipal staff became aware of the potential fraud and reached out to the contractor. He confirmed that he had not requested a change in the method of payment.

The municipality has since removed the form from its webpage and now does not pay vendors by wire until verified. The municipality has also paid the actual contractor and submitted a claim under its insurance coverage for reimbursement.

Sadly, financial crimes involving wire transfers have become very common; and a wire is usually irreversible after 72 hours. As a best practice, we recommend that all requests for wire payments be confirmed in a separate conversation with the vendor.