A recent investigation un-covered a novel avenue of fraud whereby criminals recruit municipalities as unwitting coconspirators to their own loss. Initially brought to the attention of the U.S. Attorney’s Office for the District of Maryland by a local municipality, the investigation, conducted jointly with the FBI, concerned a vendor who contacted the city’s department of finance to request the reinsurance of a check. The retailer explained that the original check, received 1 year earlier, had been misfiled and only discovered during a routine review. Because the date was well be-yond the 180-day life allowed by the municipality, as indicated on the check, the merchant sought a replacement. Upon reviewing its records, the city discovered that a third party claiming to represent the vendor already had requested and been issued a replacement check. The third party, in fact, had provided a signed limited power of attorney showing that the retailer had entered into an agreement with this company to collect the payment. Because of the significant monetary amount, the municipality began an audit to determine what had occurred. It quickly discovered that this third party, located out of state, had paid a nominal charge and received a stale-dated check listing.¹ The city’s initial review disclosed four other requests made by and checks issued to this same firm for stale-dated check replacements.

The investigation subsequently identified a total of nine replacement checks, totaling in excess of $157,000, as having been requested and received by this third party from the complainant municipality during a 9-month period. It also deter-mined that this firm received numerous checks from multiple jurisdictions under similar circumstances. Further analysis of those records identified additional companies acting in concert with the original subject business or having the same ownership ancestry. A review of disbursements made from various bank accounts operated by these companies disclosed that no payments were made to any of the original vendors that the third parties claimed to represent.

 

In total, the main subject of this investigation received more than $.5 million in municipal government payments through fraudulent requests and representations. However, and more important, this investigation illuminated a heretofore under-estimated vehicle for commit-ting fraud. 

Attachments:

• 1516805196-article.doc