Out-of-state scammers stole more than $317,200 from a Baltimore bank account used to pay city employees’ workers’ compensation insurance, the Baltimore inspector general announced Tuesday.
The city recovered most of the funds but ultimately lost more than $26,000.
Isabel Mercedes Cumming, Baltimore’s inspector general, published an investigative report Tuesday detailing how multiple external bank accounts withdrew $317,241 over more than a year from an account used by the city’s law department.
The bank account was a zero balance account, meaning a law department employee transferred an exact amount of money into the city’s account and a third-party vendor automatically used it to pay employees who were receiving workers’ compensation benefits — pushing the account’s balance to $0 each day and making the withdrawals hard to track.
It wasn’t until the unnamed third-party vendor noticed in January that it could not account for 358 separate transactions that occurred from November 2020 to January. Among the transactions were individual credit card bills paid using the city’s bank account number.
In total, investigators found that 22 names were associated with the 358 fraudulent charges, but it is unclear whether up to 22 people were involved in the theft or one person created multiple accounts.
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A federal law enforcement agency is criminally investigating the theft and how the scammers obtained the city’s bank account number.
The inspector general’s investigation also revealed the bank used for the workers’ compensation program did not send detailed deposit statements, which would have included the unauthorized transactions, to the law department. One law department employee was tasked with overseeing both the bank account and the third-party vendor the city hired to manage its insurance payments.
The employee told Cumming she would have noticed the fraudulent charges sooner if she had been receiving deposit account statements.
“Oversight mechanisms were not in place to identify and stop the fraudulent charges on the accounts quickly,” according to the inspector general report.
After learning about the fraudulent transactions, the bank and city officially quickly disputed the unauthorized transactions, according to the report. The city reclaimed more than $290,000 by May but lost $26,000 because some charges occurred outside a 60-day window to report fraudulent activity.
The inspector general’s investigation also identified that the city was paying a monthly service fee to the bank that added up to $34,000 over more than two years.
In response to the report, Jim Shea, the city solicitor, said the law department will close the compromised checking account. Instead, the city’s workers’ compensation program will be managed entirely by a third-party vendor, which will use its own bank account and bill the city for the money it needs to pay claims on Baltimore’s behalf. The move will eliminate the service fee the city was paying to the bank.