City of Sioux Falls a Victim of an Automated Clearing House Fraud Scam
In mid-April, the City of Sioux Falls Finance Department received via email a vendor update request that appeared to legitimately come from a local approved vendor authorized to conduct business with the City. The request, which also appeared legitimate, was to update the vendor’s electronic payment information, which is not an uncommon request. Later in the month, the City transferred two payments to the new bank routing address for legitimate work completed by the vendor.
On Wednesday of this week, the City was contacted by the actual vendor regarding the expected payments and it was discovered that the vendor had not initiated the change in banking information. An investigation revealed that someone was posing as the legitimate vendor in order to defraud the City of Sioux Falls. This type of scam is a common fraud activity that has occurred across the country and is called automated clearing house (ACH) fraud. The case is being investigated as a felony under South Dakota law. Additional details of the crime are not being released at this time, as this is an ongoing investigation that is being investigated by the Sioux Falls Police Department in coordination with the Federal Bureau of Investigation (FBI).
The City is working closely with the investigation to recover the funds. To the extent the lost funds cannot be recovered, it is likely the loss will be covered by the enhanced crime insurance coverage carried by the City, and the loss has been turned over to the South Dakota Public Assurance Alliance. This situation serves as a very harsh reminder for all of us that not everyone is honest and anyone can become a target. The City, like any individual or business, can be a target for this type of criminal activity.