In the summer of 2016, someone started pilfering one of Miami Beach City Hall’s bank accounts by rerouting automatic payments intended to pay vendors and other government bills.
No one noticed the fraud for six months. By the time someone did, the city had been ripped off to the tune of $3.6 million.
Apparently the city could have put fraud controls in place through its bank back in 2012 — at no extra cost. For some reason, the city chose not to.
The extent of the theft, made just before the holidays, rocked City Hall. Now a few days before the City Commission meets for the first time since the scandal, City Manager Jimmy Morales released an initial report on the fraud, which was first reported by the Miami Herald in December. In a memo sent to commissioners Monday, he outlined some details of how the fraud happened. The city’s police department and the FBI are still investigating, he said.
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$3.6 million was stolen, bit by bit, over six months
There are still more questions than answers at this point, including the key question: Who did it?
Morales wrote that he has provided names of suspected people or entities to authorities.
Two managers in the finance department resigned last month in the wake of the scandal: treasury manager Juan Rodriguez, who had been with the city for 14 years, and accounts payable director Bryan Scott Wagner, who’d served in that position for 10 years. The two are not suspected of involvement in the theft. Morales said they should have noticed the unauthorized transfers.
It’s unknown whether other employees were involved — either because they played a role in the thefts or were negligent in not noticing money was missing.
“As I have indicated publicly, while the theft may not have been entirely preventable, the amount could have been mitigated by better performance of the treasury management and account reconciliation process,” he wrote. “I am continuing to examine how we could have minimized the extent of the theft and further personnel decisions may be necessary. Obviously, if the criminal investigation identifies any employee-related issues, those will be addressed as well.”
While the theft may not have been entirely preventable, the amount could have been mitigated by better performance of the treasury management.
Jimmy Morales, city manager
Only $691,770 has so far been returned to the city after its bank, SunTrust, made claims to other banks that received the money fraudulently. It’s unclear how much more can be recovered.
The compromised account holds a substantial amount of public money — the daily balance ranges from $46 million to $144 million. Money from resort taxes, parking fees, red light camera fines, liens and parks and recreation fees go into this account.
According to Morales’ memo, third parties obtained the Beach’s account and routing numbers and used that information to set up automatic payments. It’s the same process you would use to set up an automatic electronic transfer from your checking account to pay a utility bill.
“This took place over a six month period with numerous transactions, resulting in the transfer of over $3.6 million in funds from the account,” Morales wrote. “Finance department staff discovered the transfers in December, and I learned of these transfers on December 19th.”
The city immediately halted transactions from the existing account and opened a new one. Payments are being transitioned to the new account. The city had SunTrust put fraud control meant to prevent unauthorized automatic payments on all city accounts. This gives the city the ability to monitor such payments and block unauthorized transactions.
According to the memo, this feature was offered to the city at no extra cost in 2012 when the account was renewed, but the city chose not to use it.
The manager wrote that the stolen $3.6 million will not affect the city’s operations or ability to meet financial obligations. This includes pension funds, which are held in different bank accounts, and bond proceeds used to finance city construction projects, like the expansion of the Miami Beach Convention Center, which are not held at SunTrust.
Morales has deemed the stolen money to have been removed from the city’s contingency funds, which total about $48 million.