Scammers Steal More than $300,000 from Baltimore Workers' Compensation

Baltimore, MD (WorkersCompensation.com) – Out-of-state scammers took advantage of a loophole to steal more than $300,000 from the Baltimore workers’ compensation system’s bank account, investigators said in a report issued Wednesday.

For more than a year, scammers deducted more than 350 payments electronically from the bank account. In some cases, the bank account was used to pay for a scammer’s credit card bill.

In a six page report, the city’s Office of Inspector General said that a total of $317,241.71 was drained from the account between November 2020 and January 2022. Inspector General Isabel Mercedes Cumming said the theft was detected by a third party vendor when they couldn’t reconcile 358 transactions made to the account. 

According to the report, the theft of the “Compensation Claims Corporate Checking Account” was difficult to detect because the account maintains a $0 balance at the end of each day. Additionally, the report found, the bank only sent out monthly reports instead of a daily accounting of the account’s transactions.  

“The investigation revealed that oversight mechanisms were not in place to identify and stop the fraudulent charges on the accounts quickly. By mail, the Bank did provide the employee with monthly Account Analysis (AA) statements outlining the service fee charges associated with each WC account transaction,” the report said. “However, the employee did not receive the more detailed Demand Deposit Account (DDA) statements from the Bank. These DDA statements displayed the daily WC account transactions, including the unauthorized debits. The employee acknowledged to the OIG that they would have identified the fraudulent transactions sooner if they had received the DDA statements.” 

The investigation also determined that the bank had charged the city more than $34,000 in service fees between June 2019 and February 2022. The vendor who caught the mistake had previously offered the city a vendor-managed back account option at no additional cost, which the city refused. The vendor said this option would have included fraud and loss protection. 

The OIG identified 22 accounts that had fraudulently accessed the account electronically, most of them from out-of-state. It’s not clear how the individuals got the account numbers, the OIG said, or whether the perpetrators were 22 individuals, or one individual with 22 different fake accounts. 

Working with the city’s bank, M&T Bank, the city was able to recoup most of its losses. The bank credited $291,000 to the city after it reviewed the case and found evidence of financial fraud. 

The city has since hired the vendor, Sedgwick Claims Management, has since taken over administration of the account. 

“This will allow the third-party administrator to closely monitor the account by reviewing detailed statements from its own bank. Eliminating the account will also obviate the need for the city to pay account fees,” City Solicitor James L. Shea wrote in a response to the OIG’s report. 

The OIG recommended, and Shea agreed, that the account be closed. Sedgwick will take over the payment functions done though the account by opening its own account and billing the city for the money needed for those transactions, Shea said in the letter. The move would not only allow for more oversight, but would also save money. 

“This will allow the Third-Party Administrator to closely monitor the account by reviewing detailed statements from its own bank,” he wrote. “Eliminating the Account will also obviate the need for the City to pay Account fees. Since the City’s Third-Party Administrator already offered to manage these payments through its own bank account – fee-free – as part of its current contract with the City, shifting to this model should be expedient. It will also allow the Workers Compensation Contract Administrator to focus on other aspects of her job and not task her with monitoring an Account for which the City does not initiate the transactions.” 

The OIG said the investigation into the theft and how the scammers were able to access the account number has been handed over to federal law enforcement agencies.

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