Notice to the Community: Investigation into Check Fraud and Recovery of Public Funds

The City of Mercer Island is providing notice to the community about a check fraud incident that occurred in early 2025, resulting in a net loss of $50,000 in City funds. Through coordinated recovery efforts and insurance, the City recovered $370,350.94 of the $420,350.94 in stolen funds, limiting the final loss to the cost of the insurance deductible.

The City recognizes its critical responsibility to steward and protect the public’s resources. To maintain transparency and accountability, this notice explains how the fraud occurred, lessons learned, coordinated law enforcement efforts that recovered most of the stolen funds, and immediate corrective actions taken.

The Incident

In January of 2025, an individual impersonating a current City contractor made a request to City staff to change the mailing address for their upcoming payments. The request used the contractor’s actual name and title and appeared to originate from a legitimate email domain. This request was forwarded internally to the Finance Department along with a request to change the address.

The address change was processed, and a check for $420,350.94 was mailed to the fraudulent address.

Discovery

On Feb. 24, 2025, the City’s contractor indicated that they had not received the last progress payment, which is when City staff realized that the funds were sent to a fraudulent actor. Upon learning of the accounts payable fraud and loss of public funds, the City immediately notified the Mercer Island Police Department (MIPD), the City’s banking institutions, and the Washington State Auditor’s Office. In addition, immediate actions were taken to implement additional vendor verification procedures to strengthen internal controls over the vendor database and prevent additional loss.

Investigation

MIPD conducted a comprehensive investigation into this matter. Detectives worked closely with the King County Prosecuting Attorney’s Office and, through the warrant process, served multiple financial institutions to obtain records and request the seizure of funds. As investigators traced the stolen funds across state lines and through multiple banking institutions, they were able to identify a suspect and seize a total of $314,998.95. MIPD’s investigation also determined that there was no evidence that any City employees or the City’s contractor were involved in the fraud scheme.

Due to the fraudulent activity crossing state lines, the case was referred to the FBI, which declined to take it on because the net loss was below the threshold to engage on these types of cases. Given that outcome, MIPD continued to actively pursue the case.

MIPD will assist the King County Prosecuting Attorney’s Office in the filing of charges against the out-of-state suspect(s). Once charges are filed and an arrest warrant is issued, MIPD will coordinate with partner law enforcement agencies to apprehend and extradite the suspect back to Washington state.

The City delayed public disclosure of this matter to avoid compromising the investigation, giving detectives time to track the funds and identify the suspect, which helped recover a significant portion of the stolen funds.

Recovery of Public Funds

The City recognizes its responsibility to accurately track, safeguard, and invest the public’s resources. Staff have worked tirelessly to mitigate the financial impact of this incident. Through a series of bank account seizures and an insurance claim, the City has recovered $370,350.94 of the $420,350.94 in stolen money:

• Recovery Efforts: Collaborative work between MIPD and banking institutions allowed the City to recover $314,998.95 on two separate occasions:

1. $216,405.77 was seized by MIPD in April of 2025.
2. $98,593.18 was seized by MIPD in August of 2025.

• Insurance: The City’s insurance provider reimbursed an additional $55,351.99.
• Final Impact: Despite these efforts, the City ultimately lost $50,000 in this accounts payable fraud scheme – the deductible under the City’s “impersonation fraud” insurance coverage.

Corrective Actions and System Security

Although the City had protocols in place to prevent fraud, this incident highlighted areas where existing safeguards could be strengthened. Since this fraud was discovered, the City moved swiftly to enhance its internal practices, using this as an opportunity to reinforce defenses and implement more rigorous protocols to guard against these increasingly common fraud schemes.

• Internal Audit: City Management engaged external consultants to independently review City accounts payable disbursement policies and the control environment. The review focused on internal controls over accounts payable disbursements, vendor additions and changes, approval workflows, and the segregation of duties. This work included interviews with staff, data analysis of the vendor database, and sampling of accounts payable disbursements.
• Vendor Payment Review: City management staff worked independent of the Finance Department to perform validation testing of all vendor changes for the prior six months to ensure the accuracy and reliability of vendor information.
• Policy Changes: The City implemented an internal policy for vendor account management and maintenance. All vendor data changes now require secondary review and formal approval before any funds can be issued. Supervisory monitoring through periodic reviews will ensure procedures are applied consistently.
• IT & Software: Following the completion of a financial software transition, the City implemented stricter digital workflows.
• Training: As part of the City’s ongoing commitment to cybersecurity, City management enhanced existing staff training with additional focus on identifying and preventing email fraud schemes. These efforts are ongoing.

Moving Forward

The City of Mercer Island remains proactive and vigilant against all types of fraud. As check fraud becomes increasingly common across the country, the City is sharing this information not only to be accountable to the Mercer Island community but to remind residents and local business owners to remain cautious with their own financial data and transactions. City staff remain dedicated to the continuous improvement of internal controls to protect the community's resources.