October 28, 2021
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Sebastopol looks to recoup $1.2 million lost in fraud transfer

By: Albert Gregory
August 20, 2021

The City of Sebastopol has filed insurance claims to help recover the $1.2 million lost in a wire transfer fraud, and city hall remains optimistic that the funds will be recovered, according to the city manager and city attorney. 

At the end of April, a wire transfer involving Sonoma County’s Treasury office turned out to be a scam that cost the city $1.2 million. 

Now the city is looking to recoup that money through insurance claims while cooperating with investigators from unidentified law enforcement agencies to find who was responsible for the theft. 

“The city and county are in discussions to explore means of restoring the city’s funds; the city has also made various insurance claims, which are still pending, and we remain optimistic for full recovery. Due to ongoing criminal investigations, we are unable to comment further,” said Larry McLaughlin, who serves as both Sebastopol’s city manager and city attorney. 

The theft was carried out through a fraudulent email that requested a transfer from some of Sebastopol’s funds, which Sonoma County’s Auditor-Controller-Treasurer-Tax Collector maintains.

The email included an account number and a Sebastopol official’s email address that has not been disclosed during the ongoing investigation. 

The total of the lost funds is equal to nearly 10 percent of the city’s annual budget. On July 20, the city council approved adopting some items in their budget at a later date when it could be better determined what the city will recoup from the theft through insurance. 

“Between the city and the county, a number of different policies arguably apply, through different carriers. Claims have been filed, and we expect some coverages to be resolved within weeks, some potentially in six months, at the outside probably less,” McLaughlin said. 

The city became aware of the fraudulent transfer in early June and was advised by law enforcement not to disclose any information. But with budget discussions set to begin, the council thought it best to inform their constituents for the purpose of transparency. 

Sebastopol’s policy is to keep the general reserve fund at 15 percent of the total budget. However, with the theft of $1.2 million, that reserve fund dropped to five percent of the budget or about $580,000. That deficit led to the council placing a 90-day hold on some expenses in the annual budget. 

Putting a hold on some of that initial spending, or paying for it through another fund, saved the city just over $200,000 for now. 

The four items in the budget the council chose to hold off on are $30,000 for the SB-1383 program to increase food recovery that requires acquiring compost, nearly $30,000 for a pickup truck for public works and $20,000 for zero waste building upgrades. Lastly, the city diverted funds from Sebastopol’s vehicle reserve fund to provide $80,000 dedicated for fire engine replacement. 

At that same July 20 meeting, the city council was adamant that this loss, however significant, did not put the city in any dire financial situation, and they have worked to increase reserve funds every year. 

For now, the city must treat the loss as a subtraction from their reserve fund, however hopeful they may be about recovering through insurance.