To bolster city defenses against electronic bank fraud, City Controller Annise Parker has announced new security measures and tighter internal controls for cash management and bank reconciliation.

“We read about identity theft in the headlines every day,” she said. “Victims include corporate giants, mom and pop operations, celebrities and average citizens. No one, not even the City of Houston, is immune. We all must change the way we do business.”

The security measures and tighter internal controls are in response to a bank fraud/identity theft ring that made $355,000 worth of illegal electronic debits from a city account last year.  All funds have been recovered.

When the problem was discovered, the Controller’s Office immediately began working with the city’s bank, JPMorgan Chase,   to block electronic access to all city accounts and notified the Houston Police Department.

The Controller’s Office was asked not to release any details until the investigation was nearly complete. Seven people have been arrested so far, but no city employees were involved.

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Inspector Scott  Williams of the HPD
Financial Crimes Unit briefs city
employees about electronic bank fraud.
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“The speed of electronic transactions and the increasing prevalence of financial transactions with no  face-to-face human interaction means we must be even more vigilant," Parker said.

She said the action plan includes increased oversight at every level of city government.  "We believe these changes will put Houston on the leading edge of bank fraud security.” 

The Controller's Office and HPD recently briefed employees from various departments who handle bank reconciliation or financial transactions. The city has multiple operating and depository accounts. The initial account analysis occurs in the departments with the Controller's Office performing the final reconciliation.

The Controller's Office has directed JPMorgan Chase to block all electronic debits from any city bank accounts that are not preauthorized, a practice similar to the way the city handles paper checks. Departments that need to process legitimate credit card or debit transactions must provide assurances that safeguards are in place before permission is granted.

The Controller's Office is also requiring all departments to monitor bank accounts daily. If suspicious activity is noted, departments have been directed to immediately contact the initiator of the transaction to determine its validity. Deadlines for reconciling (balancing) departmental bank statements will be strictly enforced.

"We all need to be vigilant in our personal accounts. Any anomaly in a bank or credit card statement must be addressed immediately," the controller said. "Our first two fraudulent transactions were for $149.95 and $9.95 one month apart. Then the flood gates opened."

Houston City Council and the Houston Municipal Employees Pension System Board of Trustees (HMEPS) have approved a pension board reorganization that includes an appointee for the city controller. This is the first time the controller has had any oversight of the pension system.

"This is a major victory for Houston taxpayers who rely on the Controller’s Office to be their financial watchdog at City Hall,” said City Controller Annise Parker. “I thank City Council Member Mark Ellis for his work in negotiating the new board structure and applaud the HMEPS board for having the foresight to agree to the changes.”

Parker began fighting for input into pension system operations last year when it was revealed HMEPS had an unfunded liability of $2 billion.

“Concessions negotiated last spring dramatically reduced, but did not eliminate, the unfunded liability. Obviously, there is still work to be done to ensure Houston has a pension system that is fair to city employees as well as affordable to taxpayers,” she said.

The HMEPS board has been expanded from 9 to 11 members. In addition to the controller’s representative, Mayor White will have one appointment, one less than he had before reorganization. City Council will have two. City employees will elect four board trustees. City retirees will elect two representatives, and the elected trustees will choose the 11th member.

The controller will announce her appointee to the board in the coming weeks. The agreement with HMEPS mandates that the controller choose someone with accounting, financial, investment or actuarial expertise. The controller’s appointee may not be a beneficiary of HMEPS.