Peterborough selectmen agree to overspend budget by $1.7M to pay for scam

  • Residents packed a small meeting room in the Peterborough Town House Tuesday night to ask questions about how town officials got tricked out of public funds. Photo by Rick Green

For the Ledger-Transcript
Published: 9/22/2021 4:22:18 PM

Peterborough Selectmen apologized to the public Tuesday before agreeing to overspend their budget by $1.7 million to cover costs of a cyber scam that could have been averted if town officials had followed their own financial procedures.

“I am sorry,” Selectman William Kennedy said. “I am really sorry that we’re in this situation. It is a horrible situation. And, frankly, I am angry as well. I’m angry at the perpetrators of this scheme.

“They are pretty sophisticated when you think about it. We had some failures in procedures, but the reality of it is that they’re the perpetrators.”

The town can cover the loss by tapping a $3 million unrestricted fund balance, money that accrues after obligations are met. Some who packed a small meeting room in Town Hall expressed concern that this could cause their property taxes, already among the highest in the state, to increase further.

Scammers posing as the ConVal School District and bridge contractor Beck & Bellucci managed to persuade town finance employees by email to alter the routing of their payments. Three transactions totaling $2.3 million went missing, including one electronic fund transfer that was done after the problem first came to light.

Town employees failed to follow written policies for verifying such payment alterations, including the requirement for a notarized form and a phone call, Town Administrator Nicole MacStay said.

“The Peterborough town investigation showed the protocols were in place that would have prevented the fraud from occurring,” she said. “The procedures for changing the ACH (electronic) transactions were not followed. The failure prevented the discovery of the fraud until it was too late.”

Annie Card, a local businesswoman, told the selectmen there seems to be a lack of accountability among town officials.

“I’m grateful for Mr. Kennedy’s apology,” she said. “I think it’s just sad that this is the first we’ve heard that anybody is sorry about it.”

Card and others at the meeting questioned how town employees could fail to follow simple verification procedures before changing the destination of $2.3 million in payments.

“The official line from the selectmen is how sophisticated this scheme was,” Card said. “I see no level of sophistication in it and that concerns me that you’re still calling it sophisticated. It gives me no confidence that it will not happen again.”

MacStay said no staff members were criminally culpable in the scam. She has declined to name staff members targeted in the scheme. She also said vendors were not at fault.

Selectman Bill Taylor spoke to the accountability issue.

“I am more than sorry that this happened,” he said. “It really only matters how we come out of it at this point. I’m probably defensive of town staff to a fault. I apologize for that too.

“As far as accountability, the two people that were involved in this fraud and were responsible for it, don’t work for the town any more.”

The long-planned retirement of town Finance Director Leo Smith occurred after the fraud was announced. Town accountant Shannon Kelley resigned.

At the meeting, MacStay detailed losses incurred in the scam through three misdirected electronic transfers: A July 9 payment for $528,513 intended for Beck & Bellucci, a July 23 payment for $1.2 million intended for the ConVal School District, and a Aug. 13 payment for $585,237 intended for Beck & Bellucci.

Town officials first learned that something was amiss on July 26 when the school district advised that they failed to receive payment.

On Sept. 3, the U.S. Secret Service recovered $594,331 of the money intended for Beck & Bellucci.

Given the partial recovery, the total loss in the scam was $1,752,978.

The town initially reported that the stolen money had been converted into cryptocurrency so that it couldn’t be recovered.

However, MacStay said in an interview before the meeting that it turns out a portion of the money had not yet been converted, and that’s how the Secret Service was able to make the partial recovery.

The rest of the money has been converted, making it harder to recover.

She explained why the town didn’t put a halt to all electronic fund transfers on July 26 when it learned that the school district had not received its payment. If it had done so, this would have averted the loss of the Aug. 13 payment for $585,237 intended for Beck & Bellucci.

“At the time we had no idea what the problem was,” she said. “We had been doing ACH (electronic) transactions for years. It didn’t occur to us that there was necessarily a problem there.”

In any case, the Secret Service was able to recover the Aug. 13 payment.

Financial accounts that were set up to handle the misdirected payments were done so fraudulently with false identification or stolen identification, she said.

Some have questioned how the scammers had enough inside knowledge to target specific vendor payments.

MacStay said the perpetrator of the fraud was able to compromise the email account of a town finance staff member in April and then was able to monitor email exchanges between this staff member and other town employees and members of other organizations. With access to this account, the scammer was also able to delete emails.

She said this appears to be the biggest case of cyber fraud ever involving a town in New Hampshire.

Acknowledging people were upset about this issue, Select Board Chairman Tyler Ward opened Tuesday’s meeting with a warning to the public that “uncivil” remarks would be ruled out of order. 


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