State recoups all but $316,000 in fraud case

Official says highway agency targeted

The Arkansas Department of Transportation has recovered all but $316,000 in a fraud that almost cost the agency $2.4 million, a top department official said Wednesday.

The department also has changed its fiscal office’s protocols for handling financial arrangements with contractors to prevent such an occurrence from happening again, said Randy Ort, the agency’s deputy director and chief operating officer.

Ort briefed the Arkansas Highway Commission on the fallout from a nearly seven-week period in 2016 that began when someone purporting to be an employee of a contractor asked to change the bank accounts where money that the department owed the contractor was sent.

Ort attributed the ability to recover the money to the swift action of an agency fiscal official once the fraud was discovered.

“It was a learning experience,” he said. “We were fortunate to receive all but [$316,000]. We are very hopeful we’ll receive that $316,000

as part of restitution.”

His comments came a little more than two weeks after a California man was indicted in the case.

Shelly Singhal of Newport Beach, Calif., was indicted by a federal grand jury on one count of conspiracy to commit wire fraud, nine counts of wire fraud and one count of obstruction of justice.

The case has been assigned to U.S. District Judge D. Price Marshall Jr. No plea has been entered.

The indictment was handed down July 7 and was first reported by Arkansas Business.

Ort identified the defendant as the same Shelly Singhal who was convicted in 2013 of impeding the lawful function of the Internal Revenue Service. He was fined $20,000 and sentenced to nine months in prison, he said.

Ort provided the following account to the commission of the events from four years ago:

At the time, the department had three contracts for road projects in Northwest Arkansas — two in Benton County and one in Washington County — with Crossland Construction Co. of Columbus, Kan. The contracts totaled about $44.5 million.

On Aug. 2, someone purporting to work for Crossland called the highway department wanting agency officials to change the company’s bank account where payments were sent.

Department officials make payments once an inspector verifies that the work is done.

“We followed all the protocols in place at that time,” Ort said. “All the proper paperwork was submitted, all the information was checked and on Aug. 4 all that was finalized, and a new account was utilized to make payments to Crossland.”

Almost seven weeks elapsed before, on Sept. 19, a Crossland employee called to say the company hadn’t received any payments since mid-August.

In that seven weeks, the department had processed nine payments — three for each job — for a little more than $2.4 million.

“We asked them to submit some more detailed information,” Ort said. “The following day, on Sept. 20, we received an email from Crossland complaining how they were due a certain amount of money.”

An employee in the highway department’s fiscal division contacted Crossland and, Ort said, “based on that phone conversation, it was determined that we’ve been involved in — a victim of — a scam. The person who contacted us and made the changes to the account information was not an employee of Crossland Construction Company.”

The agency employee then contacted both the department’s chief financial officer at the time, Mike Boyd, and the Arkansas Department of Finance and Administration, where the payments actually originate.

The same day, the new bank account was frozen, and the FBI was called in.

When a bank official informed Singhal that his accounts were frozen, he replied, “Got it. Thank you very much,” according to the indictment.

Ort said the FBI seized the balance in the bank account, which was $2.14 million.

“It actually took a while, but we’ve actually recouped that $2.14 million,” he said.

The remaining $316,000 was wired to a bank in Spain, according to the indictment, which said that Singhal, someone identified as Individual A and others “created false documentation, including contracts and invoices, to support these international wire transfers.”

The highway department has since made a series of changes to procedures involving contractor bank accounts to help ensure it won’t happen again.

“In addition to the direct deposit authorization form, the vendor must provide an original copy of the confirmation letter,” Ort said. “It must be signed and notarized by at least one of the corporate officials of that entity.

“It has to include their physical address, email contact information, their federal employee identification number. All these must be original documents. We’re not going to accept any electronic copies of those documents. They are going to have to hand carry them or send them through the U.S. mail or FedEx or something along those lines. They also have to provide us a canceled check, an original copy of a canceled check on that account.”

Once all that is completed, he said agency personnel will contact the vendor for additional confirmation. The direct deposit won’t begin automatically. Instead, the first payment will be a paper check, or state warrant. Agency personnel will contact the contractor to confirm that it was received.

“Then a couple of weeks later, they should receive their first direct deposit,” Ort said. “We will again follow up to make sure everything went as intended.”

The department didn’t have vendor fraud insurance in place at the time and still doesn’t.

“That is something we’re certainly going to look into to see if that would be beneficial,” Ort said.

In response to a question, he said the incident might not have been as random as it appeared.

“They apparently had obtained quite a bit of information about the company — insider information — even down to having a copy of the CEO’s signature,” Ort said.