District officials say FBI investigation underway to find source of $2.9 million bank fraud scheme.

PMG PHOTO: COURTNEY VAUGHN - Portland Public Schools says the district is working with the FBI and other investigative agencies to determine how nearly $3 million was fraudulently transferred to an external account.

UPDATE: Portland Public Schools says it has successfully recovered roughly nearly $3 million in district funds that were fraudulently transferred to an external account.

School district officials say they discovered the fraud and missing funds last Friday, Aug. 16, and have since been working with external auditors, the FBI, The Portland Police Bureau and other law enforcement agencies to determine how the incident happened.

Claire Hertz, deputy superintendent for PPS, said $2.9 million in district funds were transferred to a fraudulent bank account disguised as a PPS contractor.

As of Monday, the funds had been frozen in that account. The following day, the district announced the funds were "securely returned" to PPS coffers.

"We anticipate receiving all of the funds back," Hertz said Monday. "We have begun an internal investigation to determine the origin of the transaction and how and why the transaction was processed."

By Monday afternoon, PPS notified its employees and school community members of the fraud incident and how the district is responding. Two PPS employees were placed on paid administrative leave pending an investigation, but PPS officials clarified that investigators suspect the incident was carried out externally.

"The initial information indicates the fraud was perpetrated externally and no district employees were responsible," Hertz said Monday. She noted that the bank fraud that PPS fell victim to is "something we're seeing across the country."

District officials declined to specify which employees were placed on leave. They said a "vendor account management review" is underway, as well as additional control measures. Additionally, all employees were asked to undergo a mandatory training this week, a district management team said.

"We are using this incident to further strengthen our financial controls and we'll share our experience with other school districts," PPS officials said by phone interview Monday.

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