FBI investigating online New York school district theft

IDG News Service - A New York school district has reverted to using paper checks after cybercriminals tried to steal about $3.8 million from its online accounts just before Christmas, prompting an FBI investigation.

For three days starting Dec. 18, cybercriminals started transferring money overseas from the accounts of the Duanesburg Central School District, which has two schools with about 950 students about 20 miles west of Albany, New York.

Hackers sent $1.8 million to an overseas bank on Dec. 18, then sent several transfers totalling around $1.2 million on Dec. 21, according to the district, which provided information on the theft on its Web site.

The next day, hackers tried to send around $759,000 to multiple overseas accounts, but the school's bank, NBT Bank, blocked the transaction and notified district officials.

"At this time, the two previous transactions were also discovered," the district wrote. "The FBI was contacted and launched a criminal investigation."

Since then, about $2.5 million of the $3 million has been recovered by NBT Bank. The district said it is "committed to doing everything in its power" to recover the remaining $497,200.

The school district's plight, reported on security analyst Brian Krebs' Web site, is part of a rising trend of cybercrime aimed at government and business bank accounts, which have proved to be lucrative sources compared to consumer accounts.

The organizations often use the ACH (Automated Clearing House) system for money transfers. ACH is a system used by financial institutions for exchanging details of direct deposits, checks and cash transfers made by businesses and individuals. In the written statements on its Web site, the school district did not indicate that the fraud is related to ACH.

According to the National Automated Clearing House Association (NACHA), a U.S. nonprofit association that oversees the ACH system, 9 billion transactions were processed in 2002 worth more than US$24.4 trillion.

If cybercriminals can obtain the authentication credentials required to transfer money, the impact can be devastating, particularly for publicly-funded organizations such a school district. While banks in the U.S. have an obligation to reimburse consumers, limiting their liability to $50, the banks do not necessarily have to compensate businesses and other organizations for losses related to online transfers.

Since the theft, the school district has closed all of its former accounts and opened new ones with "restricted online access," it said. The district is requesting that paper checks be used for payments. It has set up a separate transfer account to handle payments that can't be made by checks, it said.

In addition to the FBI, the New York State Police's Cyber Crime and Critical Infrastructure Unit is investigating.