Texarkana Arkansas School District lost $228,000 to email scam, state audit finds; lawmakers want answers next month

UPDATE: The Texarkana Arkansas School District says it reported the $286,213 email scam to local authorities and state officials within days of discovering it, before Arkansas Legislative Audit ever began its review, and that the matter was referred to the prosecuting attorney at that time.

The district sent TXKtoday a statement Wednesday, its first public comment since the loss surfaced at a legislative committee meeting last week, where no district representative appeared. The audit’s management letter did not say whether the district had reported the loss to law enforcement.

“When Arkansas Legislative Audit began its work, district leadership had already identified, reported, and begun addressing the matter,” the statement says.

The district says it reviewed how the fraudulent vendor changes got through and has since added multiple levels of verification before any change to vendor bank information or financial transaction is authorized. It also says it is “holding employees accountable when those expectations are not met,” though it did not say how many employees were involved or what those consequences were.

“We do not minimize the impact of this loss,” the statement reads. “Every dollar lost represents resources that could have otherwise been directed toward the needs of our students, staff, and schools.”

TEXARKANA, Ark. (TXKtoday) The Texarkana Arkansas School District sent $286,213 to fraudulent bank accounts last year after employees changed vendor payment information based on emails they never verified, according to a state audit, and only $58,339 of it was recovered.

The loss is described in a management letter included with the district’s annual audit by Arkansas Legislative Audit. The letter, dated Feb. 26 and addressed to the district and its school board, was posted on the agency’s website April 15. The finding was not presented publicly until Thursday, when the Legislative Joint Auditing Committee’s education subcommittee took up the report. No one from the district attended.

The subcommittee voted to hold the report and invite district officials to its Oct. 8 meeting in Little Rock. Legislative Audit staff told the committee the report’s findings were referred to the prosecuting attorney and the Arkansas attorney general.

How the scam worked

Between April and June 2025, the district made seven ACH payments to fraudulent accounts after receiving emails asking it to change a vendor’s bank information, the letter states. District employees made the changes “without properly verifying the authenticity of the change request.”

No one at the district noticed until a vendor called to ask why it had not been paid, according to the letter. The district then contacted its bank. One of the seven payments, totaling $58,339, was recovered. The other $227,874 was not.

The letter, signed by Deputy Legislative Auditor Matt Fink, does not identify the vendor, say how many employees were involved or say whether the district reported the loss to law enforcement. It notes the matter was discussed with district officials during the audit and at the exit conference.

The scheme is a common one known as business email compromise, in which criminals impersonate a vendor and redirect payments to accounts they control. The Pine Bluff School District lost $3.2 million to a similar scam in December after scammers hijacked an email thread with its construction contractor and requested a wire transfer.

Federal grant finding

The audit’s one formal finding, listed as a material weakness, involved the district’s Magnet Schools Assistance Program grant from the U.S. Department of Education.

On March 21, 2025, the district drew down $804,310 in grant funds, including a $741,516 advance. Over the next three months it spent $321,608 while drawing down another $186,371. At the end of the fiscal year on June 30, 2025, the district still had $606,279 in unspent federal money on hand.

Federal rules require grant recipients to keep the time between receiving federal funds and spending them to a minimum. Auditors blamed a lack of internal controls over drawdowns and said the district did not adjust later draws or return the excess. Holding excess federal funds can lead to noncompliance, loss of program money and interest that must be repaid, the audit said.

In its response, the district said it has put in place a review process requiring the magnet program director, finance coordinator, executive director of school leadership and business manager to approve expenditure reports and drawdown amounts before submission.

The district’s prior-year audit also included two findings on equipment and property management.

Lawmakers frustrated with referrals

The chairman of the education subcommittee said Thursday that the committee refers many findings to prosecutors who often decline to act. “There are a number of times that they choose not to act,” he said, adding that the prosecutor’s office had agreed to appear if invited. The panel voted to invite the state Prosecutor Coordinator’s office to its Oct. 8 meeting to discuss how referrals are handled.

The complaint came up repeatedly during the two days of meetings. Rep. Julie Mayberry, R-Hensley, said Friday that prosecutors “don’t do anything with it for various reasons,” and the full committee voted to also refer the Prescott School District report to the state’s educator licensure board.