Bank’s Error Costs Water Unit $50,000 : Officials Concede Mistake but Balk at Full Reimbursement

Bank of America officials admitted Thursday that a banking error cost Orange County’s largest water district $50,000, but they balked at the district’s demand for full reimbursement.

“We are unsure if the error was due to human or computer mistake, but whatever it was we admit the error,” said Curt Olsen, a spokesman for Bank of America and its main Santa Ana branch, where the error occurred.

The $50,000 figure, Olsen said, is “exorbitant and arbitrary. We are willing to pay, and we’re working on a settlement that hopefully can be agreeable to both parties.”

The error occurred on Oct. 26 when the Municipal Water District of Orange County authorized its bank to electronically transfer $5 million to the Metropolitan Water District of Southern California’s account at Security Pacific National Bank. The payment was for water delivery in August, and the deadline was Oct. 31.

Transfer Made Late

But the funds weren’t transferred until Nov. 4, said Stanley Sprague, Municipal Water District general manager.

As a result, the MWD assessed a 1% late penalty, or $50,000.

The Municipal Water District then decided to withdraw its $10 million in deposits from the bank. And on Wednesday, the five-member board of directors voted to seek full reimbursement and to take legal action if necessary.

A decision on how much the bank is willing to reimburse the district is expected today, Olsen said.

Sprague noted that a similar banking error made by Bank of America in 1983 resulted in a reimbursement by the bank of $20,000 to the water district for a late penalty involving a $2 million payment.

“It seems to me that that incident sets a precedent,” Sprague said.

Phone Calls Exchanged

Municipal Water, established in 1951, provides water to 70% of Orange County with its own network of 29 water agencies, including water districts and city water departments.

Spokesmen for both parties said they hope to resolve the dispute. Sprague, however, disputed Olsen’s statement on Thursday that the water district and bank were negotiating.

“We’ve been trying to get a formal response from the bank, but to date we have not gotten anything in writing. We’ve exchanged only telephone calls. When you’re talking about $50,000, I believe that some kind of written communication is necessary,” Sprague said.

Meanwhile, Municipal’s treasurer was looking for another bank for the district’s deposits.

“We try as hard as we can to avoid these things,” Olsen said. “An error like this doesn’t reflect on Bank of America as a whole.”