How could the comptroller of Dixon, a small northern Illinois town with an annual budget of $6 to $8 million, embezzle $53 million over two decades?
Despite annual audits by an independent accounting firm and state regulators, Rita Crundwell managed to slip through the cracks and defraud her hometown to fund her own lavish lifestyle and pastime.
This incident is the largest municipal fraud case in U.S. history. The numerous mistakes serve as a poignant lesson for business owners on the detrimental and deceptive nature of occupational fraud.
Crundwell was not what many would consider a mastermind criminal. Innocently enough, she began working for the city in 1970 through a work-study program at her high school. As a diligent employee with a knack for crunching numbers, she eventually worked her way up to city comptroller.
In that role, Crundwell managed all financial aspects of Dixon. Her duties included writing checks, authorizing payments and transferring funds on behalf of the city. From the outside it appeared that this thirty-year veteran excelled at her job.
However, somewhere between her humble beginning and the all-out chaos that would ultimately ensue, something sinister began to take shape.
Crundwell had a passion, or more so an obsession, for horses and dreamed of being a world-renowned American Quarter Horse breeder — not something her $81,000 civil servant salary could facilitate. After seven years as comptroller, and only modest gains toward achieving her dream, Crundwell began to take advantage of all the funds that passed through her hands daily.
On December 8, 1990, Crundwell opened a secret bank account and named it RSCDA (Reserve Sewer Capital Development Account), making it appear to be a city account. She made herself the only signatory, created fake invoices and made deposits accordingly. Crundwell then covered up the stolen funds by claiming the state was late in paying Dixon its share of tax revenue. Massive budget cuts were implemented to compensate for the losses.
Crundwell’s $53 million in stolen funds allowed her to succeed in the show horse circuit. Her horses won 52 world championships and she was named the leading owner by the American Quarter Horse Association for eight consecutive years prior to her arrest.
So what could, and ultimately did, stop Rita Crundwell? Dixon realized their mistakes when it came to keeping a watchful eye on accounts; the same mistakes that far too many organizations also make.
Mistake #1: Ignoring a Lavish Lifestyle
Crundwell used stolen funds to buy 400 horses, multiple properties, a vacation home in Florida, a $2 million dollar motor home, a $1 million custom horse trailer, a fleet of vehicles, expensive jewelry and elaborate home furnishings. Her wealth was visible, but individuals chose to make excuses for it — “she probably inherited the money,” “the wealth must have come from her horses’ success.”
Never shrug off an employee’s unexpected wealth. You are well aware of their salary and what it can afford them. The hard truth of the matter — if they were independently wealthy, they probably wouldn’t be working for you.
Mistake #2: Lack of Review
Dixon’s government system divided power between a mayor and four part-time commissioners who oversaw their own sector in the city. The finance commissioner, Crundwell’s supervisor, was an ordinary citizen with no overwhelming credentials and an annual salary of only $2,700.
What motivation or even confidence did this supervisor have to question Crundwell’s work? All employees should be qualified, incentivized and held accountable through a stringent review process.
Internal and external auditors also overlooked Crundwell’s actions. Typically, auditors must verify all transactions and parties involved with the city’s finances to ensure legitimacy. Because Crundwell was able to open the RSCDA account and eventually expand her bogus accounts to include one dubbed, “The City of Dixon,” it’s obvious these auditors ignored basic verification protocol.
What’s more? The external auditors, CliftonLarsonAllen, also prepared Crundwell’s personal tax returns. Do the words, “conflict of interest,” come to mind?
Mistake #3: No One Questioned the Budget
One just had to stroll down the dilapidated city streets to notice something was amiss in Dixon. Moreover, government employees were forced to forgo raises, police experienced widespread communication blackouts due to outdated radios and the publicly-owned cemetery was completely overgrown because the city couldn’t afford a groundskeeper.
As the head of this “organization,” it was the Mayor’s responsibility to keep tabs on the allocation of funds and recognize that something just didn’t make sense.
Mistake #4: Failure to Share Duties
Crundwell frequently took unpaid leave to vacation or show her horses and would typically bring her computer to work remotely. However, in the fall of 2011, city clerk Kathe Swanson took on Crundwell’s backlogged work while she was away. It was then that Swanson discovered the RSCDA account. She brought it to the Mayor’s attention and he contacted the FBI for assistance.
Crundwell’s downfall is nearly textbook. Her ability to work remotely further allowed her to be the sole participant in Dixon’s finances, a trait identified by the Association of Certified Fraud Examiners in 21 percent of occupational fraud cases. Swanson’s tip to the Mayor was equally striking, as tips are the most common detection method, occurring in 42 percent of occupational fraud cases reported in 2014.
The fraud in Dixon continued for six months following the discovery while the FBI built their case. Upon arriving at work on April 17, 2012, Crundwell was promptly arrested.
She pled guilty and was forced to forfeit $53.7 million in cash and assets. Crundwell is currently incarcerated at the Federal Correctional Institution in Waseca, Minnesota and is scheduled for release on March 5, 2030.
Dixon is still auctioning many of Crundwell’s possessions and has settled out of court with the financial institution involved. Due to extensive gross negligence, the external auditing firm CliftonLarsonAllen agreed to pay $35 million to the city.
While the fraud was discovered over three years ago, these lessons continue to ring true and serve as vital reminders of how to avoid occupational fraud from infiltrating your business.
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