September 24th, 2013 by admin
After reading an article published recently about municipal fraud in Dixon, IL, I thought there might be a few take-a-ways business leaders and auditors could benefit from.
Here’s a bit of background on the story: Rita Crundwell began working for Dixon in 1970 and was named Treasurer and Comptroller in 1983 and was a well-liked and trusted member of the city’s leadership. In 1990, she opened a secret bank account in the name of the City of Dixon and through this account, she pilfered money from the town for over 20 years before her arrest in 2012. Annual audits by independent auditors and reviews by the state of Illinois were relied upon by City officials and her fraud scheme went undetected despite the fact that she managed to steal a whopping $54 million over those 22 years!
1. Even if a city official or business manager is highly trusted, questions raised must be answered properly. Many asked Crundwell about the City’s financial losses; however her answers were never confirmed. It’s all too easy to take an answer at face value rather than doing a bit of digging to ensure there are facts to back up the “easy” answer to a question.
2. Duties must be properly segregated. Crundwell had complete control of the financial reporting process. Further, she received, signed and deposited checks with no oversight from other city officials. The lack of internal controls allowed her to easily embezzle city funds.
Lavish spending is a red flag. Crundwell spent the embezzled funds on several motor homes, at least one costing over $1 million. She built a quarter horse operation. The operation produced 52 world champions and at the date of her arrest she owned 400 horses. Her lifestyle was extravagant given her salary was less than $100,000.
3. Maybe one of the largest municipal frauds in U.S. history can teach us something that will help prevent similar scams in the future. We all like to think that we would notice what seems from the outside to be obvious indicators for at least fraud risk, if not all out fraud, but would you have been able to put the pieces together? Take a look at this article from the AICPA for more details on how this scam was executed. Fellow GBQueue blogger, Keith Hock, also commented on this fraud in his September post, seen here.
*Thank you to Meghan Buxton, Assurance Staff, for her contributions to this post.