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Dixon, Illinois: Using Public Funds to Support a Show Horse Operation. On Fe
uary 14, 2013, former city comptroller and treasure
of Dixon, IL, Rita Crundwell was sentenced to 1912 years in prison for diverting $53 million from city funds for her own benefit. It
appears that the fraud began in 1990 at a relatively small amount, but the level of her embezzlements increased significantly in the last
years of the embezzlement (e.g., in 2008 she embezzled $5.8 million). Crundwell used the proceeds to finance her horse
eeding
usiness and her lavish lifestyle. She purchased 400 horses, farms, trucks, a $2 million RV, and jewelry. Her position as city treasure
paid about $80,000 a year at the time of her a
est.
Rita Crundwell was one of the most trusted people in Dixon, IL’s city government. She started working for the finance department fo
the city while still in high school in 1970. In 1983, she was appointed as the comptrolle
treasurer. As comptroller, Crundwell handled
all of the finances for the city of Dixon. Crundwell participated in budget meetings for the city with other city council members and
voiced a need for Dixon to make spending cuts due to a lack of sufficient funds. Many of the city officials who held elected position
were not full-time employees of the city.
The process by which Crundwell was able to obtain the funds was not extremely complicated. According to the indictment,
Crundwell opened a bank account at Fifth Third Bank in 1990 in the name of the city of Dixon and RSCDA (Reserve Sewer Capital
Development Account). That account appeared to be for the benefit of the city of Dixon, but Crundwell was the only signatory and
the only person who wrote checks from that account. Crundwell was able to deposit city funds from other sources into the Capital
Development Fund account. After she created false invoices, Crundwell would write checks from that fund payable to “Treasurer.”
She then deposited those checks directly into the RSCDA account. The Fifth Third Bank assumed the money in the RSCDA account
was for the city. Crundwell repeatedly transfe
ed city funds into the RSCDA account and used the money to pay for her own
personal and private business expenses.
In October 2011, when Crundwell was away from work, another individual employed by the city of Dixon, requested Fifth Third Bank
to forward all of the city’s bank statements. This employee realized that the account appeared to be inappropriate and informed
Mayor James Burke of the account. Burke determined that the account did not relate to any legitimate business of the city. Burke then
notified the Federal Bureau of Investigation.
In September 2013, the city announced it settled its lawsuit against the auditors and bank for $40 million. During the time of the
fraud, Dixon’s financial statements were audited by CliftonLarsonAllen (formerly Clifton Gunderson LLP). The firm agreed to pay
$35.15 million and Fifth Third Bank agreed to pay $3.85 million. CliftonLarsonAllen conceded it shared in the “responsibility for the
fact that the fraud was not detected.” The attorney for the city stated that the Mayor also faulted Fifth Third Bank for violating
anking standards by allowing Crundwell to open a city account in 1990 without proper documentation, even if employees knew she
worked for the city.
Sources: W. Pavlo, “Fmr Dixon, IL Comptroller, Rita Crundwell, Sentenced to 19 2 Years In Prison,” available online at: htt
p:
onfo
.es/Yb217S; M. Jenco, “Dixon blames phony invoices, lax auditors for $54M fraud,” Chicago Tribune
(September 27, 2013); United States District Court Northern District of Illinois Western Division, United States of America v.
Rita A. Crundwell, Criminal Complaint, April 13, 2012; S. R. Strahler, “How Dixon’s auditors missed the biggest embezzle
of all time,” (Fe
uary 2, 2013), ChicagoBusiness.com.
Required:
a. Identify the internal control deficiencies that allowed the fraud to occur and to continue for such a long period of
time.
. Speculate on why the auditors did not detect the fraud.