I love the Olympic Games. I watch every sport that I can. It’s not just sports and competition. It’s the Olympic spirit of competing for your country against other countries. It’s pride. It’s the difficulty of peaking in your sport for a competition that only occurs every four years. It’s extreme athleticism.
If embezzlement were an Olympic sport, Rita Crundwell would win the gold medal. The story of her embezzlement from the city of Dixon, Ill., became news in April, and I’ve been watching it as it’s developed. It’s an extreme case.
She embezzled $53 million over 22 years from a city whose 2012 budget is $47 million. That’s an amazing feat. Every one of those millions should have been missed from a budget of that size. Dixon is about the size of Batavia, N.Y. I can’t imagine a loss of that size in Batavia.
Rita Crundwell graduated from high school in 1971, but began working for the city of Dixon in 1970 as part of a work-study program. She became the mayor’s secretary, then the city clerk, then comptroller in 1983. Her salary for 2012 was to be $80,000.
That was her professional life, but her personal life is noteworthy. Crundwell became a national figure among quarter horse enthusiasts. She owned several properties with homes and stables, hundreds of horses, several vehicles and jewelry. She bred and sold champion horses. She showed horses on a national level and did very well. Crundwell has a room full of trophies and awards from her time as a quarter horse competitor. She financed all of that with funds embezzled from the city of Dixon.
Crundwell took extensive vacations to show her horses, often unpaid. That was her undoing. Last October, when Rita Crundwell was on vacation, the city clerk was filling in for her, and found a bank statement for an account that she didn’t know existed. She took that to the mayor. He went to the FBI.
The FBI investigated for six months, and over that time 19 checks were written from city funds for a total of $3.6 million. Those checks were deposited into the account she thought was a secret.
That bank account was opened in 1990 and was off the books. Crundwell simply wrote checks to “Treasurer” and deposited them into the secret account. She falsified invoices to show to the auditors to explain the expenditures. It appears that the fraud started out smaller in the beginning, and grew to about $5 million a year from 2006 to 2012.
The auditors in this case will likely be sued, and taxpayers and officials are wondering if the bank has any liability for the losses. That’s impossible to say with the information that we have so far. Courts will decide. Audit standards do require that the audit procedures be designed based on the entity’s controls. It’s possible that didn’t happen in this case.
It’s clear that there were red flags. The city of Dixon had one person, Crundwell, functioning as both treasurer and as comptroller. That impeded the city’s ability to segregate control of cash from accounting for cash. That’s an internal control problem, and would require mitigating controls. The city just did not have adequate internal controls.
Rita Crundwell was living well beyond her means. Even though horse businesses are notorious for losing money, Crundwell had everyone convinced that she was supporting her lifestyle with her horse breeding business. People thought she was independently wealthy. No one questioned it.
Crundwell’s assets were seized by the U.S. Marshals Service shortly after her arrest. The sale of those assets is in process in order to recoup money for the city. More than 400 horses will be auctioned next month. Some of those horses are world-famous and worth hundreds of thousands of dollars.
I visited the City of Dixon website yesterday, and there’s a job posting there. They’re looking for a Finance Director to supervise two full-time and one part-time position. Candidates need a bachelor’s degree in finance or a related field, and at least five years experience in executive level financial administration. The salary listed is $80,000.
It looks like they’ve learned a very hard lesson.
Gina Bliss, CPA, CFE, is a senior manager at EFP Rotenberg LLP, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit and forensic accounting. She may be reached at (585) 295-0536 or by email at [email protected].