ACC 421-02 Group 4
The Crime
$53 million dollars is what Rita Crundwell embezzled from the city of Dixon over 22 years. It started when she was the city’s comptroller and finance officer in 1990 until 2012 when she was arrested. She was able to pull off this feat by opening a bank account, in the name of City of Dixon and RSCDA, at Fifth Third Bank. She was the sole controller of that account, and was able to transfer funds from the city’s money market account into this account. By creating fictitious invoices, she was able to fool the city auditors that the transfers were legitimate.
With the money in the RSCDA account, she was able to fund the expansion of her horse ranch. She had nearly 400 horses at the time of her arrest. She was also able to fund two homes, two ranches, luxury cars, over a dozen trucks, trailers and farm equipment, along with thousands of dollars in in jewelry. She was able to avoid detection by personally picking up the city’s mail, and if she wasn’t there she would have her family or other city employees pick it up and separate her and the RSCDA account mail from the rest of the city’s mail.
Rita was finally under investigation in October of 2011, when Dixon’s city clerk, Kathe Swanson stumbled onto the bank statements, while Rita was on vacation. These led her to the RSCDA account. She then informed the mayor of Dixon, Jim Burke, who then went to the FBI. The FBI investigated Rita for 5 months, until on April 17th, 2012 they arrested her for embezzlement. She pled guilty on November 14, 2012 and was sentenced on February 14, 2013.
The Lawsuit
Rita Crundwell is not the only guilty party in her embezzlement. The City of Dixon recently received a settlement of $40 million after it sued its auditors and local bank. The city brought suit on June 8, 2012, about a month and a half after Mrs. Crundwell was indicted on charges. Dixon accepted the settlement on September 25, 2013.
http://wqad.com/2013/09/26/quick-timeline-on-rita-crundwell-investigation/
Dixon brought suit against Sam Card Accounting, Fifth Third Bank, and CliftonLarsonAllen. The city received settlements in the amounts of $1 million, $2.85 million, and $36.15 million, respectively. Dixon’s mayor believes that the settlement money will help heal some of the wounds caused by Crundwell’s crime and has agreed to not file any further lawsuits against any of the parties or their representatives.
http://wqad.com/2013/09/25/dixon-awarded-millions-in-settlement-with-auditors/
Professional negligence was at issue here. Crundwell used fake invoices as part of her scheme, something the city’s auditors should have noticed at some point over the past 20 years. The invoices were described as “obvious and should have been obvious… to Clifton [LarsonAllen]”. The video associated with the link below clearly shows the discrepancies between the fake invoices and the real thing. The fakes did not contain the Illinois Department of Transportation seal, lacked a contact phone number, and even contained misspellings.
http://wqad.com/2013/09/26/how-crundwell-did-it-why-auditors-are-also-to-blame/
The millions of dollars the auditors and bank owe to Dixon are certainly painful, but they also bear the embarrassment and shame of not noticing obvious forgeries for over 20 years. An auditor’s job is to catch irregularities and fraud and the fake documents were pretty obvious. The forgeries contained only text instead of a letterhead or seal at the top of the document. Also, the bank should have been more suspicious that only Rita Crundwell’s name was on the accounts that she used there.
CliftonLarsonAllen initially defended itself by stating that it was not hired for the detailed testing needed to detect this kind of fraud. However, the forgeries should still have raised some red flags. Clifton also pointed out that it warned Dixon of the dangers of having one person serve as both the comptroller and treasurer for the city, a gaping hole in internal controls. Dixon has strengthened its controls since Crundwell’s arrest. But ultimately, Clifton should have suspected something was wrong when it discovered Crundwell’s secret bank account in 2010 and did not investigate the matter. The simple fact is that Clifton was hired by Dixon to detect fraud and it failed to do so for 20 years.
http://wqad.com/2013/02/14/lawyers-for-city-of-dixon-say-accountants-share-the-blame/
Coincidence much?
Saying Rita was an avid horse enthusiast would be an understatement. As mentioned above Crundwell owned nearly 400 horses, and one of the Quarter Horse industry’s most successful breeders and owners. Although Crundwell didn’t name all her horses, she did however name those she bred. Some names include: “Have Faith in Money”, “Sum for Me”, and “I Found a Penny”. Supposedly Crundwell chose names that looked and sounded attractive for judges, however their financial connotations only add salt to the wound of the people of Dixon. Who knows? Maybe Crundwell’s decision to name her horses “Jewels by Tiffany” or “Packin Jewels” was a hint that she was purchasing $340,000 of high end jewelry with Dixon taxpayers’ money.
http://abclocal.go.com/wls/story?section=news/local&id=8645208
“Upload”, another one of Crundwell’s horses, also has a ironic spin. Two weeks after Crundwell’s arrest State Senator Dan Duffy (-R) of Barrington announced a new bill requiring all government agencies, schools, and municipalities, to ‘upload’ their current checkbook and statements. “If you look at the city of Dixon’s website, there is almost no financial information available to the public. Without filing onerous Freedom of Information Act requests, the public had no mechanism for holding its city officials accountable or investigating the finances themselves,” Duffy released in a statement on the issue. Duffy hopes Bill 3392 will help keep those in power more accountable and allow the public to act as independent ‘auditors’ if they wish.
Crundwell’s new home for the next 20 years, the Federal Correctional Institute at Waseca, was also the home to another embezzling master, Enron’s former CEO, Jeff Skilling, until it was converted to an all-female institute in 2008.
http://mankatofreepress.com/local/x519261189/Waseca-set-to-welcome-infamous-inmate
winterkenn 
Nice write up and we agree that CliftonLarsonAllen is to take much of the blame for the failure to uncover the fraud. However, we don’t fully agree with your statement of “An auditor’s job is to catch irregularities and fraud.” While an auditor should certainly be able to uncover such a fraud, their original job is to simply provide an opinion on whether or not an organization’s financial statements are free of material misstatement. The uncovering of fraud is just a byproduct of the collection of evidence to use in the audit. We are curious to know whether you think the city of Dixon itself should take a large part of the blame as they were also unable to discover the fraud for over 20 years.
Section 1, Group 5
In your blog you mentioned that Rita isn’t the only liable party, you mentioned CLA, Card, and 5/3rd Bank as parties that shared some of the blame. We agree that Rita, CLA, and Card should all be held liable for the actions of Rita but, as a group we are undecided if 5/3rd bank should share some of the burden. We understand that the two CPA firms are liable because even though it is not the auditors reasonability to catch fraud, the auditor does have obligations to advise on the mitigation of fraud risks. It is clear that CLA failed in its obligation to provide such advice to Dixon. On the other hand we are not as sure if it falls within the banks responsibilities to question the origin of funds deposited in its bank. It is the banks reasonability to detect fraudulent checks but the checks written by Rita were legit. We are not exactly sure where the bank should have stepped in to catch Rita in her horse tracks.
Group 2 Section 2
We thought it was interesting that this blog went into great detail regarding Rita’s personal life and how she spent her money. Our blog focused on more general information about Rita and her fraud, but by showing this detail it really helped put in perspective just how “evil” Rita became. It was interesting to read about the different horse names Rita picked out. A few of them clearly related to money such as “Have Faith in Money”. It sounds like she was relishing in the fact that she was able to embezzle so much money from Dixon without the city knowing. Your blog paints the picture of the selfish, addicted, and heartless person Rita Crudewell was. This humanistic aspect of your writing helped us to further understand just how malicious this fraudulent act was.
Section 1 Group 3
Our group liked that you took a more ‘personal’ approach to Rita’s scandal. We failed to make the connection completely with the names of the horses and the irony that they contain. We feel that this is interesting and informative. It’s great that you are able to display her motives and show how intensive her fraudulent actions were.
We also agree that CliftonLarsonAllen deserves a bulk of the blame. They did fail to do their duties correctly. It was beneficial in our eyes to also place blame on the bank as they too lacked internal controls (or failed to use them). We believe that the initial set up of the RSCDA should have been investigated further by the bank.
Clever acronym for that as well!
Section 2, Group 6