What went wrong in Dixon, Ill.?

December 26, 2018 | Article

Starting in late 2012, the city of Dixon in northwest Illinois became a subject of study for the accounting and forensic accounting worlds. These conversations revolved around the large embezzlement that shook this small city to its core and caused all types of maintenance and public service issues for its roughly 16,000 citizens.

At the center of this conversation is longtime city employee Rita Crundwell, who began her involvement with city government as an intern in 1970. Starting in 1983, Crundwell became the city’s comptroller and treasurer and served in that position until her arrest on April 17, 2012. The happenings during the almost 30 years Crundwell served as the comptroller provide the details of how the embezzlement unfolded and the harm it caused.

Unknown Bank Accounts
As detailed in a report published in the Journal of Forensic & Investigative Accounting, the first sign of any issue was uncovered in October 2011 when an employee filling in for the vacationing Crundwell requested copies of all city bank statements from the city’s bank. At the time of the request, Dixon was known to have six accounts with the bank. However, when the statements arrived, there were actually seven accounts, and one titled the RSCDA account had never been seen before. It was determined RSCDA was short for “Reserve Sewer Capital Development Account.” It could simply be coincidence Crundwell’s initials were included in the name of the account, but experience has shown some individuals who set up false accounts sometimes use their initials in the naming of the account. 

Arrest and Sentencing
Once this unknown account was located, the mayor contacted the Federal Bureau of Investigations, which began an investigation. Crundwell was allowed to continue with her daily duties but without knowing of the investigation. This allowed the FBI to monitor all the Dixon accounts and record the activity. On April 17, 2012, the investigation resulted in Crundwell’s arrest for wire fraud. With all the overwhelming evidence collected, she plead guilty in November 2012. She was sentenced in February 2013 to 19 years and seven months in a federal correctional institution. Once the sentence was given, it became time for Dixon to begin reviewing what had gone wrong and determine how to fix any issue, so this type of activity would not affect the city anytime in the future. 

How She Did It
As the activities undertaken by Crundwell to set up and facilitate her scheme were examined, the steps involved were identified and cataloged. Many of the steps are simplistic in nature and do not require a lot of sophistication. Here is what Crundwell did:

  • The RSCDA account was set up at the city’s bank.
  • The procedures for transferring money to the RSCDA account were created, including, but not limited to:
    • Creating fake projects.
    • Fabricating invoices in support of fake projects.
    • Writing checks from legitimate accounts to the RSCDA account for funding.
  • All records containing false transactions were maintained in her office with limited access.
  • Crundwell picked up the daily mail.
  • Crundwell made all the deposits.
  • She updated the journals and ledgers.
  • She prepared and signed checks.
  • Crundwell moved investment monies between accounts.
  • She reconciled the bank accounts.

Getting Proper Controls in Place
There are several ways any organization can establish policies and procedures to help limit the possibility of this type of fraud taking place. Here are some suggestions:

  • Make sure segregation of duties is established, effective and reviewed on a regular basis.
    • Conduct a complete internal control examination on a regular basis (but not always at the same time annually).
  • Require mandatory vacations.
  • Cross-train employees for job duty rotations.
  • Do not allow an individual to maintain or reconcile all records.

Our team at Eide Bailly is available to discuss your organizations current controls or concerns about your controls. Our specialists can assist with all aspects of policy and procedure review, internal control examination, fraud and forensic concerns as well as all types of audit and tax services. Contact us to learn more.

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