Posted: April 20th, 2022

Dixon Case History + Question 1

Introduction
Rita Crundwell was the kind of individual that everybody trusted. Because the comptroller and treasurer of the small city of Dixon, Illinois, she was nicely versed in firm funds. At any time when anybody had a Question Assignment, they have been suggested to “ask Rita.” In 2011, the town commissioner praised Rita as somebody who “takes care of each tax greenback as if it have been her personal.” What the commissioner and the remainder of Dixon didn’t notice was that Rita Crundwell took this view fairly actually.
Along with her trusted place with the town, Rita was additionally a champion quarter horse breeder. She had received 52 world thoroughbred championships and owned lots of of horses. The competitions typically took Rita away from her metropolis job, however she would dock her pay for the additional time she took off. In 2011 throughout one in every of her journeys, a metropolis clerk took over Rita’s job and got here throughout a strange-looking checking account within the metropolis’s title. Cash from the account was getting used to buy lavish gadgets corresponding to jewellery and boats. The suspicious account was reported to the mayor and the Federal Bureau of Investigations (FBI). After taking 5 months to construct their case, the FBI arrested Rita Crundwell for municipal fraud on April 17, 2012.
The extent of the fraud was staggering. Rita Crundwell had first opened the fictional account in 1990, that means that she had efficiently stolen from the town for 22 years earlier than being arrested. In these twenty years she stole over $53 million from a metropolis of lower than 16,000 individuals. Dixon, Illinois—identified for being the boyhood dwelling of President Ronald Reagan—has now gained the excellence of being the sufferer of the most important municipal fraud thus far.

Background
Rita Crundwell was born in 1953 to Ray and Caroline Humphrey. Regardless of a modest revenue, Rita’s mom Caroline cherished displaying quarter horses, a ardour that Rita inherited as she grew up on her household’s farm. Whereas one member of the family has expressed the idea that Rita was entitled as a toddler, nothing a lot about her childhood hinted on the huge fraud she would commit years later.
At age 17 Rita was employed as an intern at Metropolis Corridor as a part of a work-study program for prime schoolers. In 1974 she married Jerry Crundwell; they divorced in 1986. Rita continued her place at Metropolis Corridor and proved to be a fast learner. Everybody was so impressed along with her abilities that she assumed the place of metropolis comptroller and treasurer in 1983. In 1978 Rita started displaying horses at reveals. This began her long-time ardour with breeding and displaying quarter horses. On the time of her arrest Rita Crundwell owned 400 quarter horses at completely different farms in Illinois and Wisconsin.
The 12 months 1990 was a landmark 12 months for Rita Crundwell. She started increasing her quarter horse operations and her dwelling. In December of that 12 months, she opened a secret checking account underneath the town’s title referred to as the Reserve Sewer Capital Growth Account (RSCDA). Crundwell used false invoices made out to “treasurer” to deposit metropolis cash into this account, which she then used to finance a extremely lavish way of life. At first she began out stealing 1000’s of from the town yearly. Nevertheless, as time went on with none penalties, she elevated the sum of money she stole. Earlier than her arrest, she was stealing tens of millions every year. To cover her fraud, Rita collected all the metropolis mail from a publish workplace field and had a relative gather the mail for her when she was out of the workplace.
Throughout the twenty years of the fraud, Rita bought lots of of horses, expanded her dwelling, purchased a house in Florida, and bought various automobiles and motor houses. Amongst her purchases was a luxurious motor dwelling value $2.1 million. In the meantime, Rita established a reputation for herself within the quarter horse trade and received 52 competitions. Her trophies took up a complete room at her home. Eight years earlier than her arrest, Rita was named the main proprietor for the American Quarter Horse Affiliation.
One of many metropolis clerks that labored with Rita Crundwell, Kathe Swanson, found the fraud by chance. Usually, Rita would inform Kathe which financial institution accounts she ought to request from the financial institution. However in 2011 Kathe was taking up Rita’s job whereas Rita was out on trip. In a rush, Kathe referred to as the town’s financial institution, Fifth Third Financial institution, and requested all the accounts underneath the town’s title. Among the many accounts she acquired was the RSCDA account, an account of which Kathe had by no means heard. Trying on the transactions, she was stunned to see that cash from the account was being spent on gadgets that have been clearly not metropolis enterprise, together with horses and jewellery.
Kathe took the knowledge to the mayor of Dixon, Jim Burke. Mayor Burke reported the fraud to the FBI, and for the subsequent 5 months he and Kathe labored with the FBI to construct a case towards Rita as she continued to siphon metropolis funds for private use. In April Rita was arrested. She reportedly confirmed little emotion at her arrest.
Throughout the subsequent 12 months, the extent of the fraud unraveled. Residents have been surprised after they realized the individual that they had trusted had stolen greater than $53 million in metropolis funds through the years. What was so upsetting was that so as to steal the cash, Rita made cuts in different areas. This included denying assets to metropolis departments. As an illustration, the superintendent of Dixon’s avenue division claims that streets couldn’t be resurfaced or automobiles changed. He was always informed by Rita that the town didn’t manage to pay for.
In November Rita pleaded responsible to fraud in a federal courtroom. Prosecutors requested for 20 years of jail time. Rita’s lawyer requested for a lighter sentence due to her cooperation with authorities. Nevertheless, U.S. District Decide Philip Reinhard was disgusted by the magnitude of the crime and sentenced Crundwell to serve 19.5 years in jail. Earlier than her sentence was introduced, Rita Crundwell tearfully apologized to the town of Dixon for the fraud. The decide informed Rita Crundwell that she cared extra about her horses than the individuals she represented.
Town of Dixon employed the regulation agency Energy, Rogers & Smith to research and file a lawsuit towards gatekeepers who had a accountability to detect fraud. Devon Bruce, a companion on the regulation agency, was in a position to receive $40 million for the town of Dixon. The accounting agency liable for auditing Dixon’s Financials—Clifton Gunderson—was charged $35.15 million for what Devon Bruce referred to as negligence for failing to detect the theft of metropolis funds for over twenty years. Fifth Third Financial institution paid $three.85 million, and the accounting agency Janis Card Associates paid $1 million.
Who Is to Blame?
Whereas clearly the most important offender on this fraud is Rita Crundwell herself, various stakeholders ought to have questioned the suspicious exercise. Legal professional David Bruce locations a lot of the blame on Dixon’s auditor, CliftonLarsonAllen (previously generally known as Clifton Gunderson). Nevertheless, others place among the blame on the financial institution and on the town of Dixon itself. The next sections study these stakeholders.
The Metropolis of Dixon
The issue with small cities is the dearth of assets out there. In Dixon’s case, whereas it was in a position to rent a number of full-time staff corresponding to Rita, it didn’t make use of a full- or a part-time accountant. Even the place of mayor was part-time. Subsequently, those that have been educated concerning the funds past Rita Crundwell have been few and much between.
Does this imply that metropolis officers ought to escape any kind of culpability? Many individuals consider that whereas leaders can not have information of each element of their corporations or governments, they do have a accountability to exert oversight over staff and examine something that doesn’t make sense to them. Mayor Jim Burke maintains that he grew suspicious of Crundwell’s rising wealth, not understanding how she may stay such a lavish way of life on a metropolis employee’s wage. He claims he even approached the corporate’s accounting agency Clifton Gunderson however was shut down when he beginning asking questions on Rita.
Mayor Burke was not the one one who had questions. Different individuals on the town have been additionally questioning how Rita was in a position to stay so expensively. There was a normal perception that Rita, who had received so many championships, maintained the horses along with her prize cash. Nevertheless, prize cash wouldn’t be sufficient to pay for the excessive prices of sustaining so many championship horses. Others believed she had an inheritance. No one may say for certain, and Rita herself was not significantly near anybody within the city. Mayor Burke describes her as pleasant however as additionally having a “chilly angle” about her as if she have been sustaining her distance from different townspeople.
Clifton Gunderson
The accounting agency Clifton Gunderson paid essentially the most in fines for not detecting the misconduct. In reviewing the case, a significant moral situation that ought to have been a purple flag was the numerous conflicts of curiosity that existed between Clifton Gunderson and Rita Crundwell. Throughout the 1980s Rita Crundwell performed on the accounting agency’s softball workforce. She had pals on the agency and would generally get collectively for lunch or beers after work. Nevertheless, what could possibly be construed as a significant battle of curiosity is the truth that Clifton Gunderson was not solely the town’s accountant however Rita’s private accountant as nicely.
There are additionally indicators that Clifton Gunderson tried to circumnavigate round new rules. In 2005 a regulation was handed mandating that auditors couldn’t present each non-attest companies and auditing companies. Clifton Gunderson due to this fact resigned from auditing assignments for Dixon so it may deal with different accounting companies for the town. In keeping with the lawsuit that Dixon filed towards Clifton Gunderson, Clifton Gunderson continued to carry out auditing companies and easily had a CPA from the close by city of Sterling, Samuel Card (proprietor of Janis Card Accounting), log out on the financials to make it seem completely different agency was performing the audit. As already famous, Janis Card Accounting paid $1 million to settle the allegations. Clifton Gunderson maintains that it compiled very primary monetary info to Help Samuel Card after 2005.
If the town’s allegations are true, it reveals that Clifton Gunderson didn’t place a lot emphasis on guarding towards conflicts of curiosity. Legal professional Devon Bruce believes Clifton Gunderson was downright negligent in not recognizing indicators that fraud was occurring. Among the many alleged failures he cited was the corporate’s failure to detect fraudulent invoices Rita Crundwell produced, failure to confirm that metropolis funds have been getting used for his or her meant function, and a failure to request applicable documentation for revenue Rita Crundwell was receiving exterior of her metropolis job.
Suspicious Invoices
Rita Crundwell perpetuated a lot of the fraud with fraudulent invoices she developed for phony initiatives. She tried to make these invoices seem genuine. As an illustration, she would produce invoices that appeared like they got here from the Illinois Division of Transportation. Nevertheless, these invoices didn’t adhere to the identical requirements as genuine invoices. They have been lacking key info, together with the state brand and telephone variety of a contact individual. On some invoices the phrase “part” was spelled flawed. In inspecting emails, Legal professional Devon Bruce additionally discovered an bill dated November 31, 2004 from the Illinois Division of Transportation—a date which doesn’t exist.
In protection of Clifton Gunderson, auditing companies will study a pattern of paperwork of their audits, not each single doc. In a metropolis with 1000’s of invoices and transactions every year, it’s potential that many of the metropolis invoices Clifton Gunderson examined have been genuine. The agency additionally claims that the kinds of audits it carried out didn’t require the extra checks essential to try to detect fraud. Nevertheless, critics level out that the agency probably got here throughout among the pretend invoices and will have observed the discrepancies between them and actual ones. As soon as auditors decided that these invoices appeared completely different, they need to have taken further steps to confirm the place the cash truly went.
No Verification
Along with detecting the fraud, Legal professional Devon Bruce additionally identified that Clifton Gunderson did not confirm that cash was going towards metropolis initiatives. He claims that it could have been easy for the agency to test and guarantee that giant capital initiatives corresponding to bridges have been truly being constructed. One other methodology of verification is to request assembly minutes from Metropolis Corridor. Any large-scale initiatives for the city would have needed to be mentioned throughout conferences, which might have been recorded within the minutes. Fictitious initiatives that Rita made up wouldn’t have proven up within the minutes and would have acted as a purple flag. In regards to the one bill’s nonexistent date, Bruce felt just like the auditing agency ought to merely have referred to as the Illinois Division of Transportation to test on the authenticity of the bill. A easy try at verification, he believes, would have detected and stopped the fraud a lot sooner.
No Documentation
Lastly, there have been the discrepancies in Rita Crundwell’s revenue. Rita Crundwell’s tax returns had giant sums of cash that weren’t accounted for. As an illustration, a 2007 tax return confirmed gross receipts of $700,000. All reliable transactions—even prize cash from competitions—would have been documented. There isn’t a indication that Clifton Gunderson requested documentation. When requested about sure unexplainable actions or transactions, Rita would at all times have a solution prepared. Legal professional Devon Bruce claims that the accounting agency had an obligation to impose “wholesome skepticism,” that means that it mustn’t have trusted a person at his or her phrase however labored to confirm these funds. On this case, Clifton Gunderson gave the impression to be too trusting of Rita Crundwell’s character.
Whereas many individuals forged blame on Clifton Gunderson, it’s also mandatory to comprehend that an auditor’s job doesn’t contain going out on the lookout for fraud. Moreover, many purchasers store round for accounting companies with the very best charges, creating an incentive for accounting companies to maintain costs low. These diminished costs would possibly compromise the standard of the work, with companies putting newer (and cheaper) auditors on accounts when they don’t have sufficient expertise within the space. That is prompting some stakeholders to name for adjustments in the best way audits are carried out. One proposed answer is rotating accountants in order that completely different individuals can analyze the knowledge. It’s believed that the extra individuals who study the financials, the higher likelihood there shall be for somebody to detect suspicious habits.

Fifth Third Financial institution
Lastly, Fifth Third Financial institution was additionally charged with a failure to train due diligence. As an illustration, when Rita Crundwell first opened the fictional account in 1990, she was the one individual to open the account. Many banks, together with Fifth Third, require further individuals or entities to be concerned in order to stop fraudulent actions. A decision can be required to open up an account on the financial institution. This decision by no means occurred.
The financial institution additionally had entry to statements displaying that cash was being funneled from the town to the fictional account and was being spent on gadgets that didn’t contain metropolis enterprise. One other main purple flag is that Rita would make “fictitious” checks addressed to “treasurer” somewhat than underneath her title or the town’s title and deposit them into the fictional account. This isn’t standard habits, and in keeping with a former supervisor at Fifth Third, checks ought to have been addressed to “treasurer of the Metropolis of Dixon” or “Metropolis of Dixon.” Crundwell additionally wrote a number of checks for big sums of cash, which, Legal professional Devon Bruce maintains, have been clearly suspicious. It seems that the financial institution had correct procedures however did not implement them.

Dixon Going Ahead
Town of Dixon, Illinois has dramatically modified lots of its practices to make sure no person has the extent of energy Rita needed to commit fraud for therefore lengthy. After she was fired, the town employed a brand new finance director who reorganized the town’s funds and restructured the division. She applied extra inner controls in order that nobody individual may full a complete course of by him- or herself—together with her. In the present day the town has employed extra clerks who concentrate on particular areas corresponding to payroll and billing. Mail is now not picked up by one individual. As a substitute, it’s delivered straight to Metropolis Corridor.
By way of Rita Crundwell’s belongings, they have been auctioned off. The public sale of Crundwell’s prize-winning horses was main information to the trade, and plenty of breeders got here from all all over the world. Her horse Good I Will Be, which had received a number of championships, bought for $775,000. Her 767 trophies and 122 plaques have been additionally auctioned, in addition to her quite a few possessions. The cash went towards the town.
Many individuals within the city are relieved that Rita Crundwell is in jail. Those that have been acquainted along with her, even those that had labored along with her for years, felt like they by no means really knew her. Curiously, Crundwell nonetheless earns $13,000 to $14,000 a 12 months in royalties from her horses. This cash has been frozen by the federal government. Finally, officers hope to offer the funds to the town. Within the meantime, metropolis enterprise has gone on as standard however with a brand new construction to make sure that nobody individual has unique energy over metropolis

Introduction
Rita Crundwell was the kind of one who could possibly be relied on. She was well-versed in enterprise funds because the comptroller and treasurer of Dixon, Illinois. If anybody had a Question Assignment, they have been informed to “ask Rita.” Rita was praised by the town commissioner in 2011 for “taking care of each tax greenback as if it have been her personal.” What the commissioner and the remainder of Dixon have been unaware of was that Rita Crundwell took this viewpoint fairly actually.

Rita was a champion quarter horse breeder along with her trusted place with the town. She was the proprietor of lots of of horses and had received 52 world thoroughbred championships. Rita’s metropolis job was steadily disrupted by the competitions, however she by no means complained.
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