Rita Crundwell: Mastermind Behind Largest Municipal Fraud in U.S. History Rita Crundwell was the trusted comptroller and treasurer of Dixon, Illinois with a passion for horses. She took advantage of her trust and responsibility to commit the largest known municipal fraud in the history of the United States. This fraudster has surprised and astounded people around the world by the amount of the fraud and for how long it went. Rita served the small town of Dixon from 1983 to 2012 until sentenced to nearly twenty years in federal prison for embezzling an astonishing $53.7 million. The story of this Dixon Commissioner shocked her small town and is studied by auditors all over. When someone thinks of a typical fraudster, it is not likely he or she would describe a person like Rita Crundwell. She was born on January 10, 1953; she grew up on her family’s farm near Dixon. Her family had a good reputation in the community, and she got an internship with the City of Dixon in high school. After her high school …show more content…
graduation, Rita started work as a secretary for the City. When she was thirty years of age, Rita was designated Comptroller, and she held this position until April 17, 2012. Rita Crundwell gained the public's trust along with the mayor's, her colleagues', and the elected Commissioners' trust. Another Commissioner spoke highly of the fraud, claiming "she looks after every tax dollar as if it were her own" (United States of America v. Rita A. Crundwell, 2013). While Crundwell advanced in her career, she continued her passion of raising and showing horses. Rita Crundwell ran a quarter horse operation, and this hobby demanded a lot of funding. Her operation eventually developed into one of the most prestigious in the world. Several assumed that she just came into a lot of inheritance or her award-winning quarter horse breeding business was profitable in itself, but the funding was really coming from the taxpayers of Dixon. The fraud Comptroller accumulated two farms, over four hundred quarter horses, a $259,000 horse trailer, over fifty champion trophies, a Hummer, a Lexus, a 1967 Corvette, late model trucks, a twenty-foot boat, a $2.1 million motor home, a Florida home, and large amounts of custom jewelry and fur coats (The Cunning Cowgirl Crook, 2014). The quarter horse community trusted Rita as well, so virtually no one questioned her lifestyle changes. Dixon, Illinois has a population of just over 15,000 people with an estimated median household income of $40,797 in 2013 (City of Dixon, 2016). The city's name comes from its founder John Dixon; he ran a rope ferry service across Rock River that runs through the city. The Illinois General Assembly named Dixon the "Petunia Capital of Illinois" in 1999 and the "Catfish Capital of Illinois" in 2009. Dixon is a regional employment hub; its biggest industries are healthcare and government. It is the childhood home of former United States President Ronald Reagan, and Dixon is the site of the Lincoln Monument State Memorial. This small town is governed by a part-time mayor with a salary of less than $10,000 and four elected part-time Commissioners with annual salaries of less than $3,000. The four Commissioners are Accounts & Finance, Public Property, Public Health & Safety, and Streets & Public Improvements (City of Dixon, 2016). All relied on Rita's handling and presentation of Dixon's finances. The City of Dixon had six bank accounts plus a seventh fraudulent account created by Rita Crundwell. She opened a checking account as "City of Dixon and RSCDA" with the checks stamped "RSCDA c/o Rita Crundwell", and RSCDA was an acronym for Reserve Sewer Capital Development Account. Rita's office did not have a segregation of duties; she alone was responsible for retrieving the mail, making all bank deposits, updating the journals and ledgers, maintaining the checkbook, moving investment funds, and reconciling the bank accounts. Rita regularly moved funds from five of the six legitimate bank accounts into the capital development fund account. Then, she fabricated fictitious capital projects and created 179 invoices for the projects. Transfers from the legitimate capital development fund account to the fraudulent RSCDA account were recorded as payments of the fraudulent invoices. Rita supported the transfers with invoices for the fake capital projects in case auditors asked for documentation. Once the cash was in the RSCDA account, she would write checks for personal expenses that totaled $29 million and lasted July 2006 through March 2012. Only $153,745 of actual expenses for the City of Dixon were paid from these funds during the same time period. Rita's total embezzlement was found to be more than $53.7 million after the FBI finished the investigation and traced the RSCDA account to its opening in 1990. True to form, the fraud started small and grew as the perpetrator became more comfortable. The smallest annual amount taken was $181,000 in 1991 and the largest amount taken in one year was $5.8 million in 2008; the average amount embezzled per year of the fraud was $2.5 million. Rita Crundwell's office held the records of the fake capital projects and fictitious invoices from the Illinois Department of Transportation (IDOT) to support the transfers of cash from the City of Dixon into her own bank account. The FBI investigation identified several differences between Rita's phony invoices and actual IDOT invoices for the City of Dixon. The phony invoices did not have a logo, "section" was misspelled as "secton", the contact information is missing, and the format including font is different (Apostolou et al., 2015). None of the 179 invoices created by Rita were noted in an audit despite the material amounts and obvious features that should have increased the auditor's skepticism. Megan Shank, auditor with CliftonLarsonAllen, was asked in court if she ever learned in her accounting studies that if there are several invoices from the same vendor that do not look the same, this should be investigated. Shank simply replied, "yes, I suppose" (City of Dixon v. Janis Card Company, LLC, Samuel S. Card, CPA, P.C, and Samuel S. Card, Clifton, Larson, Allen, LLP, and Clifton Gunderson, LLP, 2013). Rita paid the fake invoices with fraudulent checks, and the endorsement is what the auditor missed 179 times. If the check were authentic, it would have been deposited into an account at the State's bank with its official endorsement. Additionally, no reference appeared on the check's Memo line to connect it to a specific vendor invoice. The auditors also failed by never doing a site visit or make sure the projects were continuing in any way. Just looking at the small town of Dixon's crumbling infrastructure would let one know that multimillion dollar projects were not happening. The City of Dixon and its taxpayers suffered greatly because of Rita Crundwell's thievery.
Streets were going unpaved, ambulances and police radios needed to be replaced, Dixon city employees had gone years without a raise, and the infrastructure was in a state of total disorder. The cash flow issues caused by Rita's fraud seemed to be caused by the financial crisis and economic recession of the late 2000's. In an October 2011 City Council meeting, officials were worried about a "fiscal crisis" that kept them from hiring part-time employees (Pearce, 2015). Paula Meyer, Dixon's current finance director, said that from the time Rita started to steal, "the city had about $10 million in a fund balance", but "by the time she was arrested, we were $22 million in debt" (Pearce, 2015). Liandro Arellano, member of the all-new City Council for Dixon, said "the city had been borrowing $5 million a year at the end of it because she was stealing so much" (Pearce,
2015). Some were suspicious that Rita Crundwell was stealing from the City of Dixon including Mayor James Burke. The city's outside auditors, CliftonLarsonAllen, and its local accountant, Sam Curd, dismissed the Mayor's suspicions, because they assumed that Rita was honest. The accountants signed off on her financial statements every year without an issue. Small American cities like Dixon, Illinois often lack outside audits, because, at best, third-party auditors can only give limited attention. Rita had almost complete control over the City's accounts for more of her tenure as Comptroller, while a select few, if any, could access the City financial statements. CliftonLarsonAllen was also involved with Rita Crundwell's personal affairs, but ignored the red flags it observed. Clifton prepared Rita's tax return that exposed expenses not justified by her $83,000 salary as City Comptroller. Clifton and the City of Dixon had an audit relationship, but the Clifton partners and associates never thought to investigate Rita or view her as a fraud risk even though the accounting firm was aware that she was living beyond her means. In deposition, Ronal Blaine, a now retired Clifton partner, admitted to seeking dates with Rita, having dinner at her house, and he even remembered the recipes. Blaine had a close relationship with her, even calling her "Reetz" for short. Rita played with the Clifton team for softball games. However, in court, Blaine denied any knowledge of professional standards that might discourage a personal relationship with a client. The City of Dixon attorney asked Ronal Blaine if he "ever read any accounting standards or been taught in any continuing accounting education classes about the potential for problems to develop if an accountant has an intimate personal relationship with a client". "I don't remember ever having anything in any education classes about that subject, no", the retired Clifton partner responded (City of Dixon v. Janis Card Company, LLC, Samuel S. Card, CPA, P.C, and Samuel S. Card, Clifton, Larson, Allen, LLP, and Clifton Gunderson, LLP, 2013). These facts lead to a conflict of interest between Rita and the City's accountants. The auditors noted the risk of management override and the missing segregation of duties regularly since 1993, but they never tried to intensify the audit procedures to fix the material weaknesses. The fraud was finally discovered by accident in 2011. Rita Crundwell's position as Comptroller gave her four weeks of vacation each year; in the fall of 2011, she decided to take an extra twelve weeks of vacation without pay. Effective internal controls call for vacations for those in charge of assets, and this control only operates when another person performs the work in the vacationer's absence. After two decades, this finally happened when Kathe Swanson, city clerk, took over Rita's position. Swanson discovered the fake RSCDA account and the many fraudulent checks. She suspected this was not an actual city account, and Swanson brought her suspicions to Mayor Burke, who then got in touch with the FBI. Rita's fraud went on for six more months, as Burke and Swanson (her payroll was controlled by Crundwell) were told to stay silent while the FBI built their case. Rita Crundwell returned from her extended vacation on April 17, 2012 to find FBI agents waiting for her. She was arrested later that day and indicted by a federal grand jury for embezzling $30 million from the City of Dixon during the past six years. The next day, Rita was charged with one count of wire fraud and was released on $4,500 bail. On May 2, 2012, a superseding indictment charged her with embezzling $53.7 million over the past twenty-two years. The City of Dixon received a settlement of $40 million in its civil lawsuit against the auditors and Fifth Third Bank in October 2012. The breakdown of payments was $35.15 million from CliftonLarsonAllen, $1 million from Janis Card Associates and owner Samuel Card, CPA, and $3.85 million from Fifth Third Bank. The City of Dixon had to take on over $10 million in legal fees to be paid from liquidated assets that equaled $12.38 million. Although Rita Crundwell had built a giant horse breeding empire, it was not enough to cover her fraud's consequences. Discuss selling of assets Rita Crundwell pleaded guilty to a single count of wire fraud on November 14, 2012. She also admitted to money laundering by using the stolen funds to endow her Quarter Horse operation. Rita was required to forfeit more than $53.7 million in cash, assets, and possessions. If Rita had not pleaded guilty, she would have been charged with bank fraud, wire fraud, and money laundering; all of which could have sent her to prison for the rest of her life. Prosecutors sought the maximum sentence of twenty years in federal prison on February 14, 2013.
Debra became the assistant vice-president and manager of energy lending of a Canadian Western Bank on January 31, 2006. Within a month Debra set up her embezzlement scam by creating two corporations that the embezzled funds would be funnelled too. Debra set up an account in a woman’s name using the woman’s GIC (guaranteed investment certificate) which was worth 8 million dollars. Debra started with 100,000 dollars in a line of credit using the woman’s name and increased it 6 times until the line of credit reached $950,0000 on November 6, 2007. Additionally, Debra arranged for 5 new accounts in the same woman’s name with a total deposit of $16.4 million. Debra made 72 unauthorized withdrawals from the fake account in the two year time frame of the scam. She kept the scam going by transferring money from the
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