How America’s Largest Municiple Fraud Case Could Happen To You

Recent headlines have the town of Dixon, Illinois at a loss for words. Rita Crundwell, a former comptroller for the city of Dixon, was released from prison before half of her 19.6-year sentence was served. Her crime? Embezzling nearly 54 million dollars from the small town of Dixon over 20 years. The LARGEST municipal fraud case in American history. What is more impressive? It only took a single person.

$54 million? That is A LOT of money to hide from a whole town. 

How did she do it? For the most comprehensive answer, I suggest watching the film “All the Queen’s Horses.” This documentary from 2017 is professionally pieced together by Dr. Kelly Richmond Pope of DePaul University in Chicago. 

Dr. Kelly Richmond Pope explains that the fraud was a simple setup. Rita was in charge of most of the finances for the town, so she held the most control. She set up an additional bank account under the city account, put a fake label on it so it seemed like a legit account, but instead withdrew all the money from that account for her personal use. This went on for about 21 years.

My point here is not to write a review of the documentary but to caution you as a business owner. Again, I suggest you watch the documentary for yourself to learn how it happened, but I want to discuss how it could happen to you. Hopefully, your fraud would not reach the extent of $54 million dollars, but any single dollar taken is fraud. 

Let me explain the mistakes made. First off, there were no additional financial controls set in place — a mistake made by the city. Any checks that were written only required one signature. Next, only one person reviewed all the bank statements for reconciliation. Also, the bank didn\’t question large check amounts written to the “Treasurer.” And finally, possibly most shocking, the tax preparers did not question the large unexplained amounts of income to Rita or substantial loss of the city. 

So what are some ways that fraud can be prevented?

1. Require dual signature checks 

Having two people sign a check assures that both people agree it is a fair and reasonable amount. Even if this one simple step was put into place, I’m sure Dixon, Illinois would not have suffered as much. Different software offer this option if there are no longer paper checks within your business. CorPay One offers this service and Relay Financial does as well. I\’m sure there are many others. 

2. Require checks to be approved if they are over a certain amount

Similar to dual signatures, I believe it is important that checks over a certain amount need approval. You can set up the limitations in certain software. For example, if I am writing a check for $600, yet our company approval limit is $500, then an alert would be sent to whoever is above me to approve of the check I am writing. I believe CorPay One and Relay Financial offer this service online if your checks are not handwritten. 

3. Set up surprise audits

If the city set up a single surprise audit, this embezzlement would have been found. Now there is some question as to what an ‘audit’ really is. To my understanding, an audit is an outside opinion to see if the financial books look correct and make sense. Audits confirm if the story that the financial statements are telling is a true and accurate story. There are IRS auditors, and financial firms generally offer audits. I could be wrong, but I believe anyone with good moral standing with the IRS, who understands how to interpret, dissect, and read the financial statements, is qualified to perform a basic audit. An official audit would be performed by the IRS. There is no auditor training course or certification to my knowledge. 

4. Industry Benchmarking

Industry benchmarking is comparing two similar company financial statements together to see if they’re roughly the same percentages. Yes, one business could be greatly outperforming a struggling business, but roughly produce the same percentages of money coming in and going out. This was an alarming statistic to the neighboring city of Dixon. The neighboring city noticed that Dixon was greatly in debt while they were generating some profit with a similar population. If someone dug deep into why this was happening, it’s possible the fraud would have been caught sooner. Business owners should be comparing similar reports to their industry to ensure accuracy and prevent fraud. 

5. Outsource Bookkeeping when possible 

My intention of this fifth point is not to point fingers at myself and proclaim that I would prevent your business fraud. I intend to highlight the importance of needing an outsider’s set of eyes and opinion on your books. This is someone who has your best interest in mind, with no conflict of interest. I also highly suggest over communicating with your bookkeeper on all matters. The more information your bookkeeper obtains from you, the better services they will provide.

I write this blog not to condemn a single person, business, or city. I do not wish harm on anyone, but only to mend what has been broken. I do believe people can change, and I hope the unforgiveness from the City of Dixon changes and I hope Rita has changed. Mistakes are made and lessons are learned — and we would be foolish as outsiders to not learn from this mistake. I write this to caution business owners to take a second look at their systems and controls. Thank your employees who have remained faithful and diligent, even when presented with accessible temptations.

* Seek professional legal advice if you believe fraudulent activity has occurred in your business. I am not trying to give legal advice or legal opinion on actions that occurred.