More On $53 Million Heist By Dixon City Controller

The St. Louis Post-Dispatch has a good story looking at how the city controller of the small town of Dixon, Illinois managed to steal $53 million from the town coffers over a 20-year period. Essentially, the newspaper finds that the 58-year old Rita Crundwell was the only person checking the city's books during her long tenure as the city's chief financial officer. The mayor and the town's commissioners were completely out to lunch while she annually diverted about one-third of the city's annual budget into bank accounts she controlled. One thing about small towns is that everyone seems to know everyone else's business. I wondered how nobody in the town could have figured out before now how Crundwell lived so well on her $80,000 a year annual salary. This is what the Post-Dispatch learned:

As for Crundwell's visible riches, she was a nationally prominent horse breeder on the side. Townspeople say that's why no one questioned how an $80,000-a-year civic worker could afford the massive horse breeding farm at the edge of town, the second farm in Wisconsin, the multiple cars, trailers, boats and jewelry. They thought they had an explanation.

"There's a lot of money in quarter horses," noted local resident Rick Munson over a beer at the Shamrock Pub, down the highway from Crundwell's palatial, gated ranch-style home just outside of town. "I think everyone assumed that's where the money came from."

So how did Dixon officials finally figure out after all these years what Crundwell was doing? The same way vritually every embezzlement scheme is uncovered. Crundwell was out of town on vacation last year when a city clerk took a closer look at an unusual transaction she couldn't quite grasp and took it to the city's mayor.

While Crundwell was on vacation last October, City Clerk Kathe Swanson conducted a routine review of the city's accounts. She found one she didn't recognize, through which more than $770,000 had moved in that month alone. She took it to Burke, the mayor. He didn't recognize it either.

"I couldn't connect it with anything," Burke recalled last week. "I said, 'Kathe, don't say a word to anybody. I'm going to have a meeting with the FBI.'"

FBI officials in Rockford told Burke and Swanson to stay quiet while they tracked Crundwell's financial movements. Six months later, on April 17, the FBI arrived at her second-floor office in City Hall and took her out in handcuffs. She was released the next day on a recognizance bond.

She remains free, on unpaid leave from her job. Her next court appearance is June 15. Federal officials have taken control of her empire of property and horses — 311 of them, allegedly bought with embezzled money. If she's convicted, they will all be sold to return funds to the city, prosecutors say.

The day after her arrest, angry residents packed into City Hall demanding answers. Burke laid out the situation and vowed reforms: an independent investigation, a new outside auditor, the appointment of two fiscal experts to hire a new comptroller, a revamped fiscal system with modern separation controls.

"There is no good answer for it. Five City Councils ... three mayors and 21 annual audits. We didn't know," Burke said last week.

"She's a smart woman," he added. "She knew enough to keep the bills paid. I ask myself, how was she able to walk in here and see people every day? … I don't know how she did it."

The newspaper article wonders if this sort of thing happens with other governmental entities. He finds that most governments divide functions between a treasurer who manages incoming revenues and a controller who manages expenditures. It looks like Crundwell was diverting the money the city received from the state from sales taxes and other taxes collected into bank accounts she controlled without the funds ever being deposited into a city account.

What I don't understand is how there could have been 21 annual audits that failed to uncover the missing money. The St. Louis article doesn't mention who was responsible for performing those annual audits. The local Dixon newspaper started asking the same question. Two independent firms were involved in Dixon's annual audit according to the Chicago Tribune: CliftonLarsonAllen, located in Dixon, just gathered the financial documents, while Samuel S. Card, of Sterling, played the far more important role of analyzing them. I've not seen any mention of it, but I'm wondering if Crundwell had to be bonded to work as the city's controller.

The newspaper thinks Illinois should adopt the Hoosier approach of having a State Board of Accounts conduct the auditing of public books rather than letting private accountants do the work. In the meantime, it looks to me like the city of Dixon should be considering a lawsuit against the private accounting firms that failed to uncover Crundwell's activities for more than 20 years.