978-1337614436 Cases Dixon Fraud

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CASE 17

Fraud in Dixon, Illinois: All the Queen’s Horses

Could Not Save Her

CASE NOTES FOR INSTRUCTORS

This case is a good example of the need for financial controls. Rita Crundwell was the treasurer of the

small city of Dixon, Illinois. Everyone trusted her with the city’s finances. In addition to her role as

treasurer, she also raised champion quarter horses and had won 52 horse championships. In 2011 while

she was out of the office, a city clerk took over Rita’s job and came across a strange-looking bank account

in the city’s name. Money from the account was being used to purchase lavish items such as jewelry and

boats. The suspicious account was reported to the mayor and the FBI. After taking five months to build

their case, the FBI arrested Rita Crundwell for municipal fraud on April 17, 2012. Rita was found guilty

of stealing over $53 million from the city of Dixon over two decades.

The most notable aspect of this case is how easy it would have been to detect the fraud if proper controls

had been in place. For instance, there was Rita’s lavish lifestyle. Her lifestyle was unaffordable for

someone with her salary, even with her prize winnings from her horse championships. On Rita’s tax

returns, there were no documents to explain how she was making so much money—a fact that the

accounting firm, Clifton Gunderson, should have questioned. Clifton Gunderson was the accountant for

both Dixon and Rita, indicating a possible conflict of interest. Rita provided fraudulent invoices for phony

city projects that did not look legitimate. There were no numbers for a contact person on the invoices, and

one invoice even had a non-existent date. It should also have been relatively simple to check on whether

these projects were actually taking place.

Fifth Third Bank and the city of Dixon also share part of the blame for the fraud. When Rita first opened

the fraudulent account, Fifth Third Bank allowed it without a resolution or by requiring anybody else to

sign off on it. Bank statements revealed that money funneled from city funds were being spent on things

that had nothing to do with city projects, such as jewelry. Checks were deposited under Rita’s name rather

than “City of Dixon.” The city was partially at fault as well because it allowed Rita to have sole

responsibility for finances without providing controls to prevent fraud. Additionally, while many residents

questioned Rita’s lavish lifestyle, nobody spoke up.

Students should realize that a massive fraud does not always have to involve an elaborate, hard-to-detect

scheme. In fact, many instances of fraud would have been highly obvious and detectable if the right

questions were asked and suspicions were investigated. This case should show the importance of

questioning suspicious activity and adopting controls to ensure financial gatekeepers are held accountable

for the money under their charge.

QUESTIONS AND 0DISCUSSION

1. What were some of the red flags that fraud was occurring?

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There were many red flags that fraud was occurring. For instance, there were no obvious reasons for

why Rita was making so much money and affording so many championship horses. Clifton Gunderson,

the accounting firm for Dixon, Illinois, and Rita’s own personal accountant, had no documentation to

explain why Rita had so much income when they did her taxes. Rita Crundwell perpetuated much of the

fraud with fraudulent invoices she developed for phony projects. She attempted to make these invoices

2. Describe some of the ways that Rita Crundwell was able to get away with the fraud for so long.

First, the city itself, due to its small size, did not have a full- or part-time accountant with knowledge of

the city’s finances. Rita was almost solely depended upon to handle the city’s finances, and any

questions about finances were directed to her. Rita even made sure that only she picked up the mail, and

The accounting firm Clifton Gunderson clearly had conflict of interest issues. It acted as the accounting

firm for the city of Dixon and as Rita’s personal accounting firm. She had been involved with the

company’s softball team and had friends at the firm. This could have caused the firm to turn a blind eye

Even though Fifth Third Bank had policies in place to detect fraud, it did not seem to implement them

when it came to Rita Crundwell. When Rita first opened the fictitious account in the early 1990s, the

bank did not require a resolution or other people/entities to be involved in the account’s opening—both

3. What are some of the internal controls Dixon, Illinois has implemented to prevent fraud in the future?

The problem with small towns is the lack of resources available. In Dixon’s case, while it was able to

hire a few full-time employees such as Rita, it did not employ a full- or a part-time accountant. After

Rita was arrested, the city hired a new finance director who reorganized the city’s finances and

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Additionally, Rita had all the city’s mail sent to a post office box. She picked up all of the city’s mail

ADDITIONAL RESOURCES

Documentary trailer on the Dixon fraud: http://www.allthequeenshorsesfilm.com/

Rita Crundwell’s long-term scandal and lavish lifestyle:

http://www.latimes.com/nation/la-na-horse-swindler-crundwell-20151030-story.html

Restructuring Dixon’s internal controls:

http://www.saukvalley.com/2017/04/14/crundwell-recovery-5-years-later/a7nasm0/

Fraud in Dixon, Illinois: https://www.youtube.com/watch?v=WAYtaFxlw3M

distributed with a certain product or service or otherwise on a password-protected website for classroom use.