COLLEGE OF BUSINESS, HOSPITALITY AND TOURISM

STUDIES
SCHOOL OF ACCOUNTING
TRIMESTER 1 2019

ACC705: FORENSIC ACCOUNTING AND FRAUD

INVESTIGATIONS

Individual Assignment
Total: 20 marks Weighting: 15%

(Write up 10% and Presentation – 5%)

Name: Taina Tikoisavusavu

ID: 2017140846
 Assignment Marking Criteria

Areas Scope Out Marks Gained Comment

of
i. Background How well student has demonstrated 5
the need for the fraud investigation.
ii. Executive How well the student summarizes 5
Summary the whole case
iii. Scope How well the student demonstrates 5
the objective of the fraud
examination.
iv. Approach How well the student identifies 10
what approaches were used in the
case to conduct the investigation.
v. Findings How well the student identifies how 10
the investigation was carried out,
what steps were used etc.
vi. Summary How well the student summarizes 5
the result form the fraud
examination.
vii. Impact on How well the student identifies how 5
Business business was affected form the
fraud.
viii. Recommendations What recommendation the 5
investigators/ student suggested
avoiding fraud in the future.
Total 50
 FRAUD EXAMINATION REPORT

TO: JASON WOJDYLO

CHIEF INSOPECTOR OF ASSET FORTFEITURE DIVISION AGENCY

FROM: CORY B. NELSON

CERTIFIED FRAUD EXAMINER (FBI SPECIAL AGENT)

RE: EXAMINATION OF POTENTIAL ASSET MISAPPRIATION

DATE: APRIL, 15TH, 2012

I. Background
On October 14, 2011 Dixon City Clerk discovered a suspicious account RSCDA (reserve
sewer capital development account) when she requested all the accounts that was under the
city from Fifth Third Bank. The mayor was later informed of the suspicious and a report was
made to the FBI

Based on these initial reported FBI conducted fraud examination which lasted
For 5 months and includes interviewing of relevant individual and reviewing of applicable
records.
 II. Executive Summary

The fraud examination initiated when the FBI received a report from Jim Burke the mayor of
Dixon City. This was the result of the suspicious that was being reported by the Clerk of City,
Kathe Swanson.

Kathe Swanson was given Rita Crundwell’s task while she was on vacation. In which it later
leads to the discovery of the suspicious RSCDA (reserve sewer capital development account)
when she requested all the accounts that was under the city from the Fifth Third Bank. She
suspected that the money in the account was not of the business one.

Rita Crundwell has been employed as an intern for City of Dixon in1970 while she was still in
high school. She was later promoted as the cities as treasure and comptroller in 1983.

The FBI fraud examination team reviewed all the preferred invoices that was being deposited
into the RSCDA account from the period of 1990 to 2011 since these account came to effective
in this period. The team gets excess to relevant information regarding the misappropriation of
assets in the form of embezzlement. They conducted relevant interviews of the primary parties
and reviewed of the financial documents and the personnel files by conducting search warrant.

After attaining acceptable documentation, the FBI interviewed Rita Crundwell, who gave her
full confession to her fraudulent activities.

III. Scope

The objective of the FBI Fraud Team was as follows:

 To resolve the existence of a possible embezzlement or misappropriation of asset of
the City of Dixon’s books that might be integrated. The examination was
implemented upon the report that was received from the mayor of the suspicious
account that came to his attention when his clerk, Kathe Swanson discovered it.
IV. Approach

Fraud Examination team Members

Cory B. Nelson (FBI special agent), Attorney Joe Pederson, Attorney Devon Bruce of power
Rogers &Smith

Procedures:
In order to conduct the examination process, the tem took the following measures:
 Attain, review and analyze the suspicion by the city clerk, Kathe Swanson.
 Attain, review and analyze the Fifth Third bank statement including all the fictitious
large amount of checks that was deposited into the RSCDA account through the
examination of the Proof of Deposit
 Review of the bank proposal form that was filled by Rita in 1990 when opening the
fake account.
 Attain, review and analyze the Auditing firms sample documentation when Clifton
Gunderson used to conduct the audit process of the City
 Examine and verify the audit report in regards to the tax returns and large sums of
money that should be documented in the tax report
 Request and verify the meeting minutes from City Hall to see large scale project that
could have been discussed during the meeting and recorded in it, to detect the fake
project
 Examination of email to detect fake invoiced from Illinion Department of
Transportation which was fake that has a non-existence date in which the auditor
failed to call the company to have it verified
 Conduct certain surveillance activity which includes the 2 minutes phone to Illinois
department of transportation with reference to the false invoices
 Analyze and examine the general ledger software that was used by Clifton and cut the
checks based on appropriate accounts payable documentation and presented to the
City Council for approval , it was also detected the hand written check by Her that
was ignored by the software

Individuals Interviewed: The following were some of the individuals that was interviewed
by the fraud examination team:
- Samuel Card -owner of Jani Card Accounting
- Megan Shank- the auditor who reviewed the audit report that was made by Auditor,
Clifton Gunderson
- Ronald Blaine- a retired head of Dixon Office about the tax returns report he
prepared in which no documentation was received which indicated her gross receipts
of $ 700,000
- Kathe Swanson- current clerk of Dixon City
- Jim Burke- the current mayor of the City
- Patrick Garry- FBI agent of the Illious office
- Terranova M. – Deputy clerk of Crundwell’s breeding business
- Chalie Hemghill- director of events at the Quarter Horse Association
- Andrew Hayes- Fifth Third Bank public relation vice director
V. Findings

Based on the relevant documents and all the information gathered and the interviews that took
place during conducting this fraud examination, the team was able to find the followings:

-Was the team able to determine the existence of a possible misappropriation of asset in the form
of embezzlement?

Yes. The relevant information and documents that was collected and gathered by the FBI
examination team during the course of investigation all points out that Rita Crundwell did
intentionally embezzle relatively $54million from the City of Dixon which was generally the
funds of the public. The following are the summary of the evidence and information that was
gathered during their investigation that the Fraud Team Examination conducted:

On October 14, the city clerk (Kathe Swanson), discovered a suspicious account (RSCDA
Reserve Funds) when she receives the mail from the Fifth Third Bank prior to her request of the
Dixon City the bank statement. Proceeding to the report received from the mayor, the FBI
examination team reviewed all the statements with reference to suspicious account.

Fifth Third Bank

The Vice President of public relation of the Fifth Third Bank was then interviewed on the
following day in which they were able to gather that the particular account was opened on the
18th December of 1990 with First Bank South before it was being taken over by the Fifth Third
Bank. They have created the account without a proper authorization from the City and they
weren’t aware of the exiting account. He state that there was no resolution given by Rita
Crundwell when being asked by the Fifth Third Bank when they took over the bank.
The manager was also able to release all relevant information which pointed out that the fraud
has been happening taking place for about two decades.

The mayor of Dixon City

On October 23, the mayor of the Dixon City, Jim Burke was being interviewed. The main reason
behind this interview is to inform him of the scheduled fraud examination that team is going to
propose, to get his approval on getting excess to the secured information with regarding to the
city’s transactions. And to determine his role in the fraud which was none since he was found to
be shocked of the news. He was able to corporate with the team in availing himself and his clerk
while keeping the investigation as a secret during the course of the investigation. He later recall
that he always feel bothered about Crundwell’s growing wealth and also mentioned that she have
excess to all the business knowledge of the City’s business.

The team later examines the personnel records of Rita Crundwell which clearly states that she
joined the Dixon City as an intern in 1970 while she was still in high school. All of her work
were never been reviewed by any Authoritative personal and was always treated as an
exceptional since she was always in the good book of the business.

On November 14, the team was able to excess the audited financial statement report in which
was carried out by the Accounting Firm Clifton Gunderson who carried the audit for the city
financial statement from the period of 1990 to 2005.
Auditors
On 25 November, an interview was confirmed and carried out in which the retired Clifton
partner Ronald Blaide with regards to the tax return that showed gross receipt of $700,000 in
which no documentation was received. He stated that he could not remember receiving or
pressing for documentation. This interview was also conducted to summarize his responsibilities
in the fraud committed in which he later confirmed that they were close with her and wasn’t
aware of the fraud. When questioned about the existence of conflict of interest he state that they
also sometimes share beer after work with some of the staffs form the audit company. The
examination team also had to go through a surveillance camera to proof this and also the claim
that she played for the Accounting firm in the 1980’s.

Next the examination team analyzes and reviews the work of the audit and confirmed not only
the same accounting firm was the same firm that audit the City’s financial report they also
conduct report on Rita Crundwell.

The next interview was set again with Megan Shank an auditor that started in 2002 same
accounting firm and she confirmed that she continues to audit the report from then until the fraud
was detected. She also verified that the firm also performed duties such as check processing for
city and also personally prepares Rita’s tax returns.

On 17th December, the team interviewed Sam Card who was the owner of the Jani Card
Accounting firm to clarify if the discovery that he signed off the audit that was carried by Clifton
Larson when they resign form auditing the city report. This was following the implementation of
the new law in 2005 where auditors were banned from performing both the auditing service
while offering consulting service for the same firm. In which he clarifies giving his signature
since City was one of their big client which Clifton cannot afford to lose.

The Checks
A review of the software that was used to document the account payable on check basis prepared
by Clifton for City Council was conducted on the 28th December. The software ignored the
handwritten checks that was prepared by Rita Crundwell, thus the checks were not subject to
scrutiny.

Upon the Examination the Proof of Deposit and the bank statement that was issued by the Fifth
Third Bank, the team set up a second interview with the Vice President. He was being questioned
on the awareness of the Personal made checks to transfer cash from the capital account to the
RCSDA account as well as the fictitious invoices were created on the 3rd January the following
year. In which he answered they were also mislead since the cash were deposited as treasure.

Fake Invoices
On the 23rd January, the team conducted further verification when phone call to Illinion
Department Transportation with regards to the 179 invoices, and was told that the only 159
invoices were fake once created by Rita Crundwell and this was further verified through of the
emailing of the copy of the invoices with them.

Dixon City Council

The next interview was conducted on 6th February with the Clerk, Kathe Swanson requesting the
meetings minutes from the City Council to determine if there was any discussion on the large
scale project in which a fictitious one was detected which was also created by Rita Crundwell.
 Horse Operation
On 22nd February an interview was conducted with Terranova. M, the Deputy Clerk of
Crundwell’s Horse Business, in which Mrs. Crundwell agreed on while she was on a vacation.
They were also able to get excess to the transaction of the horse operation which matched their
theory that during the deficit period of the City Council, there always upgrade in the business. He
also confirmed the 400 Quarter horses that she owned in different farms.

The next interview was conducted on the 3rd march with Director of Event at the Quarter Horse
Association, Chalie Hemghill who stated that Rita Crundwell was the current leading owner of
America Quarter Horse Association in which she was able to earn herself 52 world thoroughbred
championships.

On following day his nephew was questioned with reference to picking up the mail when Rita
Crundwell was away on trip regarding to her Horse Operation. In which he answered by stating
that his Aunty always ask him for the favor of collecting the mail on her behave.

Search Warrant
Upon the through verification and having sufficient evidence, the FBI examination team was
given the permission to conduct a search warrant on the 15th April. In which they found 33
checks of more than $25,000 in sum for the period of 1988-1990 which seem to belong to the 4
sister cities all over the world.

Confronting the Comptroller of Dixon City

On the 17th April Rita Crundwell was confronted after her vacation in which she made a
statement by emotionally stating that she was stealing millions each year.

VI. Summary
This report implies that Rita Crundwell a Comptroller and Treasurer of Dixon City Council
signed a statement on April 17th, 2011 illustrating that she had accepted at least $53.7 million
fraud and the offence that she committed alone and without anyone’s conspiracy.

The statement that Crundwell made justifies all the relevant documentary evidence and the
interviews that were conducted by the examination team.

VII. Impact to Dixon City Council Book.

For the past two decades, Rita Crundwell, was able to embezzled an estimation of $53.7
million from the Dixon City Council book’s which resulted in the denying of the resources to
the city departments which resulted in the deficit budget for those years

Additional amounts couldn’t be detected due Crundwell’s luxury buying and the amount that
was cut directly from the budget and tax received wasn’t proper documented sine the crime
lasted for more than 20 years.
VIII. Recommendations
Some of the follow up action that was taken into consideration was that the state was able to
pass into law a requirement that regulates the Posting of the financial report online after
being audited.

Moreover a full review of the Internal Controls such rotation of duties, mail should be
delivered directly to the hall rather than having someone physically pick it, merging of the
several account into single accounts, paper checks removed and offer quality price for the
accountants.

Overall the City of Dixon revoked its structure to make sure that no one should have infinite
power over the city finance since it is the public funds.

End of Report
References

Apostolou, B., G. Apostolou, N. and Thibadoux, G. (2015). Forensic & Investigative

Accounting. [online] Web.nacva.com. Available at: http://web.nacva.com/JFIA/Issues/JFIA-
2015-1_11.pdf [Accessed 22 Feb. 2019].

Danielsethics.mgt.unm.edu. (n.d.). Fraud in Dixon Illinois: Who’s to Blame? [online] Available

at: https://danielsethics.mgt.unm.edu/pdf/Dixon-Fraud.pdf [Accessed 22 Feb. 2019].

Hancox, D. (2014). How a $53 Million Fraud Went Undetected for 22 Years [CPA Journal,
The]. [online] Sip-trunking.tmcnet.com. Available at: http://sip-
trunking.tmcnet.com/news/2014/06/24/7892133.htm [Accessed 22 Feb. 2019].

Pope, K. (2013). The $54 million fraud. [online] Aicpastore.com. Available at:
https://www.aicpastore.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_201
3/ForensicValuation/54-million-dollar-fraud.jsp [Accessed 22 Feb. 2019].

Press, A. (2015). Chicago Tribune - We are currently unavailable in your region. [online]
Chicagotribune.com. Available at: https://www.chicagotribune.com/news/local/breaking/ct-rita-
crundwell-dixon-horse-royalties-20150612-story.html [Accessed 22 Feb. 2019].