In wake of Dixon theft, cities double-check the books

DIXON — In an era of strained city budgets and public obsession with accountability, how does a small town just fail to notice as $53 million walks out the door?

That’s the question haunting the Northern Illinois city of Dixon, population 16,000, known as the hometown of Ronald Reagan and, now, of Rita Crundwell. The former city comptroller stands accused of siphoning city funds for a generation.

Crundwell, 58, pleaded not guilty last week to one count of wire fraud, the only charge against her so far. But the federal indictment claims she pocketed the equivalent of almost one-third of Dixon’s $9 million general fund budget every year for 21 years, which amounts to about $3,300 for every man, woman and child in town. If true, it would be one of the biggest public embezzlement schemes ever.

It isn’t a milestone for which Dixon’s red-faced citizenry will be hanging any plaques.

“Some people must be wondering how Dixon could be so dumb, to let $53 million slip through our fingers,” said Susan Buccola, a volunteer at Reagan’s boyhood home.

Others may wonder whether it could happen elsewhere in Illinois.

Officials, predictably, say no: Most governments, they say, no longer use the single-control fiscal system that Dixon did. But the story is nonetheless making waves in Springfield and elsewhere, prompting local leaders to double-check the books.

“How many other Dixons might be out there right now?” asked Illinois state Sen. Dan Duffy, R-Barrington. His bill to require cities to post their finances online was believed to be dead this year, but it is now revived because of shock in Springfield over the Dixon story.

St. Louis Budget Director Paul Payne also expressed shock at the allegations. An equivalent theft in St. Louis, with its $450 million general fund budget, would be something like $3 billion over 20 years — but it would have to get by the city’s treasurer, comptroller and collector of revenue, all of whom sign off on any movement of money. “There are multiple layers,” Payne said.

Crundwell faced no such oversight. She allegedly opened a separate bank account, made to look like a city account. She is accused of transferring city revenue into it, including incoming sales taxes and other money from the state, before it got to the city’s books. She allegedly used the account to fund a lavish, tax-funded lifestyle of cars, horses and jewelry.

“It boggles my mind,” says Belleville Treasurer Jerry Turner, whose office has to coordinate all transactions with a separate city finance director. With that much missing money, “you’d think they wouldn’t be able to pay their bills.”

Paying the bills has been an issue in Dixon. The city recently had to refinance $6 million in debt. City workers haven’t gotten a raise in three years.

Mayor Jim Burke is the third mayor during Crundwell’s alleged embezzlement and the one who went to the FBI. Burke said Crundwell sat in a meeting in April, one day before her arrest. She listened silently as city officials discussed the town’s dire financial straits.

“Sitting in the room,” Burke recalled, shaking his head. “Jesus.”

How could it happen? “That’s the $53 million question,” says Illinois state Sen. Tim Bivens, R-Dixon.

Bivens was a Dixon High School classmate of Crundwell’s but said he doesn’t know her well. He said the feeling in town is “outrage and total disgust” as well as surprise that one unelected official had such control over the city’s money. “With any organization, you don’t want to put one person in charge of everything.”

It’s the first rule of fiscal management, and it’s one that Dixon has ignored for as long as anyone here can remember.

“That’s just a violation of a basic tenet of internal controls,” said Frank Nekrasz, a certified fraud examiner who teaches at the University of Illinois at Champaign-Urbana. “If you can touch it, you shouldn’t be able to authorize (spending) it, or to record it.”

Other factors came into play, too. There was the chronic budget struggle of cities everywhere, making Dixon’s struggles look normal. There was a famously deadbeat state government that routinely stiffs local entities, providing a believable explanation for why Dixon wasn’t getting what it was supposed to from Springfield.

And there may have been “a small-town mentality,” as Dixon resident Pat Gorman put it, that assumed if a system has always been in place, that’s reason enough not to change it. It could explain why no one questioned Crundwell’s control over all aspects of the system even the incoming city mail, which she would instruct relatives to collect in her place when she was on vacation, according to the indictment.

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.”

Crundwell couldn’t be reached for comment. Her attorney, Paul Gaziano, declined to comment, citing court rules.

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. “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.”

How embezzlers reconcile themselves with their crimes is part of what fraud investigators call the “Fraud Triangle,” or three elements that lead to fraud: financial pressure, opportunity and rationalization.

“She had huge amounts of opportunity” because of the lax fiscal system in Dixon, said Nekrasz, the U of I fraud expert. “I’m not sure what her pressure was. Maybe it was her horses.

“One of the classic rationalizations is, ‘I’m just borrowing it,’” Nekrasz added. “I explain to my students that when you borrow something without giving it back, we have another word for that. It’s called stealing.”

Some residents interviewed last week said they don’t blame the current city administration for failing to discover the alleged theft earlier because so many others failed for so long. Still, the frustration in Dixon is palpable.

“There are people that should be held accountable for this whole thing,” said Mike Christoffersen, owner of the Zero Tap downtown. “Why no one noticed the mail was never delivered, I just can’t figure that out.”

Already, a new debate is under way about what to do if the city gets the money back.

“If we’ve been able to survive on that much less, maybe we should all get a tax break,” suggested Buccola, the Reagan Home volunteer, voicing one common view.

“Could you imagine what Dixon could be like with $53 million extra?” asked resident Adam Jezek. “I think infrastructure is a big thing. The money should just go right back into the city.”|782-4912

Rita Crundwell High Rolling AQHA Breeder Pleads Not Guilty to $53M Theft

Prosecutors allege former Dixion, IL comptroller Rita Crundwell stole $53 million to support her horse business and lavish lifestyle by transferring city funds to a secret account.

It is unknown if Crundwell’s farm manager and boyfriend, Jim McKillips, knew about the alleged theft.

Her horses were handed over to US Marshals after a judge’s forfeiture order was received late last week.

Not Guilty Plea

Rita Crundwell, the high-profile Quarter Horse breeder accused of embezzling millions of dollars from the coffers of a small Illinois town, has pleaded not guilty to the charge against her.

Crundwell owns RC Quarter Horses LLC and operates the Meri-J Ranch in Beloit, Wis., and another horse farm in Dixon, Ill. She has been a leading Quarter Horse breeder having earned Leading Breeder Award honors at eight American Quarter Horse Association World Championship Shows. In connection with the case, Crundwell’s 311 horses are now in the care of the U.S. Marshals Service.

In April Federal Bureau of Investigation (FBI) agents arrested Crundwell and charged her with one count of wire fraud after a federal grand jury in Illinois returned an initial indictment accusing Crundwell of misappropriating $30 million in funds from the town of Dixon, where she had served as city comptroller since the 1980s. Further investigation resulted in an expanded indictment accusing Crundwell of allegedly misappropriating a total of more than $53 million from Dixon over more than 20 years.

A spokesperson for the U.S. Attorney’s Office for the Northern District of Illinois said that on May 7 Crundwell appeared in U.S. District Court in Rockford, Ill., where she pleaded not guilty to the wire fraud charge.

Crundwell’s attorney Paul Graziano, assistant defender for the Federal Defender Program, declined comment on the case.

While the case is pending, Crundwell remains free on bail.