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Dixon sues audit firm for failing to detect fraud

(Sauk Valley Media file photo)
Former Dixon comptroller Rita Crundwell leaves a courtroom in Dixon on Oct. 22 with her attorney Paul Gaziano (left). The town of Dixon is suing its longtime accounting firm to try to recover the almost $53 million embezzled by Crundwell, claiming it failed to detect the fraud when auditing the city's books. Crundwell pleaded guilty in November and is scheduled to be sentenced Feb. 14.

DIXON – An Illinois city whose former comptroller embezzled almost $54 million is suing its longtime accounting firm for failing to detect the fraud, claiming it missed red flags including bogus invoices.

Rita Crundwell, 60, pleaded guilty and is scheduled to be sentenced next week for the scam that authorities say lasted 20 years and enabled her to live lavishly and build a world-renowned quarter horse breeding operation.

The city of Dixon is suing the firm of CliftonLarsonAllen, which audited Dixon's books and performed other duties, such as check-processing, while the firm's personnel prepared Crundwell's tax returns, Crain's Chicago Business reported Monday. The lawsuit seeks compensation for the entire loss.

Among its claims is that CliftonLarsonAllen overlooked bogus state invoices submitted to the city by Crundwell, who then deposited the six-figure checks into her own account at a local bank branch where Dixon also kept its money.

Court papers filed by the law firm representing the city, Power Rogers & Smith, include invoices that Crundwell claimed were from the Illinois Department of Transportation, but which lacked an IDOT heading or logo and, in one instance, carried a nonexistent date of Nov. 31, 2004.

Sauk Valley Media reviewed 170 of the 179 phony invoices that Crundwell used to steal about $44 million. Among them were an invoice asking for $1.4 million for a traffic light in front of Walmart that had been paid for by the store and another for $2.5 million for demolition of a tollway plaza that didn't fall under IDOT's jurisdiction.

City officials were unaware of the fake invoices because it did not require city department heads or commissioners to sign off on them, the newspaper reported.

"Had a two-minute phone call been made by a Clifton employee to the Illinois Department of Transportation regarding any of these false invoices, Rita Crundwell's theft would have been identified at that time," the lawsuit argues.

CliftonLarsonAllen, known as Clifton Gunderson until a merger last year, officially resigned as Dixon's auditor in 2005 so it could keep other city business after the city received federal funds that required an independent auditor.

But the lawsuit claims the firm continued to conduct and get paid for the annual audit, while hiring a certified public accountant from a nearby town to sign off on the work. The CPA, Samuel Card, is also a defendant in the suit.

CliftonLarsonAllen contends it prepared only a bare-bones "compilation" of financials after 2005 to aid Card, although Dixon's attorney submitted emails written after 2005 in which the firm referred to its "audit" of Dixon.

The firm issued a statement saying the type of audits it performed through 2005 "and the compilation services provided since 2006 did not require the sort of detailed testing needed to uncover the fraud or a forensic investigation to determine if the city's Comptroller Rita Crundwell was fabricating invoices."

It also said the firm was working with the city "as it seeks to discover all of the facts that will describe what has happened in this case."

Neither Card nor his attorney would speak to Crain's about the case.

Crundwell faces up to 20 years in prison and a $250,000 fine at next week's sentencing. Federal officials, who have called her swindle the biggest municipal fraud in U.S. history, have collected about $8 million by auctioning off Crundwell's horses, houses, jewelry and other goods.

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