The city of Dixon has a new problem and it’s probably the last one residents thought they’d have 21 months ago.
That’s when the city’s longtime comptroller, Rita Crundwell, was arrested for embezzling what amounted to a stunning $53 million over 22 years. Crundwell pleaded guilty to wire fraud, and was sentenced to nearly 20 years in federal prison.
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When news broke, Dixon went from being a sleepy north-central Illinois hamlet best known as Ronald Reagan’s boyhood home, to being victim of what’s believed to be the largest municipal embezzlement in U.S. history.
But, through a lawsuit settlement and a property sale, Dixon will get the bulk of the stolen money back. Now the big problem: how to spend the nearly $40 million flowing into town.
“We’ve got lucky. It’s almost like this whole thing worked out to be a giant savings account for us,” Dixon Mayor Jim Burke said. “But we sure as hell don’t want this happening again.”
Dixon Mayor Jim Burke / YouTube
Dixon has already received most of that money – around $30 million after legal fees are paid – from a lawsuit that was settled in September. The city sued its auditors, Milwaukee-based CliftonLarsonAllen and Sterling, Illinois auditor Samuel Card, as well as Fifth Third Bank, where Crundwell had set up the secret account she was using to pilfer the money. (Representatives for CliftonLarsonAllen, Fifth Third Bank and Samuel Card all separately told the BGA the lawsuit was settled without any admission of wrongdoing.)
In addition, the city collected around $9.2 million in December from a sale of Crundwell’s former property, including around 400 show horses, a lavish motor home, jewelry, boats, cars and real estate. Crundwell used the money she stole to fuel a massive, championship-winning horse breeding and showing operation.
So rather than scraping by, the city has to decide what to do with this influx of cash. There’s a planning session set to work out the details. In the meantime, the city is using some of the money to pay back several bonds early, saving around $3.6 million in interest. While some residents called for checks or property tax breaks, the mayor wants to play it safe.
“We want to have a reserve, a nice cushion,” he said.
The city’s new finance director, Paula Meyer, echoed that. She’d like to see the city keep around $5 million in a reserve fund, would be around half of the city’s $10 million annual budget.
Paula Meyer, Dixon’s new finance director / YouTube
“We really need a cushion. We have nothing now,” Meyer said.
There’s also the issue of putting controls in place so this never happens again. For years, Crundwell was the only person watching the city’s cash flow. Hers was the only signature on checks, and she was the only person approving incoming funds.
“This is probably the greatest trusting fraud I’ve seen in my 30 years [in the accounting business],” said Joe Petrucelli, a New Jersey-based accountant and auditor who has studied the Dixon embezzlement.
“There were failures on a number of levels there,” said David Limardi, a longtime city manager for Highland Park, who now serves as the Midwest regional manager for the International City/County Management Association.
Both Petrucelli and Limardi suggest three basic controls would have likely stopped this: multiple people signing off on checks, multiple people approving cash coming in to the city, and frequent changes to the firms performing the city’s audits, to ensure their independence.
None of those things were in place during Crundwell’s run as comptroller.
“We used to think we have a weak set of checks and balances, but that would cost a lot of money, and we have Rita, so why would we do that?” Burke said.
Petrucelli said some of the blame should rest on the shoulders of the mayor and the council.
“How engaged could you possibly be if $50 million walked out of your town?” Petrucelli said.
Rita Crundwell / Boone County Sheriff
Meyer’s been on the job a little more than a year, and in that time she’s implemented quite a few changes, although there’s still work to be done.
She’s split up duties on money coming in and money going out. For example: one person can sign off on invoices, while it’s another person’s job to print checks. Larger checks will soon require approval from multiple people (although, she admits, the city’s still working out details on how that will work).
Meyer said it’s been difficult repairing the city’s financial controls, but that’s what drew her to the job.
“I like to clean up the messes,” she said.
Burke said when all the controls are in place, he’d like to have an outside firm take a look at what Dixon’s done.
“We’re probably gonna have a model for how to operate a city when we take a few more steps. Kind of a rough way to go about it, but that’s what we’re gonna end up with,” he said.
Perhaps the biggest lesson, though, comes from Dixon’s most famous son.
“It’s that old Ronald Reagan thing. Trust, but verify,” Burke said.