Municipal theft protections are not ‘set it and forget it’ and theft can happen here

When it comes to theft of public money in Illinois, Rita Crundwell probably comes to mind for most folks in DeKalb. At one time, however, the name was Orville Enoch Hodge. Hodge, as Illinois auditor of public accounts, stole $6 million in 1950s dollars, the equivalent of about $57 million today – and he accomplished this in a mere four years on the job.

Hodge was the reason for abolishing the office of state auditor and establishing the separate offices of Illinois comptroller and treasurer we have today. When these state-level offices come up for re-election now, we invariably hear calls for consolidating the two to save money, but I’ll bet we wouldn’t if we could manage to remember how much Hodge cost us.

Crundwell, like Hodge, acted as both treasurer and controller of the City of Dixon, meaning she controlled both the money coming in and the money going out. But jackpot-sized hauls aside, municipal theft is common, according to the Illinois Municipal League (IML). IML laid out a series of articles about prevention of municipal theft in the October 2019 volume of its Review Magazine, and about treasurer and controller said, “Separating those positions is a simple and effective control, requiring the numbers to match on both sides of the equation.”

Failure to separate functions was not the only red flag. All the Queen’s Horses is the film about Crundwell and there are two scenes in the documentary that invariably elicit gasps from the audience. (Yes, spoiler alert.) In one of them, City of Dixon receives letters from the city manager of Sterling, who says the extent of Dixon’s claimed financial hardship doesn’t make sense. Later, it’s revealed the accounting firm that handles Dixon’s bookkeeping is the same one that conducts its annual audit.

The audience grasps the red flags immediately. Dixon apparently never even saw pink.

Which brings us to DeKalb. Has there been any flag-waving here? Well, consider this. The finance division in DeKalb has seen several substantial changes over the past year. The full-time finance director and assistant finance director positions have been eliminated. Taking their places is the assistant city manager who is not an accountant and who, among many other duties, also supervises the human resources and information technology divisions. The division has also experienced chronic under-staffing and reassignment of duties.

A reasonable person could conclude that an examination of internal financial controls in DeKalb would be prudent and timely, to ensure financial risk management has not gotten lost in the shuffle. IML names municipal boards as the parties responsible for these assessments and moreover states that “safeguards are not something to ‘set and forget'” but rather should be monitored regularly.

I pointed out the skeletonizing of the finance division during the last budget hearing and suggested council perform an assessment. While we’re waiting, let’s give the last word today to John Vander Burgh, Certified Fraud Examiner (CFE) and Certified Public Accountant (CPA), who also wrote an article for the IML Review series with his perspective on the “it can’t happen here” attitude:

• You have an audit every year. Congratulations. Three of the three current criminal cases that I’m currently working on had an audit every year.

• You have good internal controls: Congratulations, three of the three current criminal cases I am working on had decent internal controls. They had dual signatures on checks, separate receipt and review of bank statements, board review of check ledgers and separation of making the deposit from preparing the deposit.

• You have a loyal employee that is a good person, is from the community and has been with you for a number of years. Congratulations. You guessed it, three out of the three criminal cases I am currently working on had these characteristics as well.