Fraud Flags?

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

Funds were often tight in the City of Dixon Illinois.  Rita Crundwell, the comptroller and treasurer, blamed shortfalls on the state, saying payments were late.  She continued making excuses for 22 years– while she stole more than $53 million, more than the city’s entire annual budget. 

Until her arrest in 2012, Crundwell openly lived beyond her means as a championship horse breeder with expensive trucks and a rock star motorhome.  In hindsight, we can see all the signs, but the size and duration of this embezzlement are a testament to the biggest fraud risk of all; we all want to believe and trust that those who work for us will not steal.

Last week’s FIT! TIP— Façade for Fraud, reminded us that the average fraud perpetrator looks just like a model employee.  But, as in Dixon, Illinois, few suspect when a trusted employee is actually concealing a fraud, even in the face of warning signs. 

Even though we think the best of people, we all need to keep our fraud antennae alert for warning signs that may warrant further investigation.  What might be a red flag for fraud? 

  • Cash shortages,
  • uncontrollable events such as a “computer crash” that postpone financial reporting,
  • workload issues that delay accountability, or
  • control boundaries established by finance staff that keep others out.

Whether by coincidence or intent, one or more of these conditions often exist when fraud occurs. 

What can we learn?

Be proactive.  If the red flags add up and you begin to wonder if a fraud is going on, take a closer look.  Consider what might be happening and do some spot checks.  Enlist professional assistance if needed.

You can’t trust appearances.  While not every model employee is concealing a fraud, most fraud perpetrators look just like model employees.  Learn the profile of the average perpetrator in our FIT! TIP from May 2, 2017—Façade for Fraud?  

Implement fraud prevention controls.  Take away the opportunity and you’ll reduce fraud risk.  Learn more about fraud prevention controls in our in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

How did she do it?  Fake Invoices.  Rita Crundwell managed to steal $53 million from the city of Dixon, Illinois over 22 years.   She controlled all aspects of the city’s finances.  She created a secret bank account for a sewer fund and she was the only signer.  She created false invoices from a real vendor, the State of Illinois, and paid them with city checks made out to “Treasurer”, and deposited the checks into her sewer fund account, which she controlled.  Another employee discovered the secret account while Crundwell was away on an extended vacation.  She is now serving a 19-year prison sentence.

Learn about the most common types of nonprofit frauds in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs

One in five nonprofit frauds involves theft of incoming checks.* Find out how in our FIT! TIP from February 27, 2017—Spare Change.  

Learn more about nonprofit finance in our 501(c)(fit!) live seminar, 501(c)(fit!)—Financial Intensive Training for the Nonprofit Executive.  This live, 2-day seminar is appropriate for Nonprofit Managers, COOs, Executive Directors, CEOs, Development Directors, Program Directors, Board Members and well as future nonprofit leaders.

Get more FIT! TIPS.  Join our 501(c)(fit!) community.

*yes, it’s true, per the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2106 Global Fraud Study. 

© 2017 501(c)(fit!) All Rights Reserved.