I recently saw a “Demotivation” poster, and the caption at the bottom read, “It could be that the purpose of your life is to serve as a warning to others.” After chuckling at the message, it occurred to me the caption could apply to Rita Crundwell, the former comptroller of Dixon, Illinois. Crundwell has been accused of embezzling more than $53 million of the city’s money to fund her extravagant lifestyle, which allegedly includes spending millions on her quarter horse breeding program.
While the court system endeavors to establish Crundwell’s guilt or innocence, there are many warnings to organizations that can be gleaned from her alleged fraud scheme:
- Lifestyle Clues – Does your organization have an employee whose lifestyle seems out of place with their income? In the 2012 Report to the Nations on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners, “living beyond means” was the No. 1 behavioral red flag of fraud perpetrators. Be aware of situations in which a co-worker’s lifestyle seems out of line with his or her position and earnings—such as a city comptroller running a multimillion-dollar quarter horse breeding operation on a civil servant salary.
- Proper Segregation of Duties – Crundwell’s alleged fraud scheme came to light when a co-worker, who was assuming some of Crundwell’s job responsibilities while she was on vacation, opened a bank statement for an account the co-worker didn’t recognize. The account didn’t appear anywhere on city ledgers. This begs the question: Why was the city comptroller opening the mail in the first place? Organizations need to carefully review their processes and procedures to help ensure incompatible job functions (such as opening bank statements, receiving and depositing payments and reconciling bank accounts) are not handled by the same individual.
- A Mandatory Vacation Policy – Not only does a mandatory vacation policy provide your organization the opportunity to cross-train employees for other positions, but it also provides you a fresh set of eyes to review the job functions and work product of other employees. As tips from employees, vendors and customers remain the most common manner in which fraud is detected, a mandatory vacation policy can help encourage your employees to self-police your organization.
- Trust but Verify – Too often in an organization, a plausible explanation for a problem is presented, but no one follows through. In the case of Rita Crundwell, she allegedly told other city officials the reason for the city’s cash shortfall problems was that the city had not received all of its tax allocations from the state of Illinois. While this sounds like a plausible explanation for a short period, did other city officials follow up on this situation to determine the status of the state tax allocations? Did someone monitor city cash receipts to help ensure the funds were received? While it’s important to develop a level of trust with your employees, make sure this trust isn’t blind. Follow up on explanations to make sure they are accurate and complete explanations.
These are just a few examples of internal controls your organization can implement that can help transform your fraud prevention efforts from a warning to an example of effective controls that can be emulated by other organizations.