Part 1 in a 4 part series: “Fraud, Embezzlement & Thievery: Oh, My!”

By Kevin Peters

As you may have heard, one of the largest cases of municipal fraud occurred in Dixon, Illinois.  According to news reports, Dixon comptroller, Rita Crundwell, has been accused of stealing approximately $53 million from the city over a span of 22 years.  Her theft supported an over-the-top and lavish lifestyle which included homes, jewelry, a $2 million RV and championship level horse breeding operation (Rita Crundwell:  America’s New Queen of Municipal Embezzlement.  The Atlantic Cities.com, John Metcalfe, May 2, 2012). 

In the 2012 Report to the Nations, issued by the Association of Certified Fraud Examiners, survey participants estimated that a typical organization loses 5% of its revenue to fraud each year.  Further, the survey revealed the median loss caused by occupational fraud cases in the study was $140,000 and more than 1/5 of these cases caused losses of at least $1 million (2012 Report to the Nations by the Association of Certified Fraud Examiners).  Given these statistics, each organization should be concerned about fraud and the related risk factors that are present.

A much discussed concept related to fraud is the Fraud Triangle.  This concept originated from Donald Cressey.   According to his theory, “Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property” (Donald R. Cressey, Other People’s Money (Montclair:  Patterson Smith.  1973, p. 30).

The elements of the Fraud Triangle include:

Need

Opportunity

Rationalization

Often, Opportunity is the only element within the organization’s control.  Thus, appropriate internal control, review, monitoring and oversight is critical.   According to news reports, appears Ms. Crundwell had not only a need but also the opportunity.  The fraud was uncovered by a fill-in employee that noticed various accounts that had multiple transactions.  Upon this employee’s further investigation, Ms. Crundwell’s fraud began to unravel.

In the Fraud Series to come, Karen McMurray, CPA, CFE, Jacqueline Shade, CPA, CFE and Rachel Wallen, CFE, will continue on this theme.  Their series will focus on elements of the Fraud Triangle with specific fraud cases.  Featured will be the elements of the Fraud Triangle that were prevalent in the particular case, the facts behind the fraud as well as things the organization could have done differently to not only detect the fraud earlier but also prevented it from occurring.   Please continue to read the BCS Blog for more to come from Karen, Jacqueline and Rachel on this “hot topic.”