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Students Investigate Alleged Embezzlement
Department: Business, Accounting, & Economics
His wife Sam was reading about her. “Does the name Rita Crundwell ring a bell?” she asked. It did. Professor Henry Smith knew her as the top winner of American Quarter Horse Association events in history and one of the top breeders of quarter horses in the nation. He and Sam had had business dealings with her through their horse business. But the Otterbein University professor and students in his forensics accounting class were about to discover that this horse lady was fast becoming famous for something more notorious – an alleged embezzlement of $53 million.

As a Certified Financial Examiner and teacher of fraud related education for sixteen years, Henry C. Smith, III, Ph.D., CFE, CMA, CCS recognized the unique opportunity before him for his students to follow a high-profile case and apply the principles of fraud investigation. Smith, a professor of accountancy at Otterbein University, teaches managerial and advanced managerial accounting, and a four-course fraud concentration at both the graduate and undergraduate levels.

“We investigated this case and put it together. We did it because it is being covered by the press across the country,” he explained. “We can investigate by going online, bringing articles back and comparing them,” he told the two graduate and five undergraduate students in the spring semester 2012 class. Once an FBI investigation of Crundwell’s alleged mishandling of funds as the comptroller for Dixon, Illinois began, court documents were tucked away in courthouse records. But the students weren’t deterred. “Once we uncovered the basic facts surrounding the case, we also looked at her business and the City of Dixon. We were excited to find the court documents and financial statements, as they helped to strengthen our case. Finding these documents allowed us the opportunity to analyze the data and report on it, instead of relying on news articles and reports,” explained MBA student Nichole Lawhorn. They searched court documents online, discovering thick stacks of financials that were audited, financial statements, indictments, searches, seizure warrants, all in complete detail.

Their research paid off when Smith suggested to the class they submit their findings to Fraud Magazine Editor-in-Chief Dick Carozza to consider for publication. The article, entitled “Comptroller, Horse Lady and Crook – How one woman (allegedly) embezzled $53 million” will appear in the September/October 2012 issue. Smith also learned that a second installment, “The Horses Take a Nasty Fall – Equestrian comptroller’s alleged $53 million exposed” will appear in the November/December 2012 issue.

Fraud Magazine is a magazine published by the Association of Certified Fraud Examiners (ACFE) to its members and others interested in the deterrence and detection of fraud and white-collar crime. Articles are directed at a wide range of professionals including fraud examiners, internal auditors, forensic accountants, loss prevention professionals, investigators, law enforcement officials, financial officers, and educators. The publication has a circulation of nearly 65,000.

According to Smith, the contributor’s guidelines were stringent: “the information must be practical, down-in-the-trenches material readers can apply immediately in their careers; methods must explain how fraud was discovered; strong cases, anecdotes, current facts and figures, and sound approaches to fraud detection and deterrence must be included; and must include ideas or tips useful to fraud examiners in any country.”

By piecing together the research, the students dissected Rita Crundwell’s scheme that covered a span of two decades and $53 million. As a comptroller of Dixon, Illinois with a salary of $80,000, she inexplicably built an empire in the horse-farming business. Despite being the leading champion of the American Quarter Horse World Show in Amarillo, Texas for the past eight years, prize amounts normally ranged from $2,500 to $5,000. Her winnings and salary could in no way account for her lavish lifestyle: two residences and two horse farms, a $2.1 million luxury motor home, more than a dozen trucks, a 2007 H2 Hummer, a 2005 Ford Thunderbird convertible, a 1967 Chevrolet Corvette roadster, a pontoon boat, and approximately $224,898 in cash. In addition, Crundwell made personal loans to city employees, with interest.

The students were amazed that no one questioned Crundwell’s explanation for the missing funds – her assertions that the “state owed the city money” seemed to satisfy the City Council and Mayor of Dixon. Only the astute observation of a temporary clerk when Crundwell took a leave of absence raised the red flag. The auditors simply did not know about the account she had opened in Ohio where she misappropriated city funds. In order to transfer money into that account, it had to be wired across state lines; thus her indictment of one count of wire fraud, with the possibility of more charges to come.

Dixon, Illinois had an annual budget of less than $9 million per year when Crundwell began working there; that has since grown to approximately $20 million per year. Fraud examiners followed the money trail. Through an analysis of the financials, a shocking deficit was discovered. Smith says the work of certified fraud examiners is becoming more crucial and more of them are needed to root out fraud in investigations. Major accounting firms need them to join their teams. “Once you get in it, it’s fascinating. I do 90% of the advising for accounting students, and I tell them to take forensic accounting because it will help you tremendously,” he explained.

Otterbein offers fraud investigation as an undergraduate concentration, or as a concentration in the MBA program. The four courses may also be earned as a non-degree certification. Smith notes that professionals such as those in law enforcement, the judicial system, banking and insurance can greatly benefit from the fraud certification.

Smith is a member of the ACFE Anti-Fraud Education Partnership, a past member of the Board of Directors of the Central Ohio Chapter of the ACFE and serves as the local chapter training director. He, along with MBA students Melissa Lee and Lawhorn, will explain how the investigation was conducted and what they learned from the experience at the local chapter luncheon meeting on September 18.
For more information about fraud courses or any of the 77 majors and 44 minors offered at Otterbein, visit www.otterbein.edu.

Click here to read the story in Fraud Magazine.