Rotating Blame

In full disclosure, the only thing a lifelong New Yorker like me knew about the town of Dixon, IL, is that it was the birthplace of Ronald Reagan. Other than that, it was simply one of the many burgs in the country’s heartland that I, in all honesty, would probably never have a reason to visit.

But over the past several months, this town with a population of roughly 16,000 has come under the intense glare of an unwelcome national spotlight, not because of its most famous citizen, but rather its shocking lack of accounting oversight.

Its long-time former controller has been charged with allegedly siphoning some $53 million from the town since 1990 and parking the funds in a secret bank account. The ill-gotten largesse was assumed to have been spent on her quarter horse ranch (the population of which at the time of her arrest numbered about 400) and what I can only assume was a more far lavish lifestyle than the locals.

The story first appeared sometime in mid-June and has now attracted the attention of national TV news magazines, asking the same questions you and I probably would – how could this have happened and for so long?

Didn’t the town have a CPA firm that audited its books?

Sure it did: one Janis Card Co., which conducted an annual review of Dixon’s books for years and is now being sued by the town. Didn’t the mayor or other town officials question the person in question, one Rita Crundwell, on why despite outward signs of prosperity the annual reports were continually awash in a sea of red ink, prompting civil servants such as police and firefighters to forgo raises and promotions for up to three years? Apparently not.

As one who covered the accounting profession for a dozen years, sadly, this is hardly an anomaly, although the figures are astronomically above what I had ever seen for an embezzlement charge – especially for a small town or company.

I covered the accounting debacles of Enron, WorldCom, Madoff, Freddie Mac, and Fannie Mae and, although all were on a much grander scale in terms of fraud, they all shared something in common: an exacta of poor or non-existent internal controls and complicity from outside auditors.

Now I could use this as platform to rail against the dangers of serving in a government post for too long (even local government) — which is definitely fodder for a future column — but I’ll pass and instead focus on the omnipresent fallout that occurs under the lazy watch of a complacent hierarchy and, perhaps more importantly, to now give a long hard look at one of the front-burner issues in public accounting – mandatory auditor rotation.

Would rotating the auditors have prevented the Dixon debacle? I can’t say for certain, but then I would simply point to what happened when nothing was done.

I can only imagine what our 40^th President would have said: "Trust, but verify!"