Hidden Fraud – By Shad White

Fraud happens in both the public and private sector, but there are things businesses and government alike can watch for to identify those who are stealing.

Take the story of the largest fraud in municipal history. It comes from Dixon, Illinois.

For over twenty-two years, Dixon’s treasurer/comptroller, Rita Crundwell, embezzled from the town. She stole by setting up bank accounts for the town and calling them official-sounding names like the “Reserve Sewer Capital Development Account.” She then steadily transferred money from the town’s general account to the secret accounts and then from the secret accounts to her pocket over the course of two decades.

When all was said and done, Rita had stolen over $53 million. The loss was devastating for a town of about 15,000. Dixon is smaller than Clarksdale, Greenwood, or Greenville.

The story is of Dixon is now notorious among white-collar crime investigators.

What can we learn from Dixon’s loss? We learn there are certain warning signs of fraud that everyone—your employees, managers, customers—should be aware of and looking for.

First, look for employees who live outside their means. Crundwell lived a luxurious lifestyle at Dixon’s expense. She owned a massive horse farm, many expensive show horses, and beautiful trailers for transporting the horses. Her estate was worth millions when federal authorities seized it, but Crundwell only earned a salary of $80,000 per year at her job.

Second, look for employees who have too much control over your finances. This creates the opportunity to steal. Crundwell was the sole signatory over the secret accounts she created. She had absolute control and could move money at will. In your business, you should separate the various duties that come with handling money, and if you can’t afford to hire more people, keep a watchful eye on those who do have power when handling money.

Third, be skeptical of employees who never want to take a vacation. Some say these are hard workers, but they could also be folks who are afraid of leaving their desks. They may be afraid someone will see proof of their fraud while they are away. Crundwell was ultimately caught when she took a trip to show her horses at a competition. Her assistant requested copies of all the town’s financial records from the town’s bank and discovered the secret accounts.

Today some employers have mandatory vacations as a fraud prevention measure.

Setting aside the example of Dixon, here are some other red flags to know about:

Employees with a large amount of personal debt or financial pressure on their families can be tempted to steal. This is a chronic problem in a state with a high poverty rate like Mississippi. A gambling addiction is a common cause for financial pressure.

Employees that have a close association with your customers or vendors might have more opportunity to steal. Close relationships are important, but they also allow for conspiracies (agreements between multiple people to enter into a fraud scheme).

Employees who feel their pay is not commensurate with their job responsibilities may be more likely to justify theft to themselves. Also look for employees who tell their co-workers they are not appreciated at work.

And finally, employees with a wheeler-dealer attitude toward life are more prone to embezzlement. For instance, if an employee relishes finding every possible opportunity to gain an advantage over customers or vendors, this can be a bad sign.

As your State Auditor, I see fraud cases all the time. We have identified schemes and demanded over $3.5 million in taxpayer funds back for you since I took office last year. My office has over 100 active cases right now across Mississippi.

That number could be smaller if government employees and constituents around the state kept an eye out for the red flags mentioned above. And if you’re in the private sector, keeping an eye out for these warning signs might save your business millions.