EBOOK MANAGEMENT ETHICS AND CORPORATE GOVERNANCE The Case of Rita Crundwell All the Queen’s Horses:
Tableof Contents GROUP MEMBER IMPACTS CASE AND ETHICAL DILEMMA CONCLUSION REFERENCE 01 05 03 07 08 02 06 04 INTRODUCTION ANALYSIS FACTORS
GROUP MEMBER ASLINDA BINTI SAMMANG D20192090616 NABILA ATIRAH BINTI MOHD NASUHA D20201093854 NUR ATILA ATASHA BINTI SHAHPERI D20201094028 MUALLIMATUL HAIRIYYAH BINTI MUTA'ALLIM D20201094027 IKI NUR'ATIAH HUSNA BINTI ROSLI D20201094029 NURUL 'AISHAH BINTI ABD SANI D20201094036 NUR HAFIZUL BIN DARUS D20201094030
All the Queen’s Horses is a true story about Rita Crundwell the perpetrator of the largest case of municipal fraud in American history. Rita Crundwell stole more than $53 million of public funds across two decades in office as the City Comptroller and Treasurer for Dixon, Illinois, a town with a population of just 16,000. She used the funds to build one of the nation's leading quarter horse breeding empires, all while forcing staff cuts, police budget slashing, and neglect of public infrastructure. This case is popular as 'the small size of the town and the huge crime'. She was sentenced to 19 years and seven months in prison on Feb. 14, 2013, at the Federal Medical Center Carswell in Fort Worth, Texas. She’s scheduled for release on March 5, 2030. She’ll be 82. But she released early August 19, 2021 at Federal Correctional Institution, Pekin. Everyone is asking how could one woman steal $53 million without anyone noticing? I N T R O D U C T I O N
popular student who grew up on her family's farm near Dixon. She began working as a work-study student in the financial department at Dixon City Hall a year before graduating from Dixon High School in 1970. Then she started working as a secretary upon graduation. By 1983, at the age of 30 she was appointed as Comptroller, a position she held until April 17, 2012. She was so good at her job and had such strong knowledge of municipal issues, that she earned the trust and confidence of her colleagues, community, Mayor Burke, and the elected Commissioners. She committed fraud from 1991 to 2012—a total of 22 years. The fraud was genius in its simplicity. She arrange all this tactics by her own. According to the FBI, the theft was $181,000 in 1991 and a high of $5.8 million in 2008 for an average of $2.5 million per year during the period of the fraud. The total embezzlement exceeded $53.7 million. ita A. Crundwell (née Humphrey) was born January 10, 1953 in Dixon, Illinois. Rita Humphrey, the daughter of Ray and Caroline Humphrey. She is a smart and R PEOPLE INVOLVED IN THE CASE
Timeline of Events in Rita Crundwell's Life January 10, 1953 1970 Secretary for the City of Dixon Mayor The birthday of Rita Humphrey. Employed as intern in the City of Dixon municipal government while in high school. 1974-1986 Married to and divorced from Jerry L. Crundwell (No children) 1971-1983 1983-2012 December 18, 1990 January 1991 Served as the City of Dixon's Comptroller and Treasurer on fulltime basis. Opened RSCDA account at Fifth Third Bank. Transferred funds out of RSCDA for the first time for personal use.
February 13, 2013 Timeline of Events in Rita Crundwell's Life November 14, 2012 April 17, 2012 October 2011 Kathe Swanson discovers RSCDA account and informs Mayor Burke. FBI is contacted. Arrested at work in the City of Dixon on a one-count indictment of wire fraud. Admits to money laundering and pleads guilty to wire fraud. Her property, which included almost 400 horses, was taken. The American Quarter Horse Association suspends her indefinitely. February 18, 2013 The American Quarter Horse Association suspends her indefinitely. March 5, 2030 October 16, 2013 City of Dixon settled a lawsuit against Fifth Third Bank and the auditors. Sentenced to 19 years, 7 months (maximum possible was 20 years)
Picked up the daily mail Made all the deposits Updated the journals and ledgers Prepared and signed checks Transferred investment funds Reconciliation of bank accounts Opened a checking account at Fifth Third Bank as "City of Dixon and RSCDA" Created fictitious capital projects and fabricated a total of 179 invoices for those projects. Drafted checks from account payable to "Treasurer" that she signed and deposited into the RSCDA account. Wrote checks from the RSCDA account for personal expenses 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. How did Rita Crundwell conduct the fraud against the city of Dixon?
of by many, the approximately 100 co‐workers and other city employees who interacted with her almost daily, including the community at large. But many people have wondered "what," "where," and "how" this profound flaw in her character led to this huge fraud of public funds. He stated emphatically this theft‐without‐conscience attitude was not a product of her City Hall work environment. Mayor Jim Burke suspicious of Crundwell’s rising wealth, not understanding how she could live such a lavish lifestyle on a city worker’s salary. He approached the company’s accounting firm Clifton Gunderson but was shut down when he starting asking questions about Rita. the fact is Clifton Gunderson was not only the city’s accountant, but Rita’s personal accountant as well. Jim Burke, the former Dixon, Illinois mayor who alerted federal authorities about the theft of funds by the city’s comptroller. Jim Burke described Rita was trusted, admired, and well thought PEOPLE INVOLVED IN THE CASE
statements to produce her treasurer’s report. Rita said she will give them the list over the phone of the statements that she wants. She saw one bank account that she never heard of before. Swanson called the city’s bank, Fifth Third Bank, and requested all of the accounts under the city’s name. She noticed on it was three large deposits and it was RSCDA in care of Rita Crundwell. Looking at the transactions, she was surprised to see that money from the account was being spent on items that were clearly not city business, such as horses and jewelry. She told Mayor Burke about it. Mayor Burke reported the fraud to the FBI, and for the next five months both he and Kathe worked with the FBI to build a case against Rita as she continued to siphon city funds for her own personal use. In April Rita was arrested. Kathe Swanson, a city clerk who worked with Rita Crundwell, was the one who discovered the fraud. In October of 2011 Rita was out of town for vacation. Swanson needed the company’s bank PEOPLE INVOLVED IN THE CASE
Case and Ethical Dilemma Rita Crundwell is the person responsible for the biggest municipal fraud scheme in American history. In his 20 years as city comptroller of Dixon, Illinois, where the population was 15,838, Crundwell embezzled $53 million in tax money. While pushing staff reductions, lowering police budgets, and ignoring public infrastructure, she utilised the money to create one of the top quarter horse breeding enterprises in the country. Mayor Jim Burke claims that he developed doubts about Crundwell's increasing wealth and couldn't fathom how she could maintain such an opulent lifestyle on a city employee's salary. Not just Mayor Burke but others also had inquiries. The rest of the town was equally curious as to how Rita could afford such a lavish lifestyle. The prevailing consensus was that Rita, who had won so many championships, used her prize money to keep the horses in good condition. However, the tremendous costs ofcaring forso many champion horseswould not be covered by prize money. He started to suspect Rita was acting unethically for her own gain. 1. THE CITY OF DIXON
Case and Ethical Dilemma 2. ACCOUNTING FIRM The accounting firm Clifton Gunderson was fined the most for failing to uncover the wrong doing. The enormous conflicts of interest that Clifton Gunderson and Rita Crundwell had should be noted when examining the case. Rita Crundwell participated in the softball team for the accounting businessin the 1980s. She had pals at the company, and they occasionally got together for beers or lunch. These, nonetheless, may not necessarily constitute unethical behaviour. The fact that Clifton Gunderson was both Rita's personal accountant and the city's accountant may be seen as a significantconflict ofinterest. 3. SUSPICIOUS INVOICE Rita Crundwell used fake invoicesshe created for fake projectsto spread various frauds. She made an effort to make the invoice appear genuine. Shewill present an invoice she claimscame from the Illinois Department of Transportation. The invoice, however, does not comply to the same requirements as real invoices. They are missing crucial details like the state logo and the phone number for the contact person. On some invoices, the word "part" is spelled incorrectly as well. When auditors noticed that these invoices appeared different, they ought to have gone farther to confirm where the money actually flows.
4. NO VERIFICATION Attorney Devon Bruce said that Clifton Gunderson failed to confirm that money was going toward city projects in addition to spotting the theft. He asserts that the company could have easily checked to make sure that significant capital projects, like bridges, were truly being built. Requesting meeting minutes from City Hall is another way to confirm information. Any significant town initiatives would have needed to be considered during meetings and recorded in the minutes. He thinks that a quick attempt at verification would have found and ended the scam far sooner. In this case, Clifton Gunderson 's actions are unethical 5. NO DOCUMENTATION The differences in Rita Crundwell's salary were the final issue. Rita Crundwell's tax reports included large financial quantities that were unaccounted for. For instance, a 2007 tax return revealed $700,000 in gross receipts. This is an unethical act on Rita's part. Every genuine transaction, including competition prize money, would have been recorded. There is no evidence that Clifton Gunderson asked for paperwork. Rita would always be prepared to provide an explanation when questioned about particular illogical actions or transactions. According to attorney Devon Bruce, the accounting company was required to exercise "healthy scepticism, " which means it was not to take someone at theirword butratherto investigate these financialstatements.
Both illegal and unethical behaviour are displayed in the scenario in All the Queen's Horses. In this case, Rita Crundwell's coworkers discuss how her deceptive behaviours caused confusion, dismay, and upset. They also discuss how they had great stress as a result of having to carry on functioning normally after learning of Rita's offences and during the FBI investigation. The people who worked with Rita seemed to be more outraged by her unethical behaviour than by the crime. This occurred as a result of Rita's evident readiness to lie to conceal her deeds and the length of time she embezzled money. Additionally, a lot of her coworkers and other residents of the town appear especially incensed by the fact that her dishonesty caused the city to cut back on public spending, have fewer financial resources, run a deficit, and eventually have to borrow money. SUMMARIES OF CASE AND ETHICAL DILEMMA
F A C T O R S Why the ethical conduct occurrate s based on several factors? The first and foremost factor of internal control being violated in the Crundwell case is the monitoring controls by the board of director. Of which, as the case shows, Crundwell is a longtime employee and has gained the trust of the board. Therefore, she is in charge of everything including opening letters, preparing, signing checks and handling all disbursements in the company without having an internal control or independent audit given. Thus, over 30% of undetected money theft problems mainly stem from a lack of basic internal control of giving full responsibility to an individual. Whether large or small, needs to have inspection procedures in place to ensure the integrity of internal auditor, for example the use of external auditors to faithfully report the status of the companies follow an easy to investigate framework, such as GAAP. 01 FACTORS INTERNAL CONTROL
The next factor also derived from the board - control environment. According to Graham (2015), leaders have a responsibility to raise employees 'ethical awareness in the company, such as payments and controls to limit personal conflicts in employees' interests. According to Donald R. Cressey, fraud occurs when moral decline is motivated by three factors. The first one is pressure and driving force. In Crundwell's case, she has 400 precious ponies in need of care and a lavish lifestyle, which could easily be tested by the board. Secondly, Streamlined Purpose, which is Crundwell is personally responsible for all records and can account for accounting inconsistencies and the last one is opportunity. Crundwell has complete control of Dixon's financial system. 03 INDIVIDUAL The next factor of ethical conduct occur in the Crundwell case is the individual factors. Of which, as the case shows, Rita Crundwell won the trust of those around her, especially that of mayor and council. In April 2011, finance commissioner and veteran council member, Roy Bridgeman, praised Crundwell calling her “a big asset to the city as she looks after every tax dollar as if it were her own.” Too much trust in a bookkeeper can lead to huge problems. CONTROL 02 ENVIRONMENT
According to the mayor, the city’s annual audits raised no red flags, and the city’s primary bank never reported anything suspicious. This is happend because of Crundwell opened a secret bank account in the name of the city. It appears Rita did stole $53 million over a twenty-year period just to enjoyed the good life. She used the money to fund one of the top quarter horse ranches in the country, and she did it with style. Some of the funds were used to purchase over $300,000 of jewelry and a $2.1 million motor coach vehicle. FACTORS It was a disturbing moment when Dixon Mayor James Burke presented the FBI with evidence of Crundwell’s fraud. Burke later recalled his emotions and words: “I literally became sick to my stomach, and I told him that I hoped my suspicions were all wrong.” Such a response is understandable given that Crundwell had worked for the city for decades. She had fooled everyone. The last factor of ethical conduct accurrates in the Crundwell case is the corporate culture. Of which, as the case shows, Crundwell is a longtime employee and the employees tend to be obedience to the authority. This is because, has mentioned in the case in Dixon, the tip is typically reported by an employee. In addition to the employee tip, the city received a letter from a neighboring community that something was amiss with the City of Dixon’s financial statements based on their similar size and proximity. The employees pay are at risk if their target and the cost reduction are not met. Over the year boeing ceo had a habit of emphasizing their power and ability to make the employees cower. 04 CORPORATE CULTURE
IMPACT 05 ABOUT US Issue. 1 Salaries for city workers were stagnant. Government having deficit income to rise workers. Dixon is governed by a parttime mayor salary of less than $10,000 and four elected part-time Commissioners annual salaries under $3,000 per year. Dixon experiencing a high unemployment rate because employers are unable to pay the real value of wages. 1 ) Employee Infrastructure was in shambles. No improvement in the city to facilitate the use of residents. Such as road were in disrepair. Government didn't have more income to make improvise in the city. 2) Society The fraud were attributed to a slowdown in tax collections as a result of the economical downfall. Unlike a commercial enterprise that generates cash flow from selling a product or service, a typical municipal government depends upon tax collections from citizens as the primary source of cash flow. 3) Government Further fueling their outrage is that Crundwell pulled off this alleged crime during a period when the city was gasping financially. When the chief of police begged her for the money to buy a few more radar guns, a couple of new squad cars, some new uniforms. ambulances and police radios needed to be replaced, but government cant afford. 4 ) Crime
07 INTERVIEW Issue. 1 analyse theories, concepts related to the cases Agency Theory Agency theory concentrated on the relationship between agent and principal which means tasks are assigned to teams of people known as agents by the principle, a more powerful entity. For example, a selling agent works on behalf of a principal, a product maker, to sell products on the manufacturer's behalf. In a similar vein, a stock broker is an agent who purchases or sells shares on behalf of a customer (the principle). The issues and potential solutions surrounding delegating work to agents from principals are examined by agency theory. The basis of the issue is competing interests and information gaps between principals and agents. According to the theory, it is best to develop an agency relationship to minimize the possibility of miscommunications and other problems between the agent and the principal. In the case of Rita Crundwell, All the Queen's Horses we can see that agency theory is used in corporate governance. Rita Crundwell served as the City comptroller and treasurer (agent) for former Dixon, Illinois Mayor Jim Burke during this partnership (principal). Rita Crundwell will have the support of former Dixon, Illinois Mayor Jim Burke if she makes the right decision. On the other hand, the relationship between Jim Burke and Rita Crundwell may be harmful if Rita Crundwell's decisions have an impact on the company's financial status.
07 INTERVIEW Issue. 1 analyse theories, concepts related to the cases ( Cont.) For example, Fraud in Dixon Illinois. Rita Crundwell is the kind of person everyone trusts. we know that agents are often individuals who have a lot of knowledge, individuals who know a lot about management aspects compared to principals. As a supervisor and treasurer in the small town of Dixon, Illinois, he is skilled in company finance. Rita Crundwell gained the trust of those around her especially the mayor and the council to the extent that she was empowered to approve payments, write checks, make and control the budget, enter transactions into the accounting system and also do reconcile the bank statement. Not only that, but anyone with a query is encouraged to "ask Rita." Rita was complimented by city commissioners in 2011 for "guarding every tax dollar as if it were her own." Between the conflicts that will emerge from this agency theory. The first is a conflict of interest and the second is information asymmetry. Conflict of interest, a conflict of interest occurs when agents act to fulfill their own personal interests when making economic decisions while ignoring the implications for shareholders. In this regard, agents tend to prioritize their own interests over the interests of the principal. Self-interest prompts agents to divert the corporation's resources to activities that are detrimental to the objective of maximizing shareholder wealth.
07 INTERVIEW Issue. 1 analyse theories, concepts related to the cases ( Cont.) For example of Rita crundwell's (agent) personal agenda in this case is purchased hundreds of horses, expanded her home, bought a home in Florida, and purchased a number of vehicles and motor homes. Among her purchases was a luxury motor home worth $2.1 million. Too much trust in a bookkeeper and a lack of segregation of duties caused problems for mayor Jim Burke and also for the city of Dixon Illinois. With more information in Rita Crundwell hands, therefore, tend to make decision that benefit for herself and because of rita crundwell was the only authorized check signer for the account, so he was easily able to open a secret bank account in the name of city which is RSDCA that let she stole over $53 million from a city.
07 INTERVIEW Issue. 1 analyse theories, concepts related to the cases The stakeholder theory is one of important corporate governance theory that focuses on the interests of all stakeholders in the firm. It suggests that the board should take into consideration the interests of all stakeholders, including employees, customers, suppliers, and the local community, when making decisions. The board should also ensure that the interests of each stakeholder group are balanced, preventing any group from obtaining too much power or influence. To this end, the board should consider implementing measures such as stakeholder surveys and performance evaluation systems to ensure that the interests of all stakeholders are taken into account. This theory is particularly relevant to the case of Rita Crundwell, as her actions demonstrate that she failed to take into consideration the interests of all stakeholders when making decisions. Crundwell's decision to funnel funds out of the city coffers into her own private accounts demonstrates her disregard for the interests of other stakeholders who had a stake in the funds. This highlights the importance of the stakeholder theory, which suggests that the board should consider the interests of all stakeholders when making decisions. Stakeholder Theory
07 INTERVIEW Issue. 1 analyse theories, concepts related to the cases To ensure that all stakeholders are taken into consideration when making decisions, the board should consider implementing measures such as stakeholder surveys and performance evaluation systems to monitor the performance of managers and to ensure that their decisions are in the best interests of all stakeholders. In addition, the board should also consider the use of performance-based incentives, such as stock options and bonuses, to ensure that managers are accountable for their actions and act in the best interests of the firm and all its stakeholders. Overall, the case of Rita Crundwell highlights the importance of the stakeholder theory in corporate governance and the need for effective measures to ensure that managers take into consideration the interests of all stakeholders when making decisions.
C O N C L U S I O N In conclusion, fraud happenend everywhere either in big or small town. As a prevention, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. Employers should establish a strong agency culture where employees are encouraged to watch for irregularities and red flags. Empowering employees to raise questions and irregularities is one of the most effective strategies an organization can use to reduce fraud. It is equally important employees, particularly supervisors and senior management, receive regular fraud training. The training should include common fraud indicators, what to look for, how to respond, and how to follow-up. Employers detect or prevent fraud sooner when they respond appropriately to use warning signs. This early detection or prevention reduces losses and associated costs.
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