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How the Behavior of Rita Crundwell Fits Within the “Fraud Triangle”

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The Fraud Diamond Framework was an improvement on the earlier ‘Fraud Triangle’ used by forensic accountants to detect accounting fraud. David Wolfe and Dana Hermanson proposed the change to the Fraud Triangle by adding a fourth element of ‘capability,’ rechristening it “The Fraud Diamond.” The first element in the framework is ‘Incentive’ which arises from the greed to commit fraud

The second element of ‘Opportunity’ could be a potential weakness in the system that the precise person could exploit.

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Crundwell was a long-time and trusted employee. She did it all —opening the mail, preparing and signing the checks, and reconciling the bank accounts. As the film shows, entrusting all of these responsibilities to one person was a crucial mistake, a major control deficiency that enabled Crundwell to steal money undetected. Failure to enact basic internal controls like these contributes to 30 percent of the frauds that occur. Below are other control weaknesses governments need to consider. Crundwell lived a lavish lifestyle, far beyond the means of your average municipal controller. She portrayed an image to some that her quarter horses and the many awards that she won were the source of her wealth

Others thought she inherited her wealth. The citizens of Dixon were shocked by the scandal and felt the city council should have known what was going on. The media blamed the city’s commission form of government. Subsequent to the fraud, the city changed its form of government and had significant turnover on the city council including the election of a new mayor.

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An example best explains the elements of the fraud triangle. In 2012, Rita Crundwell, the comptroller and treasurer of Dixon, Illinois was arrested for embezzling town funds (Udeh, 2013)

During the following year, investigators discovered the extent of her fraud; Rita had embezzled money from Dixon, IL for 22 years, her theft totaled over $53 million (Carozza, 2018; Janssen, 2017). This embezzlement case resulted in the largest municipal monetary loss, nation-wide, in U.S. history (Daigle et al., 2017). Citizens, employees, and fraud investigators have questioned how she was able to perpetrate her crime for that amount of time (Carozza, 2018). Because Rita was the comptroller and the treasurer, she performed the majority of the town's financial duties including: maintaining custody of checks, signing checks, keeping invoice and bank records, performing reconciliations, and picking up the mail (Udeh, 2013). This severe lack of segregation of duties enabled Crundwell to control every aspect of her crime. The element of opportunity was strengthened with the lack of due diligence by auditors and bank personnel (Hancox, 2014).

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As has been noted, the key takeaway is management, with advice from corporate counsel and accountants, has the power to identify and mitigate fraud risks

While there is no action that can completely eliminate fraud, implementing policies that address the three arms of the Fraud Triangle will not only help to reduce the risk of fraud, but will also aid in detecting fraud if it does occur.

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Hancox, D. R. (2014). How a $53 million fraud went undetected for 22 years. The CPA Journal, 84(5), 65-68.

Udeh, I. A. (2013). Near-unsophisticated fraud: the case of former Dixon’s comptroller. Journal of Business Cases & Applications, 8, 1-9.

Carozza, D. (2018). Small town, huge fraud, insightful documentary. Fraud Magazine, 33(1).

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