The Minneapolis accounting firm CliftonLarsonAllen will pay Dixon, Ill., $35 million for failing to detect an embezzlement scheme by the city’s former comptroller that lasted two decades and involved $53 million.
According to court documents and the city’s attorney, auditors for the firm let millions of dollars leave city coffers without adequate oversight and standard accounting tests.
Dixon, a small city in northwest Illinois best known as the boyhood home of Ronald Reagan, over the years postponed street repaving, the purchase of new police radios and other projects, its attorney said.
“It’s shocking. It’s negligence,” said Devon Bruce, the attorney for the city. He added, “After 20 years, the irony is that it wasn’t college-trained accountants that caught this $53 million embezzlement, it was the city clerk.”
Terms of a lawsuit settlement were negotiated over the weekend in Chicago by attorneys for the city and CliftonLarsonAllen as well as another accounting firm and a bank.
Earlier this year, the comptroller who steered the millions to personal accounts, Rita Crundwell, was sentenced to a 19½-year prison term after pleading guilty to theft of city funds.
In a prepared statement, CliftonLarsonAllen said “reaching a fair settlement for taxpayers is important” to the firm.
“We believe there was a shared responsibility that resulted in Ms. Crundwell’s fraud continuing undetected, and the right thing to do is reduce the harm experienced by the taxpayers of Dixon and put this matter behind us,” said CEO Gordon Viere.
The company said a “substantial portion” of its settlement payment will be covered by insurance.
CliftonLarsonAllen formed in January 2012 through the merger of Minneapolis-based LarsonAllen and Milwaukee-based Clifton Gunderson, which had been doing the auditing work for Dixon since 1988.
Crundwell was arrested in April 2012, a few months after that merger. According to court documents, Crundwell set up a fictitious bank account and funneled proceeds to it to fund a lavish lifestyle and operate a horse-breeding operation.
In addition to CliftonLarsonAllen, Dixon will receive $1 million from the accounting firm Janis Card Associates, which did some of the city’s later audits, and nearly $4 million from Fifth Third Bank, where Crundwell set up her fictitious account.
The Dixon civic scandal might tarnish the reputation of CliftonLarsonAllen at least in the short run, said Rose McKinney, president of Anoka-based Pineapple RM, a reputation-management consultant. “It can raise questions and may make folks question the competency they get, and that can have a ripple effect,” McKinney said.
She said the accounting firm needs to be transparent in its handling of the Dixon situation, including its announcement that “services to city governments are now led by personnel with specialized knowledge and experience in serving public bodies, increasing the likelihood that such fraud will be detected promptly.”