Tag Archives: Local Government

Fraud Friday: All The Queen’s Horses

It’s not too often that us auditor/fraud investigator/forensic accountant-types find ourselves in the bright light of mainstream celebrity. In a way, our entire collective professional identity is primarily as anonymous bean-counting corporate drones. We even revel in it, and use it to our advantage when trying keep an ultra-low profile during an investigation.

Really, accountants and auditors tend to only make the news when it’s BAD (here’s looking at you, Arthur Anderson). To be fair, the ACFE and their wonderfully named trade magazine, FRAUD, is full of stories of intrepid, tenacious defenders of truth, justice, and the American Way, but let’s face it: Nobody but us reads those stories.

The closest I’ve seen any frauditor-types come to mainstream celebrity is Harry Markopolous, the kick-ass CFE who unearthed the Bernie Madoff Ponzi scheme, which remains the largest confirmed Ponzi/Pyramid-type fraud scheme in world history, with estimates of up to $100-billion dollars stolen (although Mr. Markopolous insists that at least $35 billion of that figure consists of fictional profits that Madoff reported, but that never really existed). Regardless, I highly recommend Mr. Markopolous’ fantastic book about the Madoff scandal, No One Would Listen.

But now we’ve got a new contender for fraud-world celebrity, such as it is: Kelly Richmond Pope, PhD., CPA:

KRPope
Source: https://www.allthequeenshorsesfilm.com/filmmakers/

Dr. Pope, in addition to being a professor of forensic accounting, ethics and leadership, and managerial accounting at DePaul University, is a self-described “Left-handed CPA who uses filmmaking to teach people about decision-making.” I recently had a chance to attend a private showing, of her latest documentary film, All The Queen’s Horsesand it is remarkable. It may be the single best documentation of the complex psycho-social web that surrounds every fraud scheme.

You may remember the surreal headlines coming out of the sleepy small-town of Dixon, Illinois in 2012:
Crundwell Indictment Press Release
Source: FBI press release, 5/1/12

“Financial controls in Dixon were the ‘perfect storm of embezzlement,’ an expert says”
Chicago Tribune

“Woman accused of bilking $53 million from Reagan’s boyhood hometown”
Reuters

The story seems utterly banal: Small-town has poor-to-non-existent internal controls in its municipal government operations, and a long-time employee sees an opportunity for malfeasance and takes it. But this case is really something else – Rita A. Crundwell, the long-time town controller, stole AT LEAST $53 million over a period of twenty years. This from a small farming community of less than 16,000 people.

Dr. Pope began working on the film shortly after Ms. Crundwell’s arrest in 2012. Recognizing that there was a compelling story beyond just the dollar amount in this case, Pope and her production team took six years to ensure that the entire tale was told – from Rita Crundwell’s humble and quasi-idyllic childhood, all the way through arrest, indictment, and sentencing and the subsequent human, political, and economic aftermath.

I think what I found so compelling about All The Queen’s Horses was how well the film captures the emotional roller-coaster that whistleblowers find themselves on, and the ripples of fallout that affect people far beyond the primary participants in the saga.

Narrated by Dr. Pope in a crisp, entertaining style, the film intersperses dozens of interviews with experts and laypeople, politicians and taxpayers, academics and activists, while also taking an educational approach, with numerous animated info-graphics and concurrent storylines.

A key theme that emerges is that Rita Crundwell could never have pulled off the largest municipal fraud in U.S history without a number of unwitting assistants. It’s a textbook case of failure of multiple lines of defense against fraud: A bank that fails to adhere to anti-money-laundering procedures. A good-ol-boy city council that was asleep at the wheel. Dozens of colleagues, friends, and family members that never seriously questioned Rita’s expertly delivered but suspicious cover stories. And a global audit firm that failed their fiduciary duty to their client (the City of Dixon), that their shame (and liability) should be infinite. It’s all quite a tale, told in a fast-moving and entertaining 1 hour, 10-minute film that is very well-produced.

Most of all, All The Queen’s Horses serves as a vivid reminder that every entity involving humans is susceptible to fraud in all its forms. The thing I keep going back to when thinking about the film is the fundamental decency of virtually everyone in Dixon. Hard-working, honest, charitable, polite folks. The proverbial salt-of-the-earth-midwesterners that I’ve come to know and love after living in Kansas for nearly a decade. These folks trusted Rita Crundwell with their tax dollars. She stole nearly all of it, and roads, sidewalks, buildings, and other public infrastructure in Dixon steadily decayed. Kelly Richmond Pope captures the pain and betrayal that these folks feel, and their confusion and angst at realizing that it was “one of their own” that did it.

All The Queen’s Horses is available on all major streaming platforms, and has been one of the most-watched documentary films of the past two years on Netflix, iTunes, Amazon Prime Video, and Google Play.  I highly recommend taking the time to watch it and research the story and the film!


Music Recommendation: Nathaniel Rateliff & The Night Sweats, Live at Red Rocks A tasty stew of blue-eyed soul, greasy garage-band rock-n-roll, and classic R&B, along with an assist from the amazing Preservation Hall Jazz Band of New Orleans. A new favorite – highly recommended!

Food Recommendation: The short-rib griller sandwich at Q39, Kansas City Pitmaster Rob Magee’s incredible restaurants in Kansas City and Overland Park, Kansas. This thing is worth getting on an airplane for – trust me. Truly sublime. Magee’s Q39 has rapidly ascended the ultra-competitive KC BBQ ladder.

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Fraud Friday: When Auditors Attack, or Fear & Loathing in Clay County, MO

State auditors tend to embody the excellent advice of President Teddy Roosevelt: They speak softly and carry a big stick. Most state audit shops work under a broad legislative mandate – this includes the ability to examine any and all records of state and local agencies, and this includes subpoena power, when necessary.

In practice, state audit shops rarely threaten to flex their legal muscles, and this is mostly because their legislative mandate and mission are widely understood by public policy makers and managers. When the State Auditor calls, you pick up the phone and give them what they need, so to speak. Now, there are definitely instances where an agency will dig in and try to refuse a specific records request, etc., but that almost invariably ends poorly for that agency. It’s even rarer for an agency to not only refuse to cooperate, but to also engage legal counsel to threaten legal action against the state auditor for even insinuating their intention to audit an agency. And yet, here we are…

For those unfamiliar with the greater Kansas City metropolitan area, Clay County occupies roughly the northeast quadrant of the KC metro. The county’s population is about 250,000 and growing, and it’s a fairly large county geographically, so while Clay County residents are part of a relatively bustling urban midwestern city, the county retains a rural, provincial character. This is attractive for many residents who move there seeking reasonably-priced land, good schools, an increasing number of amenities and retail options, and a sane commuting distance to almost any part of the Kansas City area.

Unfortunately, small-town living also tends to include small-town politics, and things have been getting a bit…testy…up in Clay County recently.

KC television station WDAF “Fox 4 KC” has been conducting an extensive, in-depth journalistic investigation of Clay county commissioners and numerous reports of government waste, fraud, and abuse associated with the county government. In my experience, it is unusual for a local TV news department to devote such a significant amount of resources to a local public policy matter, and I’d like to recognize the excellent reporting of Megan Dillard and the entire Problem Solvers team at Fox 4.

Last year, reports of wasteful spending and poor oversight began surfacing in Clay County. $600 coffee makers. Unexplained $5,000 cash transfers to Paypal.  The hiring of ELEVEN legal firms to conduct legal work on behalf of the county and the commissioners. Procurement card abuse by county management. Failure to follow the approval process for significant expenditures. Managers signing their own expense reimbursements. In other words, the familiar tale that we public-sector auditors too often end up investigating as fraud and turning over to law enforcement for prosecution. WDAF aired their first story about this mess on Feb. 28, 2018, and it’s a doozy:

Missouri Auditor Weighs in on Clay County’s Alleged Misuse of Taxpayer’s Money

This Northland county is facing growing public outrage after slashed budgets, salary increases for elected officials and possible misuse of taxpayer money.

Stop wasteful spending. It`s a message, a mantra, that Clay County citizens have made their battle cry. They’re frustrated by what they see as a misuse of taxpayer money, overspending, lack of internal controls and budget cuts to much-needed county departments.

‘I was just embarrassed by how our county was being run. Enough was enough,’ said Clay County resident Jason Withington. He started the petition drive along with former Clay County employee Sherry Duffett.

We’ve got everything in this story: Arrogant public employees, both elected and appointed, who resent open records requests and do everything they can to avoid accountability? Check!

Ridiculous-seeming expenses, that even if justified, still look terrible on an investigative report on television? Check!

A whistleblower putting their livelihood on the line for coming forward to resist and/or expose the avarice and greed of the villainous county employees? Check!

Clay County residents have noticed all of this alleged malfeasance and are understandably pissed off. Part of their collective response has been to start a petition drive to implore Missouri State Auditor Nicole Galloway’s office to conduct a thorough, comprehensive, non-partisan/non-political audit and investigation of the alleged waste, fraud, and abuse.

There’s a lot more to this story, and I encourage any of you who are interested in good governance and fraud investigation to view and follow the story. However, recent developments in this story have kind of blown my mind. Essentially, Clay County hired an attorney to send threatening letters to both the County Clerk AND THE STATE AUDITOR. That’s right – these local government “public servants” are insinuating that the State Auditor not only has no jurisdiction to conduct an audit or investigation of the county’s books but that even attempting to do so will result in legal action against the State Auditor herself! In addition to the letter to Galloway, the law firm also served whistleblowing Clay County Clerk Megan Thompson with a similarly-worded threatening letter in late March. Needless to say, Galloway ain’t having any of that nonsense.

Days after voicing concerns about the red flags FOX4’s investigation uncovered, Missouri State Auditor Nicole Galloway also received a threatening letter from Pearson…”It is clear there are questionable activities,” Galloway previously said of Clay County spending.

The eight-page letter she received said Galloway’s comments to FOX4 “reflect an inappropriate prejudging of issues based on far less than all the facts,” and her comments “violate the state law that defines the duties of the auditor. Frankly, the comments make clear that you and your office are now incapable of objectively performing an audit or any other activities regarding clay county,” Pearson said in his letter…

…Pearson says Galloway and her office should recuse themselves from such action, not participate in any activities in Clay County, and refer all Clay County matters to an external accounting firm. ‘”t is unfortunate that such measures are necessary to ensure an independent process that complies with state law,” Pearson wrote, “but given the comments on camera, I see no other alternative.”

Pearson gave Galloway 10 days to heed his request. “If you do not do so, Clay County, on behalf of its taxpayers, reserves all rights to take legal action to enjoin any unlawful actions,” he said.

Galloway’s office sent its own letter in which she repeated, “there are legitimate concerns” in Clay County and “citizens concerns appear to be numerous and widespread.” Galloway’s general counsel also said Pearson “mischaracterized” and took the auditor’s comments “out of context.”

“While we could speculate as to your motivations for doing so, this office takes any concern related to these matters seriously,” general counsel Paul Harper wrote.

He added that Galloway’s comments in FOX4’s story “clearly demonstrate that the auditor remains objective and has neither made any predetermined assessment of the facts nor predetermined any recommendations for a future report.”

The letter concludes, “We stand ready to assist any citizens with their concerns about how public funds are handled.” – Fox4KC

That takes some pretty big brass ones to tell a state auditor’s office that they have 10 days to stand down. Elected officials in Clay County are now backpedaling, stating that the law firm in question did not bring the letter before the County Commission for review and approval before it was sent, blah blah blah.

Plausible deniability – The provenance of weasels worldwide! I suspect there will be much more to this story going forward, and we’ll update as things develop.


Music Recommendation: All Them Witches from Nashville, TN. These guys aren’t breaking any particularly new ground, but they definitely ARE producing some groovy, stoned-out, blues-space-rock jams. I particularly dig https://open.spotify.com/embed/track/2EvUjCWg5zeaeKxGeOaHPh“>When God Comes Back, Heavy/Like A Witch, and Elk.Blood.HeartGo ahead, eat an edible or three, and trip out on these spacey sounds. Tip of the hat to my cousin-in-law (I think), Jack Vogel for turning me on to these dudes!

Food Recommendation: Look, it was just recently Easter, and holidays require, nay, they DEMAND high-quality, high-calorie sugary treats. For my (considerable) money, it’s impossible to beat See’s Candies

If they were good enough for Warren Buffet to buy the entire company after trying them, they’re good enough for your broke ass. My personal favorites in the See’s lineup: Milk/Dark Bordeaux, Toffee-ettes, and Butterscotch Squares. As Amy, my lovely & talented spouse says, “They’re just little drops of Heaven.”

Until next time, keep fighting the good fight!


 

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