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Seeing financial red flags: Sterling official told Dixon colleague the numbers seemed off

STERLING – Something wasn’t adding up.

Sterling City Manager Scott Shumard was contrasting his city’s financial situation with that of neighboring cities. He couldn’t make sense of Dixon’s numbers.

Shumard knew the state was behind in payments, but not to the level being portrayed in Dixon.

Shumard decided to do something about his observations. On April 29, 2010, he sent an email to City Engineer Shawn Ortgiesen, who, under its form of government, is the closest thing Dixon has to a city manager.

Two years later, almost to the date, Dixon’s longtime Comptroller Rita Crundwell was arrested at City Hall. What would come to light was her embezzlement of nearly $54 million – the biggest municipal theft in U.S. history.

Turns out she was taking elaborate steps to hide her fraud by creating hundreds of phony invoices between 2001 and 2012, supposedly from the Illinois Department of Transportation, to justify her massive withdrawals from the city’s capital development fund.

She also repeatedly told city officials, who were desperately cutting projects, delaying raises and putting off road repairs, that the city could blame its predicament on drastically reduced or late payments from the financially strapped state.

Crundwell was sentenced Feb. 14 to 19 years, 7 months in federal prison for wire fraud, rather than theft, in a deal she worked out with federal prosecutors.

“I shared some limited information with Shawn, because with the city of Dixon’s form of government, there really wasn’t a peer there that I could chat with ...,” Shumard said in an interview this week. “In some senses, he was the de facto administrator of sorts. ... I didn’t know who else to reach out to.

“Dixon was not my city, but the information didn’t make sense to me, and so I wanted to, I guess, share what I could.”

In an email to Ortgiesen sent April 29, 2010, Shumard said he couldn’t see how the city was missing state payments other cities had received.

“The state isn’t falling further behind on the ‘Local Government Distributive Fund,’” Shumard wrote in the email. “There is a delay in the time that the state receives money until local governments get it, but I don’t believe that’s a new thing.”

Ortgiesen wrote back a day later, saying the state still owed the city $505,695 in income tax money.

Shumard didn’t see how the city calculated that amount, so he asked Ortgiesen about it.

“All verbal from Rita and finance commissioner,” Ortgiesen responded. “I’ll find out next week.”

Ortgiesen then verified the amount using the Illinois Department of Revenue website (tax.illinois.gov/localgovernment/disbursements/IncomeUse/income.htm).

Going back 4 months on the website, where tax revenue is broken down month by month, Ortgiesen confirmed a total of $503,144.35 was owed from January to April 2010 – in the ballpark of the $505,695, he told Sauk Valley Media this week.

Ortgiesen said he figured Shumard was in agreement when he replied: “Did more digging. I was looking at the warrants and not the actual distributions when I first spoke. Since your population is 450 more, your numbers would be a smidge higher. Problem is there’s no indication the state intends to catch up soon after my conversation with the local government office at the Illinois Dept. of Revenue.”

Shumard also was following SVM’s coverage of Dixon City Council meetings. Those articles gave him a further indication that the numbers weren’t what they should be.

He sent another email to Ortgiesen on May 11, 2010.

An SVM article dated May 11, 2010, reported that the city of Dixon planned “to take out a $1 million loan, using the $850,000 the state owes it as collateral, to help pay last year’s bills and carry on for the next few months.”

“Is your finance commissioner really expecting to be able to pay back the loan with future Illinois payments that may not come around for a couple years (or worse)?” Shumard wrote to Ortgiesen.

In this week’s interview, Shumard said that although he saw some red flags with Dixon’s finances, he never suspected fraud.He simply thought some of their decisions were unwise.

After the Crundwell story broke in April, SVM asked Shumard for his reaction.

“That explains why their annual financial reports were so out of whack,” he said in a May 7 story. As a result of that article, the FBI contacted Shumard, who forwarded the emails to FBI Special Agent Patrick Garry.

Shumard had received a Freedom of Information Act request for the emails from an attorney after the FBI requested them; the agency would not allow him to release them until December, he said.

Ortgiesen said he was never questioned about the emails.

Shumard attributes the financial fiasco to Dixon’s commission form of government, which gives individuals sole oversight of their departments, but has no one overseeing them. As comptroller, Crundwell was the lone handler of the city’s purse for more than 20 years.

In addition, “local government administration has become so much more technical than what it was before,” he said. The size of budgets has grown, and duties have become more complicated.

For example, 20 years ago, municipalities just began to deal with collective bargaining; now, it’s a major part of what they do, he said.

In January, Mayor Jim Burke named seven people to a panel tasked with evaluating Dixon’s form of government. Members are to study other municipalities’ governments and analyze Dixon’s current form against those.

State law allows five forms of government: aldermanic, commission, managerial, strong mayor and trustee.

Dixon is one of 49 municipalities in Illinois with the commission form.

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