Contract with the Community: End culture of corruption

In February, we introduced our “Contract with the Community,” a 10 item list of simple reforms and ideas intended to bring about a more open, honest and transparent government. Over the coming weeks, we will explore in-depth each of those 10 items. This week, we look at No. 7, “End culture of corruption.”

[dropcap]Dixon[/dropcap] shocked the nation in 2012. Rita Crundwell, the small town’s long-time comptroller, was arrested after defrauding the town to the tune of $53.7 million dollars.

In the wake of Crundwellgate, Winnebago County suffered a similar circumstance in 2015 when it was discovered that Purchasing Director Sally Claassen had defrauded county taxpayers of $451,353.

Corruption, in all its forms, sows skepticism of government. In today’s climate, Henry Kissinger’s quote, “Corrupt politicians make the other ten percent look bad,” is almost optimistic. Corruption defrauds taxpayers, not only of their money, but also of fair and honest representation, undermining the core of representative democracy.

The elections in Dixon following Crundwell’s arrest swept a new mayor and city council into office. Dixon’s Mayor Liandro Arellano discussed five steps Dixon took to every to mitigate the risk of fraud.

Not only can local governments take these steps to try and stop fraud, but they can use them to root out corruption in local government.

The first step is to have multiple eyes on everything coming in and going out. In Rita’s case, “(She) was the person who took the money in and dispensed it, invested it, and paid bills.” Having one person with the capacity to both steal money and conceal the theft is a serious organizational red flag.

“All the steps should have had multiple signatories,” Arellano says. This goes beyond awareness of the spending, by requiring a commitment from public officials to sign on the dotted line for every monetary request.

Winnebago County implemented similar controls after Claasen’s fraud was uncovered, but only after a change of administration. New County Board Chairman Frank Haney added a layer of oversight in the budget amendment process after taking office. Now, new employees cannot be entered into the county payroll system without an approved budget amendment attached to the request, or a written commitment from the requester specifying where the money would come from in their current budget.

The first step can be extended to any government decision: If there are multiple eyes on anything that comes in, public officials have reduced the risk of making decisions that are not in the best interest of the taxpayers. If people know that anything they present to a public official will be reviewed, examined, and signed off on by multiple parties, they may be less likely to ask for things that are not in taxpayers’ best interest.

The second step is forensic auditing. Familiarity can lead to seeing government through rose colored glasses.

Arellano says Crundwell had become cozy with Dixon’s former auditing firm. The solution? Changing auditors regularly. Now Dixon has different sets of eyes auditing its books every few years and leading to less risk from familiarity. Dixon went a step further and hired a forensic auditor to audit the controls they put in place.

Winnebago County implemented several controls after Claasen’s fraud. Former board member John Guevara hoped the county would follow Dixon’s example, and authored a resolution to put out a Request for Quote from forensic auditing firms. The purpose was to find out how much it would cost to hire a firm to review the controls Winnebago County implemented and identify if anything else needed to be done to mitigate the risk of future fraud. Perhaps the current board will do the same.

Beyond accounting and fraud prevention, implementing a system to audit issues or decisions has the potential to improve the quality of decisions made by local governments.

The third step is to change the rules. Arellano says Dixon reduced the credit card spending limit expenditures, and the limits on spending that could be conducted without the City Manager signing off or approval from the city council. Winnebago County took similar steps in 2015, though not before multiple FBI investigations into the county’s finances had been launched.

Informal controls are not enough. Establishing and communicating clear and concise rules designed to improve the quality of publicly funded decisions helps increase confidence in those decisions.

The fourth step is to reform the budget process, say Arellano. “(We) took the process differently, reviewed spending line item by item, (and) reviewed expenditures.” He says the council searched for comparators, cities of similar size, demographics and economics. Then they reviewed Dixon’s spending compared to these other communities. Arellano believes a comparative review like the one Dixon currently conducts would have tipped Dixon officials off to Crundwell’s crime sooner.

It is important to note, deficit reduction should not reduce the controls in place to mitigate the risk of fraud. Reduced controls are not synonymous with increased efficiency or better government.

Arellano says that the fifth thing Dixon did was change its form of government. “One of the things Dixon failed to do was recognize how much professionalization was available in government and left the good ol boy system in place where everyday politicians were in charge,” he says. “(It was an) archaic form of government designed for much smaller cities, with a mindset that (was) resistant to change.”

Part of it falls on the populace, Arellano adds. Dixon placed a referendum on the ballot in the 1990s to change its form of government and it failed.

“People coming into office aren’t trained in maintaining streets or in public safety. (Putting) professional people in charge of the departments including a city manager overseeing staff costs more, but is cheaper than losing $54 million, and provides better service levels. Compare it to (a) small business that grows to a level where they have to hire a separate accounting firm and a human resources representative for their company.”

Haney campaigned with a promise that changing culture could help people have confidence in Winnebago County government. His website included a statement that county government should, “Eliminate the real and/or perceived culture of cronyism and nepotism. We will review this from three perspectives: leadership, HR policies, and transparency.”

Former chairman Scott Christiansen had placed family members and friends in key positions in county government. Gus Gentner, the county’s contracted IT services provider and a family relation of Christiansen, oversaw a “human error” that ended in a $283,000 bill owed to Microsoft.

Christiansen ultimately found that no one was accountable for the “error” and deflected blame from Gentner. In an email to county employees, the former chairman said, “It is significant to point out that a number of these failures to license were a result of software installations taking place either prior to Mr. Gentner’s tenure or from departments not under his supervision. In any case, Mr. Gentner did not personally install or configure any software.” In light of the events surrounding the final months of Christiansen’s administration, the county board quickly passed a resolution to eliminate nepotism and cronyism within Haney’s first 100 days in office.

The new chairman has also promised to put an end to elected county officials using government office space and equipment to run political campaigns, a practice that is in clear violation of local, state and federal laws. Such practices were long rumored under Christiansen’s tenure, and a vendor tied up in the FBI’s investigation into the county’s finances was subsequently paid out of the former chairman’s campaign fund.

Arellano says that it is “entirely possible fraud is happening when you’re spending millions of dollars. The goal is to implement systems which are the best at uncovering fraud. Complacency prevents people from recognizing the things that should be and could be.”

Put another way, if we want corruption to stop, we need to build better systems to stop it. We need to change our culture. And we need to be involved.

Democracy depends on our willingness to engage with each other and with our government. We make the world better when we work together. Let’s get to work.

Read the rest of our Contract with the Community project.
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