STATE OF ILLINOIS IN THE CIRCUIT COURT OF THE 15TH JUDICIAL CIRCUIT LEE COUNTY CITY OF DIXON, Plaintiff, Hk Valley Media (K, TODD ETHERIDGE, 'S BANK, ) ) ) ) ) ) ) ) And P Sati Valley.Media ‘Now comes the plaintiff. City of Dixon, by and through their counsel, Power, Rogers & ‘Smithyand submits its memorandum in support of its motion to convert Ron Blaine and Todd Etheridge states as follows: Introduction Plaintiff, City of Dixon, originally filed a compleint on June 8, 2012 in the Circuit Court of Lee County alleging, inter alia, professional negligence against Janis Card Company, Sam Card CPA, and Samuel S, Card for the failure to provide accounting and auditing services to the City of Dixon, Plaintiff’ also named in the original complaint Clifton, Larson, Allen (hereinafter Clifton), Ron Blaine and Todd Etheridge as respondents in discovery. Since June 8, 2012,plaintiff's counsel has submitted interrogatories and requests to produce documents to multiple parties end deposed a number of Clifton’s current and former employees. On November 8, 2012, Clifion, on its own motion, converted itself from ¢ respondent in discovery to a defendant. By agreement and order of this coun, the conversion date in order to file a motion to convert Roa BlainwandLodd Ltheridge was extended until January 15", 2013. For the reasons set forth -402 to convert Ron Blaine and Todd. below, plaintifPherebiy, moves pursuant to 735 1LCS 5 Hiveridfles instater. Argument Pursuant to 735 ILCS 5/2-402, the evidence discovered to date thore than supports & sufficient basis to convert Ron Blaine and ‘Todd Etheridge from respondents in discovery to dcicntantaieDRBFis ample evidence that Ron Blaine and Todd Etheridge, individually, were Aegligeti, inren@MA, in the failure fo perfortlthe adit forfheCity of Dixon! RBA Bldifie was a partner at the CiAGhificm ia Dixon ftom 1985 wutil his retirement (EX A! Blaise dep | p. (17) Ron Blaine was both the head of the Clifion office in Dixon, IT. and the relationship” or “client” partner for the City of Dixon account from 1995 until 2005. In 2007, Todd Etheridge became ‘the purtner in charge of the Clifton office located in Dixon, IL. (Ex. B, Etheridge dep.,p. 17) ‘Vodd Etheridge was the “relationship” or “client” partner or the City of Dixon-aecount from 2008 to 2011. (EX)B, Ftheridye dep,, p. 138) Although other Clifton employees performed Clifton’s audit ‘léld work at the City of Dixon, according to Todd Ethedldge, “the partner is ultimately responsibie.” (Ex B, Etheridge Dep., p. 80) During the time period 1990 to April 2012, Ron Blaine and Todd Etheridge were ‘For ¢ more detailed recitation of the facts tome out in discovery to date, plaintifT hereby incorporates the Facts Common to All Counts set forth in Plaintiff s First Amended Complaint, 2intricately involved in the management of the Clifton office in Dixon, Illinois and for the majority of that time period were the partners responsible for the City of Dixon account. itis undisputed that Clifion performed the audit of the City of Dixon from 1993 to 2005. (Ex. B, Etheridge dep., p. 13) Although Clifton now denies doing so, as set forth more fully below, the trates that Clifton continued to perform the audit of the City of Dixon after ie time period, 1990 10 2012, Rita Crundwell stole over $53 million dollars kValley-Media City of Dixon financial statements, This, despite the fact that multiple!Ctifion employees of it that as a part of an annual audit, auditors were required to identify fraud or financial statements with reasonable assurances. (Ex B, Etheridge dep., p. 7- spu€dthat the theft CShnillions Sdollérs fromkhiglCity of Dixon wi ial e “Saik Valley Media From at least the mid-1990's, Rita Crundwell began stealing mofiey from the City of Dixon. She stole the money from a number of sources at the City of Dixon and deposited the money. into an account held at Fifth Third Bank entitled “RSCDA, One account that she stole money from was the City's Capital Development Fund also at'Fifth Third Banks» Rita» Crandwell would ereate fictitious invoices purportedly from the Iliinois Department of ‘Transportation and then write checks from the Capital Development Fund account at Fifth Third. Bank to pay these fictitious invoices, Rita Crundwell would then deposit these checks for these fictitious invoices into the RSCDA account at the same Fifth Third Bank branch which she usedas her personal bank account.? Rita Crundwell then showed these fictitious invoices to Clifion personnel during their audits of the City of Dixon. (Ex. D, Ashley Peach dep., p. 18) It is undisputed that these fictitious invoices were very different than the true invoices from the Mlinois Department of Transportat n. (Ex C, Megan Shank dep... p. 24: Ex. D Peach dep...p. 113) Thesfietitious invoices created by Rita Crundwell differed from the true State of THinois invoiccs.in MUlGplelways, including: that none of the fictitious invoices had a State of Illinois }620: alf ofthe etitious invoices dentained misspelled wordk the fictitions invoices were.typed ipfa completely different type set and these fictitious invoiges nalike the true State\6f Mlinois invoices omitted any contact information ifa recipient had questions about the bills. (Ex. C, Megan Shank dep., p. 109-110; Ex.D, Peach dep.,p. 113) Clifton concedes thet these di MeEACEMetween, the fictitious invoices and the true invoices can be readily idemtified. (Ex D, ach dépn p. 17118) CurthenifGre, there Bno FaestiomPil the true State of MinoiSavoices sent 19 the City of Dixoa and dther municipalities were bvailabld fer Clifign to compare, Clifton employees admit that if there are irregularities in documantation that is a "red lag” in the auditing world for fraud or misstatement, (Ex. D, Peach dep., p. 46) Clifion employees were taught in accounting schoo! that if they ran into such irregularities they are reqtlired to investigate further. /d-Clifton employees further-adait that had Clifton employees identified the difféfendes in any of these over 179 fititious invoices the applicable standard would have requiféd Clifton to report these invoices to someone higher up at the City of Dixon It is undisputed that Clifton had actual knowledge of the existence of the RSCDA ccount at least as early as 2010 when the RSCDA was disclosed in 2 bank confirmation sent to jon and indicating that the RSCDA account had a balance of $142,000.00. (Ex C, Shank dep., p. 170-172) Clifton did nothing to investigate the RSCDA that was disclosed to Cliften. dd According to Clifton’s manager, if Clifton was in fact performing an audit in 2010, Clifton deviated from the standard of care. Jd.than Rita Crundwell. (Ex. C, Megan Shank dep., p. 33) Had « two minute phone call been made by a Clifton employee to the Illinois Department of Transportation regarding any of these false invoices Rita Crundwell” s theft would have been identified at that time. (Ex. C., Megan Shank dep., p. 14)" Clifton employees reviewed these false invoices created by Rita Crundwell for years audiiaiied to identify and act upon these multiple differences between the true State of Miinois invoiees andllne fictitious invoices. (Ex. C, Megan Shank dep., p. 106) Clifton further sCcnoywledges ta if it was performing an audit op the City of Dixon tbat it would be required by) thé standard of carete investigate these invoices) (Bx D, Peach dep., p. 114. 12)) Its undisputed) that no employee of Clifton called the Illinois Department of Transportation to inquire about these invoices, No evidence exists that Clifton asked the City Engineer about any of the over 179FRHHOUSTAVOIecs, No evidence exists that any Clifion employee inspected any fictitious flojccuGr verifiGT the existeace Ofeny of thTeveZ]179 HGS projects in the Gily of Dixon Gouneil meeting Mindtes, (Ex C. Stank dep. pH, 124125, 18136) Asa résUhy Ron Biaiue and ‘Todd Etheridge were each negligent in the failure to identify the frqd and misstatement in the City of Dixon finances and negligent in the supervision of the Clifton staff. ‘The obvious nature of the fictitious invoices are not the only irregularity that Kon Blaine and Todd Etheridge:were aware of'and led:to respond,-{The'usual practice and procedure at the City of Dixon for the payment of'an invoice wag that each trie invoice received by the City of Dixon would iéve a requisition created and documentation of al approval by the appropiate Shank dep, p. 63-64) None of the fictitious invoices ereated by City of Dixon employee. (Ex. Rita Crundwell for over an 11 year time period which were inspected by Clifton employees had 2 complete recitation of the fictitious invoices created by Rita Crundwell are set forth in Plaintiff's First Amended Complaint paragraphs Facts Common to All Counts paragraphs 47-76. 5