D.C. Tax Scam Total Rises to $20 Million, Officials Say

By Carol D. Leonnig and David Nakamura
Washington Post Staff Writers
Friday, November 9, 2007

A massive D.C. public theft case grew overnight from $16 million to $20 million as federal officials tracked down more than a dozen additional phony tax refund checks that they said flowed out of government coffers and into the hands of two D.C. tax employees and their co-conspirators.

As federal agents announced yesterday that the scope of the fraud in the D.C. Office of Tax and Revenue was wider, they also accused tax assessment manager Harriette Walters and her friends of running the scam since 2001 -- twice as long as first thought.

A series of raids Wednesday and newly found bank records revealed that Walters, co-worker Diane Gustus and Walters's relatives and friends had fabricated 58 property tax refund checks, not 42, as originally announced Wednesday, authorities said.

In newly unsealed court papers, federal prosecutors alleged that Walters, who was paid a government salary of $81,000 this year, had deposited $8 million in her bank account over the course of the scam.

Prosecutors also moved in court yesterday to seize three homes worth $2.3 million, which they said Walters bought with stolen money. A rambler in Northwest Washington abutting Rock Creek Park is valued at $800,000. Two homes in New Jersey, in Bridgewater and Washington, were purchased within the last year with cash and have no mortgages, according to court papers.

Also yesterday, Rep. Thomas M. Davis III (R-Va.) called for the House Oversight and Government Reform Committee, of which he is the ranking minority member, to investigate the District government's failure to detect the theft.

Walters, 51, and Gustus, 54, who were arrested Wednesday, appeared in federal court in Washington yesterday, each charged with 10 felony counts of conspiracy and fraud. A magistrate judge agreed with prosecutors' request to temporarily hold Walters as a flight risk. She looked wide-eyed and shocked at the court spectators and reporters attending the hearing.

The judge released Gustus and ordered that she wear an electronic monitoring device, refrain from making any purchases larger than $5,000 and avoid contact with anyone in her old office, known as the Real Property Tax Assessment Adjustment unit.

One of the biggest questions, a day after the massive scheme was announced by federal authorities, was how Walters, Gustus and others allegedly could have gotten away with such a high-volume theft for so long. The fraud was never noticed by city officials, though Walters's office is part of Chief Financial Officer Natwar M. Gandhi's office.

The FBI started following the trail of checks after a bank employee questioned a D.C. refund check for a corporation that the account holder could not prove existed. According to court papers, Walters, accused of being the ringleader in the scam, was able to make millions of dollars in phony property tax refunds look legitimate -- at least at a cursory glance.

The 25-year veteran of city government had two key advantages, according to law enforcement authorities and city sources. She had the cooperation of fellow office employees who, having been showered with gifts, were willing to sign off on paperwork they either knew or suspected was bogus.

In addition, sources said, the city allowed Walters to operate with virtually no oversight. Her check writing was not monitored, and auditors never examined why the city's property tax refunds were steadily rising.

CONTINUED     1           >

© 2007 The Washington Post Company