D.C. Tax Scam Could Total $31 Million

One name, apparently made up, was Captain Co America. The check to Bilkemor was part of a string of 12 checks in four months around the 2004 holiday shopping season that totaled $4.2 million.

Almost all of the suspicious checks identified by The Post were not mailed out, but instead said "hold for pickup" in the approval documents.

The charges and revelations about the scope of the thefts have been a devastating blow to Gandhi, the District's chief financial officer, and his reputation as a careful minder of city dollars. Federal investigators, who first found 42 fraudulent checks and a day later counted 58, are now combing through the office's history of refunds to determine the degree to which Gandhi's internal controls and management failed.

Natalie Wilson, a spokeswoman for the chief financial officer, said yesterday that officials are continuing their own internal investigation. Gandhi has forced the resignations of four top managers and put two additional employees on administrative leave.

"As Dr. Gandhi indicated, there was a breakdown of internal controls," Wilson said. "All parties, as he indicated, will be held responsible."

In their work, federal agents and prosecutors are using a methodical three-part test to decide whether other checks can be tied to the conspiracy. First, were they issued to suspicious-sounding companies? Next, was the supporting documentation to justify the refund phony or doctored? Finally, did the city refund check land in bank accounts controlled by those conspirators now charged or implicated in the scam?

Walters and the other alleged conspirators would not be charged with any additional fraudulent refund checks unless all three factors prove true.

But investigators aren't limiting their probe to Walters and the people now charged. Indeed, authorities said yesterday, one key concern is that Walters was not the first employee in the D.C. tax office to invent the refund scheme and may have been copying a scheme started earlier.

Staff researcher Meg Smith and staff writers Paul Duggan and David Nakamura contributed to this report.