By Dan Keating and Carol D. Leonnig
Washington Post Staff Writers
Wednesday, November 14, 2007 1:16 PM
A Washington Post analysis of city records has found a total of $31.7 million in questionable property tax refunds dating back seven years -- including $346,700 to one fictitious company named "Bilkemor LLC."
The Post identified 92 payments to companies that prosecutors have identified as dummy corporations, for properties that have no connection to the firms receiving the checks. The analysis comes as federal prosecutors do their own review in the biggest corruption case in local government history.
Federal authorities initially said the D.C. Office of Tax and Revenue had lost more than $16 million in a brazen refund scam orchestrated by a mid-level manager. They later upped the figure to $20 million and warned that the damage could be even higher as their investigation continues. Yesterday, law enforcement sources confirmed that taxpayer losses could reach $30 million or more.
At a news briefing this morning, D.C. chief financial officer Natwar M. Gandhi said he was cleaning house in the city's tax office, seeking an independent investigation of the scandal and putting new restrictions in place to prevent bogus refunds from being issued in the future. Mayor Adrian M. Fenty (D) appeared with Gandhi at the briefing, and said the embattled chief financial officer still has his support.
The Post's analysis showed that the volume and pace of suspicious activity at the D.C. Office of Tax and Revenue reached its peak in the past three years. Of all real estate tax refunds issued in that span, about half appeared suspicious.
And of the $37 million refunded from the start of 2005 to July 2007, the dubious checks total more than $19 million.
Harriette Walters, the former manager in charge of property tax refunds, was arrested Nov. 7 and is charged with signing off on payments to sham companies controlled by family members and others who were in on the scheme. Six people have been charged, including tax employee Diane Gustus, one of several city workers who prepared or handled paperwork leading to the checks.
So far, prosecutors have publicly accused Walters and others of conspiring to fabricate 58 fraudulent refund checks, amounting to $20 million, and then using the sham companies to steer money to themselves. In court papers yesterday, prosecutors said that Walters has "confessed" to the activities and that she "approved each and every fraudulent voucher."
Prosecutors made the assertions at a hearing in U.S. District Court as they argued that Walters, 51, should remain jailed without bond. They stressed that they have been able to track down only $6.5 million in bank accounts, cars and homes, and said that Walters has refused to help them locate any more stolen funds.
Fleeing "would be almost irresistible for her not to try under the circumstances here," Assistant U.S. Attorney Timothy Lynch argued. He cited the amount of money still unaccounted for, Walters's beachside property in St. Thomas, and the lengthy prison sentence she faces if convicted.
Walters watched as her attorney, Peter R. Zeidenberg, scoffed at suggestions that she may have millions at her disposal. All her assets have been frozen by authorities, Zeidenberg said.
Magistrate Judge Alan Kay ordered that Walters remain in jail.
Federal authorities have said that the illegal refund checks approved by Walters averaged about $380,000, and The Post's examination of D.C. tax records uncovered numerous examples of additional payments in that range.
The Post's analysis shows the same pattern of suspicious refund checks that prosecutors have found -- but many more checks than have been publicly acknowledged.
The financial records examined by The Post do not say who prepared the refund paperwork, or who approved it.
The pattern of suspicious checks goes back to 2000 but surged into the millions of dollars in 2003, according to a Post review of more than 8,000 real estate refund checks issued since 2000. Using that same test investigators used to sniff out frauds, The Post counted 92 checks worth $31.7 million that appeared dubious. The vast majority were checks to companies already identified as false fronts allegedly used by Walters's group.
A total of 41 checks worth $13.6 million went to Legna Home Services and Chappa Home Services in that period, two companies that prosecutors say were shams and under the control of Jayrece Turnbull, Walters's niece. Turnbull is among those charged in the case.
The Post found $7.5 million in suspicious payments in 2004, $6.8 million in 2005, $7.3 million in 2006 and $4.9 million for the first seven months of 2007.
The amounts of the suspicious refunds were vastly larger than the average check. Non-suspicious refunds averaged $10,000 to $17,000. But the checks flagged by The Post averaged $200,000 to $300,000 from 2000 to 2003. By 2006 and 2007, the average had jumped to more than $400,000.
One name frequently used on the checks -- those cited by the government and others spotted by The Post -- was attorney David Fuss, who regularly handles property tax appeals. The checks naming Fuss that investigators have identified as suspicious all said "hold for pickup" rather than being mailed to an office. Investigators have said that Walters, not Fuss, personally picked up many of those checks.
In a court affidavit, an FBI agent said that a Sun Trust Bank official called Fuss last summer after Turnbull tried to cash part of a refund check; the bank wanted confirmation that Turnbull was in fact an agent of his firm. Fuss said that she was not a company official and that he had no relation to the check in question, even though his name was on it.
Two dozen of the checks identified by investigators or The Post's analysis listed Fuss's name and said "hold for pickup."
"It's not unusual for wrongdoers to hide behind the names of good companies and good individuals to further their schemes," Fuss said yesterday. He declined to speak further because the case is under investigation.
Many refunds examined by The Post were listed as being due to legitimate commercial companies, but then list a co-payee company name that can't be found in any business records. Other refunds are written to what appear to be variations of legitimate names -- including "Car Frtz" and "Paost Mass Ave."
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.