Gandhi, Roiled by Tax Scandal, Still Has Fenty's Support
City CFO Asks for Independent Probe

By David Nakamura and Nikita Stewart
Washington Post Staff Writers
Wednesday, November 14, 2007 3:41 PM

D.C. Mayor Adrian M. Fenty continued to stand by embattled Chief Financial Officer Natwar M. Gandhi this morning, even as Gandhi has asked the city's inspector general to conduct an independent investigation into a tax office fraud case that could reach more than $30 million in stolen public funds. The D.C. Council also announced today that it plans to create a special council committee to investigate the tax and revenue office.

Gandhi said he has removed 10 tax office employees in the wake of the scandal, in which two mid-level employees, Harriette Walters and Diane Gustus, have been charged with preparing false property tax refunds beginning at least as far back as 2001 and delivering them to relatives and friends. Federal prosecutors have said the two, along with several accomplices, stole more than $20 million, and a Washington Post review of tax records suggests the figure could reach $31.7 million.

"I'm not a quitter," Gandhi said during a combative news conference at the John A. Wilson Building. "I will not end my professional career with this blot on my record."

Gandhi announced that several top deputies will assist Ben Lorigo, whom he appointed last week as interim tax office chief. Lorigo had headed Gandhi's internal investigative unit for five years. In addition, Gandhi said, he has asked Judge Stanley Sporkin, formerly director of the enforcement division at the Securities and Exchange Commission, to be Gandhi's personal adviser as the investigation continues.

Fenty (D) called the case a breach of the public's trust, but he said that Gandhi should be judged on his decade of work in the city's financial office, including the last seven as CFO. During that time, Fenty said, the city, once near bankruptcy, has restored its fiscal health, and it now has an "extremely strong" financial outlook.

"I continue to stand right beside Natwar Gandhi," Fenty said.

Gandhi has cleaned house in the tax office, removing the top four managers, including director Sherryl Hobbs Newman. He has called the fraud case a "major management failure" and said that every tax refund check of more than $10,000 will now require Lorigo's approval. The office will conduct "spot checks" on refunds of lower denominations, Gandhi said.

D.C. Council member Jack Evans (D-Ward 2), chairman of the Committee on Tax and Revenue, who also attended the news conference, called the case a "terrible, terrible breach of trust for the government. We need to understand how it happened."

At a separate news conference, Evans and Council Chairman Vincent C. Gray (D) said they will create a special council committee to investigate the tax and revenue office. The committee will have the power to issue subpoenas and hire outside counsel and a financial auditing firm. The committee will be created through a resolution on which the council will vote Tuesday, they said.

Gray and Evans also offered reporters a preview of tomorrow's council oversight hearing of Gandhi's office.

"The purpose of the council hearing is to conduct an investigation into the management, procedures, control systems and structures . . . that permitted millions of dollars to be stolen and to determine the steps necessary to prevent a recurrence of these illicit activities," Gray said.

Gray and Evans said the hearing is only the beginning of the council's probe because they do not expect many of their questions to be answered tomorrow or while the criminal investigation continues.

Nine council members attended the news conference, but Gray and Evans did most of the talking.

Some council members are questioning Gandhi's management of the office.

"I'm not calling for his resignation now," David A. Catania (I-At Large), who has been a vocal critic of Gandhi in recent years, said in an interview. "If these leadership issues and management failures are true . . . it certainly calls into question whether Mr. Gandhi can continue in his capacity."

Kwame R. Brown (D-At Large) said he, too, is not asking for an immediate resignation, but "when you tell 600 employees that they have to be held responsible . . . is he prepared to step down?"

"Is he prepared to take the same punishment that he has given to other people?" Brown asked, referring to the forced resignations and removals of employees.