City Auditor Urged Close Look at Property Tax Funds in '04

The D.C. auditor urged city government officials three years ago to "closely monitor" the flow of real property tax revenue after she noticed a spike in the amount of money refunded to property owners.

Deborah K. Nichols's reports, made in the summer of 2004, did not suggest wrongdoing in the Office of Tax and Revenue, the department now at the center of the largest financial scandal in the city's history. But she noted that the amount of property tax refunds was 105.7 percent higher than projected over three fiscal quarters, a jump not easily explained. She suggested that officials take a closer look.

Nichols said yesterday that the refunds "raised a red flag because they were running so high when fewer appeals had been decided during that time."

Chief Financial Officer Natwar M. Gandhi, who is under increasing pressure to explain how the burgeoning tax refund scam happened on his watch, said yesterday that he was aware of Nichols's report. He added that the refunds did not seem extraordinary because so much revenue was being generated by a hot real estate market.

"We were dealing with huge sums of real property tax revenues," he said, adding that he had talked with tax office managers, who "gave me assurances that things are all right."

Gandhi has ousted 10 employees, including the tax office's director, Sherryl Hobbs Newman, saying they must be held accountable even if they were not directly implicated. The city has lost more than $20 million at a minimum, authorities said, and according to a Washington Post analysis of tax records, that amount could reach more than $31 million. Two office workers have been arrested and charged with fraud for allegedly producing phony property refund checks.

Nichols's report came a year before Hobbs Newman took over the tax office, which has had a history of troubled leadership under the four directors Gandhi has hired in the past seven years. He hired Hobbs Newman to lead the 600-person department in 2005 despite being cautioned by aides to Anthony A. Williams (D), the mayor at the time, that she had served poorly in two Cabinet posts.

Yesterday, government leaders announced that the D.C. inspector general will review Gandhi's office and that the D.C. Council will conduct a separate investigation. Some officials are suggesting that Gandhi and his 1,250-person, independent agency need stricter oversight. Gandhi, who was hired in 1997 as part of the team assigned to rescue the city from financial ruin, is set to appear at a council hearing today, along with Hobbs Newman and Nichols.

"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."

Mayor Adrian M. Fenty (D) called the corruption case a breach of public trust but added that Gandhi should be judged on his 10 years of helping the city recover after nearly being bankrupt.

"I continue to stand right beside Natwar Gandhi," Fenty said. "He has managed the city's finances exceptionally, and he's good for the future of the city."

Gandhi's ousters were meant to signal to city officials and business leaders that the alleged scheme was an aberration that should not cast doubt on the city's financial integrity. But Hobbs Newman has released a statement defending her tenure, and another ousted employee, Thomas Branham, is demanding that he be reinstated.