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D.C. Hearing On Scandal Has Gandhi In Tight Spot
Auditor Criticizes Financial Agency

By Nikita Stewart
Washington Post Staff Writer
Friday, November 16, 2007

Pressure mounted on D.C. Chief Financial Officer Natwar M. Gandhi at a lengthy and contentious D.C. Council hearing yesterday, as the city auditor testified that Gandhi's office adopted a dismissive and adversarial attitude to her repeated warnings about potential problems at the city's tax office, now rocked by a major scandal.

Gandhi defended his agency, saying that all of the necessary policies and procedures were in place but that they were not followed.

In one of the more explosive exchanges, it was revealed that authorities are investigating whether Harriette Walters, the former tax office official charged with engineering the alleged multimillion-dollar swindle, lent money to some of her superiors.

Council member Tommy Wells (D-Ward 6) asked whether Walters, who he said was called "Mother Harriette," gave loans to her superiors.

"That's what I have heard," Gandhi said.

But Gandhi and staff members said they could not provide more information because the allegation is under investigation.

D.C. Auditor Deborah K. Nichols called Gandhi's office, an independent operation established by Congress, "very parochial" and said there is a "lack of cooperation" in providing information.

"They're adversarial in nature," she said.

The first half of the hearing was dominated by Nichols and Sherryl Hobbs Newman, who was forced to resign last week as deputy chief financial officer in the wake of allegations of the biggest theft by government employees in the city's history. The hearing started in the afternoon and ended at 9 p.m.

Gandhi, who sat with his arms folded when questioned, appeared late in the day and was flanked by staff members. He said 15 employees have been removed or have resigned, including Hobbs Newman. He said he has no plans to resign.

"When I hear from the mayor that he no longer has confidence in me, when I hear from the collective council that they agree with the mayor, that is the time when I, too, should resign," he said.

Council member David A. Catania (I-At Large) said Gandhi has been "deflecting" responsibility.

As early as 2004, Nichols had urged officials to "closely monitor" the flow of real property tax revenue after she noticed a surge in the amount of money refunded to property owners. At the hearing, she went through nine reports, including one that she has not yet released. "We repeatedly noted the anomaly in real property tax refunds," she said.

In the wake of the scandal, Gandhi has said that when he headed the tax office -- from 1997 to June 2000, when he became CFO -- he implemented a strict policy under which he signed off on all refunds of more than $250,000.

However, council member Kwame R. Brown (D-At Large) said the policy before Gandhi took over had been for the tax director to approve all refunds greater than $10,000. Brown concluded that Gandhi had made the system less rigorous. Gandhi responded that the previous system amounted to "micro-managing."

In earlier testimony, Hobbs Newman, who oversaw the 600-person Office of Tax and Revenue, told the council that two lower-level employees accused of bilking the city helped create the real property tax system that they allegedly exploited.

"I know the accused worked on creating the first system used in the real property tax administration," Hobbs Newman said, without using the employees' names. "They worked on the design of the current integrated system.

"It now appears that their involvement was to their benefit, not the city's. . . . Their knowledge of the operational strengths and weaknesses provided these people with the cloak to disguise their dishonest objectives."

Later in an interview, Hobbs Newman said she could not elaborate because the system was established before she arrived in 2005.

Walters, the former manager in charge of property tax refunds, and her co-worker, Diane Gustus, were arrested Nov. 7 and charged with funneling more than $20 million in refunds to sham companies. Five others have been charged in the federal case. A Washington Post analysis of tax records shows that more than $31 million in refunds are questionable dating back seven years.

"She was known to be professional, very direct," Hobbs Newman said of Walters. "She was not one where you questioned her performance. She got things done. Her longevity there is why she was consulted on systems issues and processes."

D.C. Council members opened yesterday's hearing with speeches about damage to the public trust and the city's reputation and about how a broken system in Gandhi's office had allowed the alleged thefts to occur.

The scandal has been a blow to the fiscal chief, who has been largely credited with helping to turn around the city's finances and image over the last decade.

"He has said he is not a policymaker. He is just a bean counter. We've all heard that," said council member Mary M. Cheh (D-Ward 3). "Even if you are a bean counter . . . the beans weren't counted."

Gandhi and the interim tax office director, Ben Lorigo, have said that the scheme was elaborate and that they probably would not have detected it without a tip. Some council members dismissed that defense yesterday, pointing to the warnings from Nichols.

Lorigo, who was in charge of oversight and integrity, also came under fire yesterday. He told the council that he had not done an audit of real property taxes in his five-year tenure. "If there is no confidence in my ability to do it, I will resign immediately," he said.

Hobbs Newman arrived at the council chambers flanked by supporters, including her husband, Robert P. Newman, former director of parks and recreation, who resigned in 2000 after his management skills were criticized and he was accused of embellishing his résumé.

In her written testimony, Hobbs Newman said her "body of accomplishments far exceeds the missteps I have made." She said she was in the process of improving the checks and balances in the office when she was forced to resign.

"Why did we not uncover it? My answer is short and simple. I was not looking for it," she said. "During the 25 months that I was deputy CFO, I worked aggressively and quickly to resolve the problems that were brought to my attention while at the same time beginning to identify and fix weaknesses in the controls and systems, and all the while, doing the normal business of our agency."

Plans were in place to reorganize the tax office and assessment services division, and new policies and procedures were going to become effective next month, she said.

"By the end of this year, this area would have seen supervisory changes, staffing changes and process changes. I cannot say this emphatically enough, I truly believe these improvements would have shut this operation down," she said.

Staff writer David Nakamura contributed to this report.

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