By Marc Fisher
Sunday, November 25, 2007

In the movies, we're willing to believe in an inside job if the bad guy keeps his scheme secret from his co-workers.

In the real world of the D.C. tax swindle, a heist so audacious it wouldn't pass a Hollywood producer's smell test, this inside job seems to have been a secret only to those who chose to look the other way. Harriette Walters and Diane Gustus, we're told by authorities, lavished their colleagues in the Office of Tax and Revenue with extravagant gifts -- all manner of hints that, hey, we're stealing this place blind.

Yet nobody turned them in. Just as you can kill a fellow human being in broad daylight in this city and nobody will talk to police, Walters and Gustus and their confederates, prosecutors say, blithely kept ripping off Washington's taxpayers in full confidence that not a soul would live up to the moral and legal obligation to alert the authorities. Looking out for your fellow man has been redefined in the District as "snitching."

So far, 15 people in the District's taxation hierarchy have been sacked, either because they knew or because they should have known. And if "should have known" is the barometer of culpability in the tax refund scandal, then some say the ultimate "should have" is the big boss, Chief Financial Officer Natwar Gandhi.

In a way, Gandhi, the elegant, earnest enforcer of ethics and excellence in a bureaucracy previously best known for bungling and burgling, freely concedes that he's responsible. After all, he happily takes credit for the turnaround in the city's fiscal health, so he needs to take the blame when things go sour, too. But in a conversation with me the other day, Gandhi said that, having turned the District's fiscal operations from discredited joke to darling of Wall Street, he deserves a chance to repair the damage wrought by the scammers.

When Gandhi arrived from the federal government in 1997, the District's tax office was "in complete shambles," as he recalls. "I opened the door and found millions of pieces of paper on the floor -- literally. That was the filing system." He has the photos to prove it. "With that system, if you paid your taxes, thank you, and if you didn't pay, thank you, too, because there was no way I could go after you."

That changed, quickly. With his boss, then-Chief Financial Officer Tony Williams, Gandhi sacked incompetent workers by the hundreds. Gandhi won a clean audit of the city's books, and Washington's credit rating grew evermore solid. But at every turn, he ran into the same problem: a staff that resisted change.

"The atmosphere was so hostile," Gandhi recalls, "that when I insisted that every employee go through ethics training, there was great resentment and people saying, 'Why do you think we're crooks?' "

Why, indeed.

He instituted a tax fraud hotline that allowed city workers to report suspicions of wrongdoing without identifying themselves. Hardly anyone used it.

"The culture that pervaded the District government was not about customer service, it was about protecting jobs," Gandhi says. The blame then and now, he believes, rests on the transformation of the D.C. government by former Mayor for Life Marion Barry into the employer of last resort, a hiring hall in which entire families could find a paycheck and a nice, easy place to while away the weekday hours.

"Barry and his people did not care how the bureaucracy ran," Gandhi says. "But the tax office is where you make money. It has to run efficiently."

Though Gandhi's tax office has suffered from high turnover among its directors, the finance chief points to his successes, saying he brought in top managers from the IRS and the private sector to improve efficiency. Remarkably, within a couple of years, city residents were getting their refunds faster from the District than from the feds.

Sadly, some of those refunds, we're now learning, were going to phony companies, too.

"It defies the imagination," Gandhi says, as he watches the reputation he rebuilt collapse into a fresh source of sneers and jokes. "Compared to what I faced in 1997, in terms of fixing systems, this is nothing. But the cultural question is something else entirely. How people can receive gifts of such magnitude and say nothing, I just do not understand."

An immigrant who works mind-boggling hours and still finds time to write a book of poetry called "America America," singing the praises of his adopted country, Gandhi cannot fathom why anyone would want to rip off their fellow citizens, especially in a struggling city such as Washington.

A substantial portion of the workers in the Tax and Revenue office are holdovers from the Barry era, Gandhi says, and to be sure, some do their jobs well. But "it is not easy to hire for D.C. government," he says. "And how many people can you fire? The job now is to find out who knew, fix the problem, improve the oversight and restore public confidence. In a few months, I will have hundreds of thousands of tax returns at my doorstep.

"If mayor and council lose confidence in me, I'm gone. But I'm not a quitter. I worked for years to build the reputation of this office, and now I have to do it again."

E-mail:marcfisher@washpost.com