D.C. Tax Scandal Triggers Reviews
Jurisdictions Add Checks on Fraud

By Rosalind S. Helderman and Amy Gardner
Washington Post Staff Writers
Monday, December 10, 2007

In Prince George's County, there's a new policy in place because of the District tax scandal: All property tax refunds of $5,000 or more will get special review by the county's chief of treasury.

Property tax refunds over $25,000 will get an additional look in Montgomery County as well, and the inspector general is preparing an expanded review of the county's accounts payable early next year.

In Arlington, the chairman of the County Board called his top managers immediately after hearing the news that D.C. employees were accused of stealing at least $20 million from the city government by creating false property tax refunds. He asked: What do we have in place to make sure this couldn't happen to us?

Stunned by the allegations that D.C. Office of Tax and Revenue employees approved illegal refunds over several years, officials from Loudoun to Anne Arundel counties have been checking their procedures for vulnerabilities.

The outcome of those internal reviews in Maryland and Virginia have been overwhelmingly reassuring, local and state officials said. With guarded confidence, they said it would be virtually impossible for even one fraudulent tax refund -- let alone the dozens issued to phony companies in the District-- to get through the gantlet of bureaucrats required to review such transactions.

Still, in some cases, local officials are in the process of shoring up procedures, and money handlers across the region have been reviewing safeguards to ease the fears of skittish elected leaders.

"It was a wake-up call for everybody," said Stanley Willis, the Prince George's treasury chief, who decided soon after hearing of the D.C. charges that he would personally review all tax refunds over $10,000. Later, in an abundance of caution and after a talk with his boss, he lowered the amount to $5,000 -- even though issuing a refund had already required approval from at least four separate individuals in different offices.

Virginia Gov. Timothy M. Kaine (D) acknowledged he has been following the scandal. So has John Kenney, director of general accounting in the Maryland comptroller's office.

"Believe me, every local government official in the region took notice of that story," said Paul Ferguson, chairman of the Arlington County Board.

Authorities believe Harriette Walters, a mid-level manager at the D.C. Office of Tax and Revenue, approved illegal refunds and shared the wealth with family members and associates. She and five others face federal charges.

Federal authorities are still trying to determine the depth of the loss. They have publicly flagged 58 checks, totaling $20 million, as fraudulent and have warned that the totals could mount as the probe continues. An analysis by The Washington Post identified 160 checks totaling more than $44 million that lacked the court orders required for legitimate refunds.

The most common safeguard to prevent fraud is requiring multiple employees from different departments to review tax refund checks. Often, computer systems are set up so they do not allow checks to be cut if the authorizations are not in order.

In Fairfax County, for example, four offices are involved. Fairfax has issued an annual average of $17 million in real-estate tax refunds in the past five years and $9 million more in refunds for the personal property tax. Most often, the refunds are the result of assessment appeals.

"Multiple individuals are required throughout this process," said Robert L. Mears, director of Fairfax's Department of Finance. "It involves staff in two separate departments and two separate parts of the building in order for it to be produced."

The story is similar in Loudoun, Prince William and Arlington counties. Arlington and Loudoun have elected treasurers who provide an additional level of scrutiny to the process. Alexandria officials did not return phone calls for comment.

In Maryland, creating false refunds would be even harder, officials said. Property assessments are conducted by state offices, while local officials collect taxes. Refunds are issued by local governments -- but only after a state assessor determines a property has been improperly valued and orders an abatement.

C. John Sullivan Jr., the state's director of assessment and taxation, said the day the D.C. story broke, he discussed with his staff whether the same could happen anywhere in Maryland. His finding? "It would be impossible," he said.

But District tax officials said the city had internal controls in place. At least two and as many as four top leaders of the D.C. tax office, including its director, should have personally reviewed the refunds before they were issued, according to information from the city's chief financial officer. In addition, tax refunds in the District require a court order, which was not present in many of the cases involved in the growing scandal.

Fraud experts say detecting corruption can be particularly difficult when employees who are intimately familiar with the system conspire with one another. That's where careful outside auditing and robust whistle-blowing come in, they said.

Across Virginia and Maryland, the financial statements of cities and counties are reviewed by outside accounting firms. Larger jurisdictions also all have internal audit offices that issue reports on county agencies, looking at everything from credit card usage to parking meter revenues. Some jurisdictions also operate fraud hotlines that allow employees in all agencies to report irregularities anonymously.

Prince George's receives about two calls a month, County Auditor David H. Van Dyke said. In Montgomery, a fraud hotline was created last December. In its first six months, 40 callers reported possible abuses, all of which were investigated by the county's independent inspector general.

Allan Bachman, education manager for the national Association of Certified Fraud Examiners, said it is important to have a work culture in place that discourages cheating and clearly punishes those who steal, even if the amounts are minuscule. Frequent, aggressive audits let employees know outside investigators will review their work. He also said employees should know criminal wrongdoing will be made public, even if it is embarrassing to government leaders. "Make noise," he said.

That's why Howard County finance office employees will soon attend meetings where their bosses will ask them outright: Have you seen anything out of the ordinary?

"If you say, 'Is there anything you don't understand or that looks strange?' " said Sharon F. Greisz, director of finance, "often you'll get an answer."

Staff writers Anita Kumar and Lisa Rein contributed to this report.