Some Refund Checks Were Not Verified, Auditors Say

D.C. Chief Financial Officer Natwar M. Gandhi wants to hire an additional 25 tax collectors.
D.C. Chief Financial Officer Natwar M. Gandhi wants to hire an additional 25 tax collectors. (By Gerald Martineau -- The Washington Post)
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By David Nakamura
Washington Post Staff Writer
Thursday, April 10, 2008

Independent auditors said in a critical review of the D.C. Office of Tax and Revenue released yesterday that they found nine property tax refund checks worth a total of $1 million that appeared fraudulent but had not been flagged by city financial officials.

The review was contained in an addendum to the city's Comprehensive Annual Financial Report conducted by BDO Seidman, which devoted 17 pages to the tax office scandal. In November, two tax office employees and several accomplices were charged with stealing public money through fraudulent property tax refunds. Federal authorities have said the scandal could total $50 million in funds stolen over more than a decade.

In its report, the auditors said D.C. financial officials had found 17 suspicious tax refund checks for fiscal 2007. BDO reviewed 134 additional checks but could validate only 125, according to the report.

"The District may have elements of an antifraud program, but it does not seem to have as coordinated and comprehensive an antifraud program as it should given its size and complexity," the auditors wrote.

But in comments attached to the report, Chief Financial Officer Natwar M. Gandhi's staff disputed that characterization, stating that they had identified those nine outlying checks as "potentially fraudulent."

It is not clear whether the nine disputed checks have been identified in the federal investigation.

In its response, Gandhi's staff noted that the fiscal chief has established an outside panel of tax experts to develop safeguards and will "use recommendations from that review as a guide towards reevaluating its antifraud program."

Also yesterday, Gandhi and tax office Director Stephen M. Cordi testified at a D.C. Council hearing that they want to hire 25 additional tax collectors in an aggressive effort to collect delinquent payments from residents and businesses.

They said the employees would generate as much as $30 million in new revenue.

The city has 83 tax collectors, and the 25 new employees would focus on collecting income and sales taxes, Cordi said. Gandhi said he added 51 tax collectors in fiscal 2007, during which an additional $46 million was generated.

Asked in an interview whether they are concerned that it may appear unseemly to go after increased public collections before the tax agency's internal problems are resolved, Cordi said the two issues shouldn't be lumped together.

"We need to shore up our internal systems. We're doing that," said Cordi, who was hired in January. "Now, more than ever before, we need to do the routine stuff better. That includes . . . collecting new receivables."

Council member Jack Evans (D-Ward 2), who oversaw yesterday's hearing, agreed.

"There are people who try to avoid paying taxes," he said.

Overall, BDO gave the District a "clean" audit opinion but cited the city for three "material weaknesses" in its financial management of the tax office, the public school system and the Medicaid program, which administers health care for the poor. The material weakness designation is the most serious citation below an "unclean" audit.

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