Tax Suspect's Guidance on Software Left D.C. at Risk

Harriette Walters suggested that her unit be left out of the new system.
Harriette Walters suggested that her unit be left out of the new system. (D.c. Government - D.c. Government)
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By Dan Keating
Washington Post Staff Writer
Tuesday, June 10, 2008

The tax manager charged as the mastermind of the biggest fraud in the District's history helped play a role in designing the agency's computer system while she was allegedly stealing millions of dollars a year, current and former employees said.

Following Harriette Walters's input, officials left her small unit out of the new software system, making it easier for her to escape detection as she allegedly produced fake checks that prosecutors say amounted to $50 million.

Directors in the scandal-plagued tax department now want to scrap the $135 million system rather than try to upgrade it to make it more secure. The chief financial officer's technology manager says the system, installed between 2000 and 2004, is too outdated and clumsy to be worth fixing.

Before her arrest in November, Walters was a 26-year tax employee known among her colleagues as a problem solver with a knack for finding solutions by using the department's antiquated and balky computers or finding a way around them. Although she did not have final say over the new Accenture Integrated Tax System, Walters contributed to the decision that her unit, which handled real estate tax refunds, be left out of it.

Chief Financial Officer Natwar M. Gandhi has budgeted $10 million for a search for a new program that can process the city's income, business and real estate taxes. The Accenture computer system is not directly to blame for the embezzlement scandals that have racked the agency, officials said. Rather, the fault lies with the decisions of what was left out of it.

"It was the things that were not included that cost us," said Mike Teller, who took over as Gandhi's technology chief in 2005. "The specification did not include things that, in hindsight, should have been included."

Those decisions by officials were made under dire conditions, and with an alleged mole in their midst.

Walters's guidance came at a critical time in setting up the computers, which were designed to help lift District finances from the 1990s nadir of near-bankruptcy.

By 2003, the District had spent $100 million over five years for Accenture to set up personal and business tax processing. But it was left with only one year and $5 million to add in real estate taxes. Gandhi's tax managers had to decide what to include and what to leave out.

Walters is accused of creating bogus refunds with fictitious names that were not detected because they were processed outside the main system and not matched to authentic real estate records. The theft that prosecutors say might have started in the 1990s was uncovered a year ago when a SunTrust bank teller balked at cashing a $410,000 check, triggering a federal investigation. Five co-conspirators have pleaded guilty so far.

Additional weaknesses were revealed in a new embezzlement scandal last week. Personal income tax clerk Jacqueline C. Wright was charged in federal court with creating six fake tax refunds totaling $184,000 for her boyfriend last year.

An investigation began three months ago when the pair allegedly filed for a seventh refund worth $40,785. That latest attempt triggered system alerts put in place after November.

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