D.C. Tax Scam Mastermind Expanded Existing Ploy

District officials expressed shock at the new disclosures.

"If this goes back that long and she inherited the business, could there be others who are possibly exploiting us in other ways? We just don't know," said D.C. Council Chairman Vincent C. Gray (D). "The other question, given how long it went on, is if there is just an incredible culture of secrecy or whether there was just such poor supervision that people could have done what they were doing."

Mayor Adrian M. Fenty (D) -- one of four mayors to lead the city while the scam went on -- issued a statement last night saying: "This scandal was a complete and utter breach of the public's trust. Walters's guilty plea is the first step in rectifying this horrible crime against the District."

Assistant U.S. Attorney Timothy G. Lynch said in court that Walters "was the leader of a sophisticated and ongoing conspiracy." She outlined her role in the fraud in a series of debriefings that began in February, three months after her arrest.

Prosecutors used her statements and other evidence to compile a 114-page "statement of the offense." In it, Lynch and other prosecutors wrote that Walters noticed "improprieties in her division" within a few years of joining the office in 1981. She saw other employees routinely receive fruit baskets, gifts and cash if they waived interest or penalties on property tax bills of large institutions.

"Holiday cards often contained cash in amounts ranging from $150 to $300," prosecutors wrote. One employee, identified only as "Participant Five," taught Walters how to remove interest and penalties to entice taxpayers to give District workers gifts in exchange, the prosecutors wrote.

"Participant Five" also tutored Walters in how to obtain funds from checks written to deceased taxpayers that were returned in the mail and taught Walters how to create a fraudulent tax refund check, prosecutors said. That lesson set in motion the scam that Walters seemingly perfected on her own soon after, according to the "statement of the offense," which Walters signed.

The process was simple: Walters created a package of materials designed to prove that a taxpayer was entitled to a refund, cutting and pasting documents to get the money moving. After the tax refund was approved, she erased the name of the taxpayer and inserted the name of the company or person she wanted to receive the check, prosecutors wrote.

Although the mechanics changed over time, prosecutors wrote that "the basic method remained largely the same." Over the next 18 years, Walters would issue more than 230 fraudulent refund checks, embezzling $48.1 million from the District government. In 2001 -- a year in which she stole more than $3.5 million -- she became a manager in the office.

Prosecutors wrote that there were ample opportunities for someone to catch on to the scam if officials had been looking.

Walters forged canceled checks -- which she used to support her claims for fraudulent tax refunds -- by pasting mailing labels over the payee name on the check. But the labels didn't match the checks' background and were attached at angles, prosecutors wrote. Walters also used fake property identifier numbers in many cases to conceal what she was doing.

The documents were also filled with misspellings of the names of companies and individuals who were supposed to receive the fraudulent refunds, prosecutors wrote.