D.C. Seeks Data on Federal Tax Probe

By David Nakamura and Del Quentin Wilber
Washington Post Staff Writers
Thursday, September 18, 2008

District government leaders called on federal authorities yesterday to turn over details of their investigation into the D.C. tax office embezzlement scandal to be sure no accomplices of ringleader Harriette M. Walters are still working for the city.

The request came a day after Walters, who worked as a mid-level manager in the Office of Tax and Revenue, pleaded guilty to stealing $48.1 million in public money over 20 years. U.S. Attorney Jeffery A. Taylor said his office has recovered about $10 million in cash and assets but won't know the total until it auctions 10 homes and other property that was seized, including crystal vases, TVs and an Oriental rug.

Federal officials have dropped charges against Diane Gustus, who worked under Walters and is the only other city employee arrested in the plot. Nine people outside city government have pleaded guilty, and another is awaiting trial. But evidence presented in federal court Tuesday revealed that Walters gave checks totaling $1.2 million and an undisclosed amount of cash to co-workers from 2001 to 2007, suggesting that others knew about the scam.

"On its face, this is something that has gone on so long that it must involve more people," said D.C. Council member Mary M. Cheh (D-Ward 3). "I assume that part of the plea deal is an extensive debriefing by her about every person touched by this. . . . I'm hoping they will share information with us. They have the resources to get underneath all this. We're hardly in the position they're in with a plea deal on the table. That's the best hammer that there is."

Channing Phillips, a spokesman for the U.S. attorney's office, said authorities have passed along the names of those who received gifts and were involved in tax office schemes to D.C. officials. He said the offices of D.C. Inspector General Charles J. Willoughby and D.C. Chief Financial Officer Natwar M. Gandhi participated in the investigation.

"We will continue to follow the evidence wherever it leads us," Phillips said. "But as with any investigation, we don't comment on the prospect of additional charges while an investigation is ongoing."

Gandhi's spokesman, David Umansky, said federal and local officials had been exchanging information over time. Although federal officials have not charged other employees, Umansky said, Gandhi's office has taken action against seven tax office workers identified in the federal probe, firing four, forcing two to retire and placing one on administrative leave.

Asked why the city dismissed employees who were not charged, Umansky said Gandhi had a lower standard of proof. Shortly after the scam was revealed in November, Gandhi also fired six managers who were not involved in the wrongdoing but had failed to uncover it.

Umansky said federal officials have not provided information about city employees who they say taught Walters in the mid-1980s how to embezzle money by creating false tax refund checks, a scam she enlarged. Taylor said the statute of limitations will block his office from prosecuting workers from that era.

The council and Gandhi have hired consultants to review the tax office and recommend new safeguards, but neither review is finished.

Gandhi has established new controls, including more reviews by senior managers of tax refund checks, increased training for employees and additional audits by his internal investigation unit.

But the federal investigation revealed a culture in the tax office in which potential clues to the scam were ignored or covered up by employees and managers.

"What troubles me is that we have someone in the tax office driving a Rolls Royce and wearing different fur coats and taking trips to Vegas, and I know people knew about it," said D.C. Council member Kwame R. Brown (D-At Large). "I would suspect the FBI and U.S. attorney are making all the necessary arrangements to find the people involved and make sure they are also prosecuted. It's my expectation that the U.S. attorney and FBI will notify the executive branch and legislative branch of all the measures that have to be taken."

© 2008 The Washington Post Company