TAX OFFICE SCANDAL
Report on Embezzlement Blames 'Culture of Apathy and Silence'
Tuesday, December 16, 2008
Former D.C. tax manager Harriette Walters was able to embezzle more than $48 million over two decades largely because a "culture of apathy and silence" pervaded the District government's finance office, according to a report released yesterday.
The 122-page document was the culmination of a year-long investigation by the law firm WilmerHale, which was hired by the D.C. Council to conduct an independent review of the tax office scandal.
Walters and 10 accomplices, who did not work for the city, have pleaded guilty to creating and laundering bogus tax refund checks. The embezzlement scheme has been called the largest involving a city or state government.
Much of the WilmerHale report covers material that has been made public in federal court papers and media reports. But the report also lays out a damning account of the culture inside the Office of Tax and Revenue, where employees failed to report Walters's suspicious behavior to authorities and some "lined up" at her office door for handouts.
"The work environment within [the Office of Tax and Revenue] made District finances vulnerable to fraud," the report states. "A culture of apathy and silence pervaded the relevant offices. In many cases, employees did the bare minimum needed to discharge their daily responsibilities. Otherwise, they kept their heads down, unwilling to raise the types of questions that could have exposed this fraud years earlier."
Employees interviewed by WilmerHale investigators said Walters kept a jar of money -- one person said it contained $20 bills -- on her desk for co-workers, although Walters told investigators that claim wasn't true. After the embezzlement scheme was uncovered by federal law enforcement agents in November 2007, one employee told her boss that no one had raised concerns about Walters because "snitches get stitches."
The report blamed management, saying the office of D.C. Chief Financial Officer Natwar M. Gandhi was "dysfunctional in structural respects."
Departments "were (and remain) too compartmentalized," the report says. "One unit often did not know what the others were doing, and no one encouraged the type of information-sharing that could have led to the detection of Walters' scheme. In addition, District personnel practices effectively kept managers from removing problematic employees; instead, those employees were merely shifted from office to office."
Walters's scheme was uncovered after a SunTrust bank employee balked at cashing a large check for Walters's niece Jayrece Turnbull, who was among the co-conspirators.
Since then, Gandhi has fired several high-level tax office managers and ousted at least 14 other employees who had received checks from Walters. But William McLucas, a WilmerHale partner, said Gandhi needs to change the attitudes of his employees.
"You need a new commitment to public service by people who work for the city in areas like this," McLucas said. "There seems to be a disconnect between the notion of public service and what it entails in terms of your responsibility to the public."
In a two-page statement yesterday, Gandhi said his office has been making changes aimed at improving the culture among the more than 1,000 employees he oversees and establishing stricter internal controls. Gandhi said he has implemented annual integrity training for all employees and is in the process of instituting specialized training for employees who handle cash.
At WilmerHale's recommendation, Gandhi said he will hire a "chief risk officer" to conduct, in the report's words, "regular risk assessments of the various [Office of Chief Financial Officer] agencies, providing input on the internal audit plans based on those assessments, and ensuring audit recommendations are implemented."
Mayor Adrian M. Fenty (D), D.C. Council Chairman Vincent C. Gray (D) and council member Jack Evans (D-Ward 2), chairman of the Committee on Finance and Revenue, said they support Gandhi's reform effort.
Gray said: "It comes back to the continued vigilance of hiring people who have an honest commitment to help and serve, to having managers who are vigilant in exercising their responsibilities and changing the culture throughout this government."