D.C. Tax Scam
Friday, November 16, 2007; 11:00 AM
Gandhi defended his agency, saying that all of the necessary policies and procedures were in place but that they were not followed.
"He has said he is not a policymaker. He is just a bean counter. We've all heard that," said council member Mary M. Cheh (D-Ward 3). "Even if you are a bean counter . . . the beans weren't counted."
Cheh was online Friday, Nov. 16, at Noon ET to discuss the D.C. tax fraud case.
A transcript follows.
Programming Note: A invitation has been extended to Natwar M. Gandhi for an online discussion.
Mary M. Cheh: hello this is mary cheh and I'm pleased to take your questions.
Washington, D.C.: Gandhi keeps saying that he 'accepts full responsibility', then turns around and says that there's no way he's stepping down. Um, isn't that what it means to take responsibility? Nobody is irreplaceable, including the CFO.
Mary M. Cheh: That was a question we sought to explore and it seemed to me that the acceptance of responsibility statement was rhetorical more than actual. I wanted acknowledgment that his leadership and management style was and is inadequate to insure the fiscal integrity of the District"s finances. That's the change that must occur if he is to stay and be effective.
In Maryland: Hi -- thanks for the chat! I'm curious about whether D.C. will be able to recover any of this money. I understand that much of the money was given away in the form of gifts -- if it was, is it possible to seize those gifts from those that received them?
Mary M. Cheh: My understanding is that a good deal of the money may be recovered in the form of properties purchased and luxury goods seized. We just had a recent auction of property seized from a corrupt union official so I imagine there will be a rather magnificent sale of the goods taken from these individuals. But since we don't know how much they've made off with yet, we probably don't know what goods remain to be recovered.
Washington, D..C.: I am disgusted by this theft not only as a Ward 3 taxpayer and homeowner but also as a District Government employee. I hope the Council will use this situation as an opportunity to closely examine all of the operations of the Office of the Chief Financial Officer. I am aware of staff in OCFO agencies that provide financial services to District agencies who operate as if they have little or no accountability to the agencies they are supposed to serve. Agencies that report to the Mayor, including my own, have been subject to numerous audits and other reviews, and often taken to task if recommendations are not implemented. The same should apply to the OCFO as a whole. There is a need for greater education about the whistleblower law mentioned by Councilmember Schwartz. Yesterday was the first I had heard of it in the three years I have worked for the District. Firing and prosecuting persons involved in this crime also isn't enough. Council should ensure that management oversight and system deficiencies that facilitated this theft are fixed. That's the only way to make sure something like this never happens again.
Mary M. Cheh: We have a whistleblower law. There was an utter failure of folks to come forward in that office and it may not have been because they were afraid to, tho that was possible, but it seems that many were the beneficiaries of the theft in the form of "gifts" and other goodies.
Ward 3 Resident: Councilmember Cheh, you are doing agreat job. Keep up the good work. My question this afternoon, if such a scam can take place in the OTR, what kinds of nefarious activities could be taking place elsewhere in the D.C. government? How can the Council ensure that safties are in place to make sure our tax dollars are being used properly?
Mary M. Cheh: This is one of our deepest worries now. It may take a long time but we have to have outside audits of all offices that deal with disbursements, have discretion to forgive payments, or have any significant access to accounts. There was a bit of gallows humor yesterday as some observed that the District is likely to see an uptick in its revenues now as the corruption in other offices shuts down and thieves lie low until this scandal blows over.
NW D.C.: First, I would like to express my confidence in Mr. Gandhi. He has done an excellent job and the future of the city would be a lot worse if he was forced to resign.
If he is forced out, who would be a potential candidate to replace him? Again, those are pretty big shoes to fill.
Mary M. Cheh: I don't think that anyone, and certainly not me, is at this time thinking of who might replace the CFO. I agree with you that he has done an excellent job, together with former mayor Williams who held the post before him, in righting our finances. indeed were it not for this record, I'm quite sure we would ask for his resignation.
Washington, D.C.: I'm stunned, as I'm sure others are, at the extent of the gross misconduct that must have been required to allow this fraud to happen. What will do the missing funds mean for DC taxpayers? Will taxpayers have to make up the shortfall, or would the city actually benefit if funds are recovered?
Mary M. Cheh: The CFO has been quoted as saying that the theft is not "material." Now this was a very unfortunate way of putting things since most people would think $30 million is a rather material sum and in addition the blow to our confidence and reputation is also material. However, what he meant was that, in the context of a $9 and 1/2 billion budget, the amount will not affect our ability to maintain an A plus bond rating and will not cause a budget shortfall. But as you know $30 million can go a long way to address a whole host of problems.
Ward 3: How much blame does Jack Evans deserve for failing to conduct sufficient oversight of the CFO's office?
Mary M. Cheh: One witness did criticize Mr Evans for his oversight but I cannot, from my vantage point, say what more he could have or should have done. You ask questions, people give assurances, and it is not immediately clear or necessarily clear that you can get behind thos assurances. I do imagine that we will all try to have sharper, more skeptical eyes in the future. The episode forced me to think about whether I am doing enough in oversight of my agencies and that's a lesson for all of us.
Washington, D.C.: I live in NE D.C. and I want to say I do NOT have confidence in Natwar Ghandi. I'm not saying he should be fired. But I want to hear real quick what he is going to do to make sure this NEVER happens again. And I want to see a little more humility on his part.
Mary M. Cheh: You capture my sentiments as far as seeing a change of attitude and wanting clear steps of reform. One thing that became clear in the hearings was that his office is insular and resistant to criticism. rather than act on red flags raised by auditors, they disputed their analysis and behaved in an adversarial way. I do think that was a fundamental problem that allowed this scandal to go undetected.
Northwest D.C.: During yesterday's hearing, I was particularly struck by how utterly rude and unprofessional Councilmembers Catania and Brown were to Gandhi and his aides. Both Catania and Brown asked multiple questions, yet refused to let any of the witnesses answer the questions, and would shout down the witnesses who attempted to answer the questions by saying that it was the councilmembers' "time." Do you support that sort of grandstanding by Councilmembers Catania and Brown?
Mary M. Cheh: You know, this is a difficult question. I too have sometimes been accused of being rude when questioning. But we only have so much time to put our questions, the stakes are high, witnesses try to run out the clock with long winded answers, they refuse to answer directly, and they pursue avenues that allow them to bob and weave. So in pressing, you may appear as if you are coming on too strong. We should always be civil, of course, but we do need to press for answers.
Washington, D.C.: I find it "interesting" that this tax fraud scheme has unfolded at a time when the Post ran a story about widespread fraud of student funds in the D.C. school system. I know the two aren't directly related, but is there any way do a clean sweep to detect where else fraud might be occurring in the city government?
Mary M. Cheh: I'm glad you brought that up. The two scandals are related to what Columnist Colby King rightly dubbed a "culture of corruption." Indeed in one respect the theft of the students money was even more revolting because you had people who took money from children to have expensive meals, go to night clubs, drink fancy wines, and few were punished, little shame displayed, and immediate supervisors offering excuses. We need systems in place to catch this behavior and punish it harshly.
In Maryland...: One question that Dr. Gandhi should've gotten last night was "how often have you walked the halls of 941 N. Capitol Street?" It would be very interesting to see a log of how much time he spends in 941 over the course of a year and what he does there. He doesn't "walk the halls" as he suggested to Ms. Newman the other night. He attends 30 minute meetings once in a while, and shows up to hand out the occasional award to an employee. I don't recall him ever walking the halls and talking to the people for more than a few moments at any time in the past few years.
Mary M. Cheh: good point. It is a characteristic of the same style that allowed him to deflect responsibility. He stays at the 10,000 foot level while groups of thieves are walking out the door with the furniture. He has got to come down from that mountain top....
20008: I'm going to go out on a limb and assume that none of the recipients of these "gifts" ever reported the taxable income on their returns. Please have those omissions prosecuted to the fullest extent of the law. Thanks.
Mary M. Cheh: That's a good point. In fact in many corruption scandals the criminal count that is most effective is a tax charge.
Ward 3 -- Environmental question: Councilmember Cheh,
I know that you've taken a lead in encouraging the DC government to "go green." A simple suggestion: my kids play sports in DC parks, and at the end of every game, the trashbaskets are full of recyclable glass and plastic containers. Can the Department of Parks and Recreation put special recycling containers in parks and on playgrounds? Thanks.
Mary M. Cheh: good suggestion....I'll look into it
Arlington, Va.: Mary, what plans are being discussed to review all management and accounting controls in the CFO area to assess whether they are sufficient to address other possible thefts!
Mary M. Cheh: That's one thing the Council is seeking information on we are told that there will be comprehensive reviews, and we know that the CFO and the mayor have enlisted the IRS and other outside entities to assist, but we want details.
GW Law Alum in Alexandria: Hi Prof. Cheh, thanks for taking my question. While this whole breakdown of internal controls leaves a mark on everyone in OTR and Mr. Gandhi, shouldn't Gandhi's overall record be taken into account here? Mr. Gandhi should accept full responsibility, and he deserves a good grilling by the Council as to how he plans to correct these failures. However, his overall record seems pretty solid, no matter how much a certain at-large council member named Catania wants to deny it. Go Colonials!
Mary M. Cheh: yes, and as I said before, were it not for his record and for the results under his stewardship, the magnitude of this theft, on his watch, would have led to an immediate call for his resignation.
Washington, D.C.: Are the people who have been fired or put on administrative leave been shown to have some culpabililty -- i.e. is there any proof that anyone other than the two women assisted in the theft either by helping with paperwork or turning a blind eye? It would seem impossible for so much money to have been stolen and spent on themselves not to have brought attention to themselves.
Mary M. Cheh: of course, you are right...these are not lone wolves. many others either participated or were privy to what was happening. The investigation continues. We do not have any inside information about the numbers or who prosecutors might be dealing with to provide testimony on others, but there was a nest of people, that's pretty clear.
Washington, D.C.: I've lived in D.C. for 11 years, and watched person after person give up on the city and move out to the 'burbs in search of better value for their tax dollar. This scam is just another hit in a long parade of disappointments in how this city is run. What should be done to reassure citizens that these problems can be fixed, and that the fixes can actually rise above the legendary red tape in the city administration?
Mary M. Cheh: One reason why this scandal is so depressing is that it is reminiscent of darker, tawdry days. But we have moved forward and substantially so. I have lived here for 30 years, have raised my children here, and my confidence level is the highest it has been. I think that the Mayor has made dramatic moves, the finances are sound, the quality of life is improving, and reforms are under way. This is a set back, no question, but we are headed in the right direction.
Metro Center, Washington, D.C.: Didn't Sheryl Hobbs Newman get off way too easy yesterday? She was in charge of OTR and the fraud was going on under her nose. Yet she seemed to say that she bore no responsibility for it because she didn't know what was going on. Why didn't she call for audits of each of her departments? It seemed to me that her friendship with councilmembers immunized her from most tough questioning, except from Ms. Schwartz.
Mary M. Cheh: Well, she didn't have to come at all, so that earned her some slack. Also she was summarily fired from her job and so she sat there in a disgraced posture before even saying a word. So I'm not sure she got off so easy.
Rockville, Md. :"Bilkemor LLC."
What is this? Is this a joke?
Where were the auditors? Don't they match checks to real companies or people? I am really amazed and I did not think anything in the District could surprise me.
Mary M. Cheh: Looking at the behaviors, it does seem incredible that the scheme was not detected and that it went on so long. One factor that we didn't devote much time on was the fact that the fraudulent checks of hundreds of thousands of dollars...itself highly unusual...were left marked for "personal pick-up" in another office and were then picked up by finance office employees. Amazing.
Washington, D.C.: How culpable are the banks in this? Apparently, the scammers had a person on the inside at Bank of America who was laundering the checks. It was her firing that led to the thieves' downfall when they tried to take the checks to another bank, and a simple verification showed that the check was fraudulent, and the authorities were notified. Did Bank of America merely fire their employee and not notify authorities in order to save face? How should they be penalized for their employee's laundering the checks? I firmly believe that a lot of the drug and other illegal activities in the city are greatly enhanced by the money laundering facilities offered by businesses and financial institutions. Is anything being done to prevent this?
Mary M. Cheh: This too is under investigation. Also, as I understand it, banks are required to report all checks over $10,000 to the treasury and unusual banking activity is supposed to be flagged and examined....precisely because of money laundering (tho usually with drug dealers in mind).
Cleveland Park, Washington, D.C.: Councilmember Cheh,
Although I am outraged, of course, by the magnitude of the theft in the tax office, I am disgusted as well by the report this week that two employees raided student activity funds for expenses at restaurants and strip clubs. What's more, they and their supervisor, who condoned their behavior, are still on the city payroll.
I've also read that other local governments putting GPS devices on government-owned vehicles and -- surprise -- are finding that mileage and fuel expenses are way down, as employees are using vehicles much less for personal business. Given the attitude among some D.C. government workers, I hope that the D.C. government is also tracking its assets by GPS.
Mary M. Cheh: i don't want to smear all of our employees because most of them are honest and earn their pay. but there are many who need to go somewhere else because they don't give a good days work or they lack the high ethical standards that we must insist upon. Maybe the leaders are chiefly at fault because they have allowed a culture of corruption to exist, but either way, we have a deep and serious problem on our hands.
Cleveland Park, Washington, D.C.: I was struck by the auditor's claim that Gandhi's office adopted a dismissive and adversarial attitude towards her repeated warnings about the uptick in property tax refunds. This concerns me much more than Gandhi's ignorance of the refund scheme and I fear it is pervasive throughout the government. How do you address this?
Mary M. Cheh: I think the problem in his office is especially acute since he is an independent officer who is a creation of Congress. The office seems to display an arrogance and a combativeness if questions are raised. And you are right to be more concerned about that, perhaps, than the scandal itself because there can be no correction if the office doesn't accept that it has made mistakes.
Neiman Marcus, Md.: So do you think Harriet Walters is the mystery person who purchased the $52,000 purse from Neiman's?
Mary M. Cheh: I don't know but someone got a fabulous accessory on the people's money
NW D.C. Re: No clue who to replace him with: This is exactly my point. He deserves criticism, but calls for his resignation are reckless. The city can't afford to have that position sit vacant, Wall Street will destroy our bond ratings. The guy did a great job before this issue came up, and he knows that if it happens again he can't be saved. If we keep him in office, he will leave no rock unturned.
Also, in light of the recent issues with Morgan Stanley and Citibank, I think the council needs to have better succession planning. Not knowing who is going to run a 9.5 Billion operation in case the CFO has to step down isnt exceptable.
Mary M. Cheh: I would bet that thoughts along these lines are occurring. It is of course our great concern about introducing instability that has everyone moving very carefully.
Washington, D.C.: Dear Council member Cheh,
Moving forward from this, do you think it would be feasable for DC use this opportunity to implement the best municipal internal controls practices and systems? I find it hard to believe that such a large scale fraud could not have been uncovered, unless the processes to generate refunds is completely manual. Couldn't the databases and automated systems be programmed to identify unusual patterns and suspicious conduct? If not, can we find someone to help do this? It appears we cannot rely on our "human resources" to detect and prevent fraud.
Mary M. Cheh: Yes one of the things that came out of yesterday's hearings was the lack of controls....an especially demoralizing situation given that we have invested enormous sums to produce effective systems.
Mary M. Cheh: I'm signing off now. Thanks for allowing me to answer your questions.
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