The Biggest Heist! More Background on how it Happened

Local writer and commentator Jonetta Rose Barras digs into how the stage was set for the 20 million dollar embezzlement scheme uncovered in the DC Office of Tax and Revenue.

Here's what she writes in this special edition of the Barras report;http://jrbarras.com/


CHIEF Financial Officer Natwar Gandhi correctly has taken responsibility for the theft of $20 million –and counting—that rocked his office and the entire city last week.

The criminal enterprise run by Harriette Walters and her sidekick Diane Gustus is breathtaking. The mid-level workers put together an operation that corrupted not just family members but their subordinates at the Office of Tax and Revenue Real Property Tax Administration and Adjustment Unit. It’s hard not to believe the corrosion hasn’t affected every worker in the division.

There certainly is enough blame to go around. The congressionally created financial control board, the D.C. Council and D.C. Inspectors General—Charles Maddox, and Charles Willoughby—also are responsible in some way for the mess.


HOW DID THEY DO IT?

For those who haven’t read the complaint, FBI Special Agent Matthew T. Walsh, a 10-year veteran in the white collar crime unit of the federal agency, says the scheme perpetrated by the women and their posse--program specialists, customer service specialists, accounting technicians, sales managers, a bank teller, friends and family members—went something like this:

*They created a bunch of fraudulent companies—Chappa Home Services and Legna Home Services were among the names employed.

*Harriette Walters would authorize a voucher for a refund on real property to one of the fake companies; the voucher is supposed to note the square and lot number for each affected property. In most instances, the square and lot numbers were either incorrect, non-existent, or the names on the voucher did not match the name of the property’s legal owner.

*Diane Gustus was responsible for preparing the voucher and the underlying Refund Research Form required for each voucher; this form is supposed to provide the justification for the refund. The forms submitted by Gustus and approved by Walters often did not include such information. Sometimes, the amount to be paid noted at the top of the form was inconsistent with the amount listed in another section on the same form. (These are the kinds of flaws that should have caught some senior official’s eye, but didn’t.)

*A check would subsequently be issued to one of the fraudulent companies whose name appeared on the voucher. The checks often were marked “hold for pick up.” The name of a legitimate company or agent would be written on the envelope, no doubt a security measure to protect against the suspicious.

*The checks were retrieved, however, my one of the posse members. Then, they were deposited in one of several Bank of America accounts with the assistance of a teller in a Baltimore branch. The cash was then distributed as Walters and Gustus saw fit.

The fatal misstep for the crew came when someone took a check to Sun Trust bank in Bowie. Cashing a large check at Sun Trust the women learned isn’t the easiest thing. An alert official at the bank called the government and, well, the rest is history—maybe.


A CASE OF MASSIVE MANAGEMENT AND OVERSIGHT FAILURE
So, you ask: How did this criminal operation survive and thrive in the Office of the Chief Financial Officer for so long?

The answer is simple: poor management, cursory or no oversight, and little or no follow-up.

Back in 1999, Mitchell &Titus LLP, conducted an annual audit of the city’s finances as required by law. The report was extensive. Everyone was focused on the fact that the District had balanced its budget, again, and had an $86 million surplus. Things were looking up. A new mayor was in office, and everyone was counting the days when the financial control board would cease to exist.

So few focused on the auditors’ management letter that came out weeks later.
The management letter or yellow book, as it is sometimes called, for fiscal year 1999 was the size of a city telephone book. That document listed sweeping and systemic financial management issues that later would be at the core of nearly every financial and management problem the District would face in the next seven years, including this latest corruption scandal in the OCFO.

The auditors said there were several and severe internal control weaknesses that involved cash and records.

Sources say some individuals went to then-Mayor Anthony A. Williams and pleaded to have an independent external team focus on the problems identified in the management letter. He declined.

The council and then-IG Charles Maddox also didn’t deal aggressively with the weaknesses found by Mitchell & Titus. Taken together the problems offered a portrait of a financial management system bound by tape, promises, and bravado.

To be fair, a lot was going on in the city. The control board had decided to close D.C. General Hospital. The council was fighting the effort. Additionally, the annual audit for the first time in the city’s history had been late by several weeks. The culprit for the delay was Valerie Holt— control board chair Alice Rivlin’s protégé, who had been appointed to succeed Williams as CFO.

Holt and her team almost single-handedly destroyed the four years of improvements that had been made by Williams when he was CFO. In May 2000, she was forced to resign. By then, the damage was done. Key staffers had either left to join Williams in the mayoral suite or simply ran to the private sector complaining about Holt’s abrasive style and worried about their reputations.

When the fiscal year 2000 annual report was released the following January—ahead of schedule—everyone breathed a sign of relief. And, there was a surplus. Gandhi, who had replaced Holt, was heralded if he were a near God.

This model of effusive praise and minimal criticism or little or no scrutiny of the internal workings of the CFO’s operation or a thorough examination of the management letter became the model for future audit releases.

As the District’s fortunes improved both at home and on Wall Street, the CFO became a mythological figure in the city and municipal management circles.

And though, Gandhi appeared not nearly as tough as Williams, he was politically shrewd. He expertly managed key players in the local and federal governments. He also quietly and skillfully marked off his territory. No one other than Councilmember David Catania has crossed the boundary or challenged the CFO’s assertions. Over the past seven years, Gandhi, the council, and the mayor were part of a mutual fan club bound by an unspoken agreement to stay out of each other’s business.

Things began to fall apart this year, however. When the annual report for fiscal year 2006 was released, auditors cited major weakness in several areas at the DCPS and the Department of Health. The issues had been mentioned in previous audits. But city officials, including the CFO, had done little to resolve them.

They now threatened the city’s highly protected “clean opinion” status. The failure to get a clean audit would ruin Gandhi. Still when TBR approached the IG about why there had been no review of the CFO’s operation and the role it had played in the DCPS troubles, Willoughby offered a deaf ear. Eventually, Gandhi was persuaded to create a team to help the DCPS. After all, he had much to lose.

The DCPS’ management and financial problems cited by the auditors was the beginning of the “chickens coming home to roost.”

Financial operations throughout the government have suffered from the CFO’s hands-off management style. The council exacerbated that problem with its practice of examining only the broad outlines of the city’s financial management system without digging deeply to determine whether all that shining was actually gold or gold plating.


WHAT TIME IS IT?
District taxpayers, the honest workers in the OCFO, and Gandhi now have to pay the bill for Walters, Gustus and the rest of the posse, who surely deserve to be tried under the federal RICO statute. The council can’t act as if it has no burden to bear, however.

Gandhi and the council can now decide to start digging below the surface, rooting out long-standing, stagnant management issues. They may want to start with those two yellow books from 1999 and 2000, which offer the road map to how the city got to where it is and, thus, how it might prevent future theft and mismanagement.

Meanwhile, can someone send that bank official a “thank you” card?