Local
Probe: Massive control failures, ‘culture of silence,’ aided scam
By: Michael Neibauer
Examiner Staff Writer
December 16, 2008
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| Investigators found that Chief Financial Officer Natwar Gandhi, during his tenure as both CFO and deputy, “failed to ensure that adequate controls were in place.” (Examiner File) |
Walters was also abetted by a “culture of silence” that was observed among co-workers, many of whom she had treated to cash or lavish gifts, according to the report by WilmerHale, the auditing firm tasked with the review by the D.C. Council.
A career midlevel manager in the District’s Real Property Tax Administration, Walters created a “thin veneer of legitimacy” to validate her fraud, said William McLucas, a WilmerHale partner who led the yearlong pro bono review for the D.C. Council.
Walters pleaded guilty in September to the most costly scandal in D.C. government history, defrauding District taxpayers of $48 million over two decades through the issuance of 239 fake checks. She faces between 15 and 18 years in jail, if a judge accepts her plea.
“What was remarkable about this entire thing was its simplicity,” McLucas, who chairs WilmerHale’s securities department, said Monday.
Failures at every level of government helped Walters succeed, the investigation found. There was not a “competent, well-trained work force” in the D.C. tax office, McLucas said. Internal controls were virtually nonexistent. Managers ignored warning signs, internal auditors failed to coordinate their efforts and external auditors determined that critical controls were “operating effectively.”
Chief Financial Officer Natwar Gandhi, during his tenure as both CFO and deputy, “failed to ensure that adequate controls were in place,” investigators found. He “placed unverified and unwarranted reliance” on managers, the report states, none of whom had a “good understanding or recollection of the controls in place.”
Council Chairman Vincent Gray reiterated his support for Gandhi, who remains the CFO, despite the report’s findings. He has done a “fantastic job with the financial operations of the city,” Gray said.
In a statement, Gandhi said he is “pleased to find that we have already instituted many of the recommended reforms” suggested by WilmerHale and partner PricewaterhouseCoopers, including the appointment of a chief risk officer.
Among the investigation’s most damning revelations was the “culture of silence” that festered in the tax office. Rumors of Walters’ wrongdoing, even speculation that she was a drug dealer, never made it up the chain of command.
Walters wrote checks to co-workers totaling about $1.2 million. She paid others’ tuition, mortgage payments and rent. She sent people on trips and bought them clothing and sports tickets. But WilmerHale, according to the report, “could not establish than any of them actually knew the refunds were in fact fraudulent.”
Nearly 30 employees have been fired by Gandhi or forced to resign in the wake of the scandal, including Walters’ managers.
