A mentally ill woman exploited a loophole in D.C. tax office online systems to gain unauthorized access to taxpayer accounts, establish herself as the owner of dozens of businesses and file returns on their behalf.
Details of the online trespass, by a woman who law enforcement sources say believed herself to be the guardian of large corporations, were laid out in an independent auditor’s review of the District’s fiscal 2009 books and financial systems. BDO Seidman, D.C.’s outside auditor, found automated and manual tax processes in the Office of Tax and Revenue to be “significant deficiencies” in internal controls.
OTR was home to the largest theft in D.C. government history. In that case, tax office manager Harriette Walters exploited failings in the agency’s tax refund process to steal $50 million over two decades.
Law enforcement sources confirmed to The Examiner that the latest caper was performed by a mentally ill woman. She was not a D.C. employee. A review by the U.S. attorney is ongoing.
The woman electronically filed FR-500 forms, a document establishing change of ownership or authorized agent, for 114 existing and fictitious businesses between Oct. 13 and Dec. 22, according to the BDO report. Through the FR-500 process she was able to establish herself as the owner of the businesses and gain access, within 48 hours, to 76 taxpayer business accounts.
In seven cases, she reached the electronic payment account page for existing companies. With that access, BDO reported, she filed a tax return claiming $19.1 million in erroneous sales and use tax receivables, and submitted seven fraudulent tax payments totaling $699,993.
The transactions were caught before damage was done. The banks, for example, denied the tax payments because each included the wrong account information.
“She got through the first gate,” said David Umansky, spokesman for Chief Financial Officer Natwar Gandhi. “The other gates remained closed.”
The FR-500 forms were not submitted for review before processing, BDO found, and no verification checks were performed.
The loophole was a glitch, OTR explained. The agency’s Integrated Tax System was supposed to deny ownership changes requested through the FR-500 function, but “faulty logic” allowed the updates automatically. Umansky said a fix is now in place and “that can’t happen again.”
In addition to the tax office, BDO also found problems in D.C. Public Schools’ payroll, Medicaid management and contracting. But auditors listed no “material weaknesses” — the worst failures that threaten D.C.’s standing on Wall Street.
Trouble with D.C. books
» Public schools could not document teacher firings
» Numerous contracts awarded with improper approvals
» Homestead credits awarded on 353 undeserved properties
