A team of a dozen outside investigators will soon descend on the D.C. government to interview employees, review electronic databases and study documents touncover the failures that led to the largest case of fraud in District history.
The heavyweight team of lawyers and auditors with WilmerHale and PricewaterhouseCoopers, enlisted by the D.C. Council, will bring all its resources to bear in an inquiry not unlike that of major corporate scandals, said WilmerHale’s William R. McLucas, who will lead the pro bono review. The two firms are committed to determining where D.C.’s internal controls crashed and recommending what must be done to shut the door on fraud, he said.
Among the first steps will be a sit-down with federal prosecutors, McLucas said, to ensure the auditors aren’t interfering with the criminal investigation. As for a timeline for the inquiry, “We’ll be done when we’re done,” McLucas said.
Harriette Walters and Diane Gustus, two employees with the D.C. Office of Tax and Revenue, are accused of stealing at least $20 million through the property tax refund process by issuing unusually large checks to bogus companies.
McLucas, a former enforcement director with the U.S. Securities and Exchange Commission, played a critical role in the Enron investigation, a scandal that eventually brought down accounting giant Arthur Andersen. This new review may answer whether the city’s contracted auditors should have uncovered the scam before it soared to tens of millions of dollars.
“We are not embarking on this to specifically go out and investigate what the auditor did or didn’t know,” McLucas said, but from the final report there “will inevitably be conclusions that the council can take.”
BDO Seidman, KPMG and Mitchell & Titus, the District’s current and former auditors, failed to spot the fraud occurring out of the tax office despite their annual reviews of the city’s finances. BDO Seidman declined comment through a spokesman. The company has received word from the Fenty administration that the government is not interested in suing, sources said.
The investigation, worth millions of dollars, is being done for the city at no direct cost. But the city will cover out-of-pocket expenses such as stenography and copying of up to $100,000, officials said. The money saved, Ward 2 Councilman Jack Evans said, will allow the city to implement controls suggested by the auditors.
