We know D.C. Get our free newsletter to stay in the know.
OK, folks, they’re about to get started in the Council chambers. After your typical round of grandstanding opening statements from councilmembers, you’ll have a panel of civic activists before getting into the real meat of the lineup: fired Deputy CFO Sherryl Hobbs Newman, District Auditor Deborah Nichols, and, the man himself, CFO Natwar M. Gandhi. Follow along on Channel 13.
Things to watch out for:
Who’s running the show? Right after the scandal broke, Ward 2 Councilmember Jack Evans almost immediately announced that his Committee on Finance and Revenue would investigate. By the end of the week, the hearing was a joint production with the Committee of the Whole, which essentially means that Council Chairman Vincent C. Gray bigfooted Evans.
What’s Newman’s excuse? Dozens of fraudulent six-figure checks, some as large as a half-million dollars, went out the door without Newman catching on. How exactly did that happen?
How far back does the malfeasance go? The CW before Tuesday was that Gandhi was bruised by the scandal, but that he would survive. But an Examiner story Tuesday suggested that the phony checks date back as far as 1999, when Gandhi was overseeing Tax and Revenue. Then yesterday’s Post accounting put the total losses at almost twice the original estimates of $16 million.
Who goes after Gandhi? The CFO has built up tremendous political goodwill over the years, and now he’s going to have to cash it in. Virtually the only councilmember willing to take on Gandhi over the years has been David A. Catania. But Catania told me earlier this week he was not planning to nail Gandhi personally.
1:14 P.M.: OK, so Vince is in charge. He’s gracious enough to introduce his “co-chair,” Jack.
1:18: Jack: “I thought I’d been here long enough to see it all.”
1:23: Evans’ question for Gandhi: “Why should he not bear the same responsibility as those who have been fired?” It’s gonna be a long day, Nat.
1:28: It took Kwame Brown eight months to get his reimbursement check for a Vegas convention trip, thanks to zealous auditing. Where were the auditors this time? he wants to know.
1:30: Oof. So much for Catania laying off the jugular: “To be honest at this point, my prejudice is not in favor of [Gandhi’s] continued tenure.” But not just yet, he says. Gotta find out what happened first.
1:33: Jim Graham‘s got a point: This thing hurts because it involves property taxes, and everybody complains about property taxes.
1:37: Carol‘s feeling shouty.
1:38: Don’t tell Mary Cheh that this couldn’t have been caught. “I certainly don’t accept that and no one else should, either.” Fun fact: average tax refund check is less than $20K; average fraudster check was over $400K.
1:45: Yvette Alexander has former-District-employee cred. Do you Jim Graham??? Do you Tommy Wells???
1:47: God, can we agree not to indulge in the cliche of naming all the things that we could have bought with the stolen money? You’re not the first one, Yvette, but please be the last.
1:54: Whoever has their cell phone on next to the broadcasting equipment, please turn it off.
1:58: Administrative leave for neglectful managers not enough of a punishment to Muriel Bowser. She wants criminal prosecutions!
2:01: Marion Barry, king of broken systems, rails against the city’s broken systems. Also: Tells D.C. government employees to start snitching! Like Nixon to China.
2:05: In case you’re wondering what the hell Mendo’s talking about, a CAFR is a “Comprehensive Annual Financial Report.” [EDIT: Oh, he just explained it. Good job!]
2:11: The do-gooders are up. Marie Drissel, former head of the Office of Boards and Commissions, says there’s problems with the Board of Real Property Tax Appeals.
2:16: Oh snap! Dave Mallof calls out Evans for his committee’s “light oversight” of OCFO.
2:23: Mallof hearts Catania and Mendo. Jack, not so much.
2:34: Catania ratchets it up: “I think it has to be a wholesale housecleaning,” he says to Drissel. She does not agree: “I am not prepared to say Natwar Gandhi should go yet.” Mallof’s longtime Gandhi skeptic.
2:37: OK, LL’s gonna grab a sandwich here. Be back in 10 minutes. If anything happens, put it in the comments!
2:58: Now that’s a prepared council witness: Mallof pulls out a calculator in front of the dais.
3:02: Two hours in, the real fun starts: Newman and Nichols to the mike.
3:05: Newman: “I would have moved heaven and earth to prevent what took place had I gotten any hint of what took place….Not even the most sophisticated audit would have caught this scheme.” Not what Mary Cheh wanted to hear!
3:08: The crooks actually helped design the old tax system, Newman says, and were involved in designing a new system, which she says would have put an end to the scheme.
3:10: Newman says she signed court-ordered refund checks. None of the scammy checks, obviously, were court-ordered.
3:13: Newman says she began an overhaul of the assessment services division. “I truly believe that these changes would have shut this operation down,” she says.
3:14: “I’m a trusting person by nature.”
3:19: Nichols is now going through all the tax refund numbers and how far off projections they were. Her reports had a mantra: “District officials should monitor this revenue source closely.”
3:25: Vince asks the big question: “Who looks at the checks?”
3:30: Newman was going to receive a report on status of “Integrated Tax System” on the day she was fired (as reported in this week’s LL!)
3:33: Check-request vouchers should have been signed by Real Property Tax Division Director Martin Skolnik, but none got his signature. Newman’s not quite sure why the checks were issued anyway.
3:38: Nichols: We saw the increase in tax refunds, but the auditor’s office has “no enforcement authority.” Culture at tax office, she says, “very parochial and very insular,” and they did not like being questioned.
3:45: Good question from Evans: Refunds were being made on money that never came in in the first place. Shouldn’t some audit or accounting procedure have caught the discrepancy. Newman: “I can’t answer that question.”
3:47: Kwame lights up OCFO for “arrogance,” saying Gandhi & Co. “disrespected” the auditor’s office.”
3:50: Kwame smells blood: He wants the folks out who put the check voucher information into the city financial computer system without the proper signatures. (They’re not in the Office of Tax and Revenue.) “This is deep,” he says.
3:55: Newman admits reading Nichols’ August 2006 report that pointed out problems with the check-issuing process—”the system is vulnerable to fraudulent schemes,” the report read. Nichols signed a letter saying that OTR “respectfully disagrees” and said that the current controls were “appropriate.”
3:58: It’s bulldog time! Catania wants Newman to “name names.”
4:05: Graham wants to know where Nat Gandhi is! Demands to know! Why isn’t he in the room? “He should be sitting in the front row.”
4:07: That’s some nice kissing of Vince Gray’s ass there, Jim.
4:15: Schwartz to Newman: “[When I heard about this], I didn’t feel sad for you; I was mad at you.”
4:19: Schwartz again, apropos of the alleged arrogance of OCFO: “Guess who was smarter than you? Harriette Walters was smarter than you. Diane Gustus was smarter than you.” Carol makes a good point: Everyone says this was some sophisticated scheme. Nope, “this was a moronic scheme.”
4:27: Newman on whether she noticed that Walters & Co. had money. “There were rumors that were brought to my attention…but there were plausible explanations to the rumors as to where the money came from.”
4:31: Cheh’s doing some bulldogging of her own. Brings up to Newman that Ben Lorigo, the guy who replaced her, failed to audit the property-tax division. “And this is the guy who’s doing your job now?” Cheh asks.
4:38: Oooh. Tommy Wells pulls out the old financial disclosure forms from Walters. She declared a whole lot of stuff in 2005, then didn’t in 2006 or 2007. “We have checks and balances. It looks like your agency ignores them.”
4:46: Alexander gets into the whole “Hold for Pickup” issue. Newman says checks would be held if they’d gotten lost in the mail or customers preferred to pick them up.
4:58: Newman says a deputy CFO had to approve checks of more than $500K. Checks above $250K were supposed to go to the head of the property-tax division (Skolnik).
5:03: OTR employees, Newman says, average 20 years on the job. Top-level managers, not so much.
5:17: Walters’ office was on the 4th floor of 741 North Capitol St. NE; Newman’s office was on the 8th floor. Just thought y’all would like to know that.
5:19: Newman: I said this was a sophisticated scheme that a sophisticated auditing system couldn’t catch, but I don’t actually know that it’s all that sophisticated. Admits to “serious deficiencies” in management.
5:21: Vince asks Newman how she feels about losing her job: “I think that the CFO did what he thought was the right thing to do…Obviously I feel that I had not had enough of an opportunity to address these issues.” Newman maintains her reforms would have stopped the scam and feels a more thorough investigation should have taken place before firings were made.
5:28: Walters was involved in the design of the initial property-tax system in circa 2001 and was involved in the design of the “Integrated Property Tax System” that replaces it.
5:31: Newman speaks about the “culture of longevity” at OTR, where people who have been around for 20, 30, or more years are given great deference. Newman says reshufflings were intended to fix that: “Walters was one of the people that was gonna be changed.”
5:34: Aww, let’s all give Deborah Nichols a hug! Kwame: “This is your day, Ms. Nichols.”
5:37: Catania picks up where Schwartz left off: This scam had so many holes, it’s ridiculous—-obviously bogus evidentiary documents, clearly inconsistent numbers and documentation. Catania asks if it’s ridiculous to assume that an audit wouldn’t have caught the scam? Nichols: “Absolutely.”
5:40: Graham: “We’re thoroughly reaching near the end of this”…but listen to me ask several more questions and exceed my time limit anyway.
5:44: Newman: Walters “was known for being professional, very direct, efficient….She got things done. For that reason..she was consulted on systems issues, issues of process, and the like.” On Walters and Gustus: “There was no visible indication…that there was any extravagance that they were spending on themselves.”
5:45: Graham seems to want to connect this to Stop Snitchin’. Carmelo Anthony, it’s all your fault!
5:53: Nichols says auditing OCFO is “an incessant adversarial process.” “They are not helpful,” she says.
5:55: Uh, Yvette? Were you just trying to imply that Walters might not have known about the scam? I’ve got an affidavit you need to read.
6:11: Mendo gets into the nitty gritty of check issuance. And he’s good at it.
6:21: OK, it’s Gandhi time. Unfortunately, LL has basketball tickets tonight, so he’s going to give this another half-hour or so and call it a day so he can get down to Verizon Center.
6:24: New OTR chief Sebastian “Ben” Lorigo‘s on the scene. Gandhi: “I’m outraged by it, and I take full responsibility for it.”
6:26: Gandhi says he ordered all refund checks in excess of $150K be approved by the director of the real property tax administration (Martin Skolnik), and all checks in excess of $250K be approved by the OTR director (Newman). That seems not to match up with the numbers given by Newman, who said she was only supposed to look at checks over 500K and Skolnick over 250K.
6:28: 15 OCFO employees have resigned or been fired in connection with the scandal, says Gandhi.
6:31: Ah, the requisite “national search” for top-notch new managers is coming soon!
6:33: Chill out, folks! Wall Street doesn’t give a shit! The bond ratings are safe!…..Can we go home now?
6:34: “I have heard from the mayor and the members of the council, including you Chairman Gray and you Councilmember Evans, that you still have confidence in me. When I hear from the mayor that he no longer has confidence to me, and when I hear from the full council that you agree with the mayor, that day I will resign….I am not a quitter, and it is not my intention to walk away from this problem.”
6:43: Vince to Nat: “When do the responsibilities rise to your level?” Says Nat, “I’m not going to justify what happened there. There was a profound management failure….I take responsibility, there’s no doubt about that.”
6:54: Lorigo talks about some of the audit-type things they do. They push cash in the mail, for instance, and see if employees take it. By the way, if you’re expecting a property tax refund over $10,000, you may have to wait a while.
6:56: Kwame says don’t whine about needing additional resources. He also wants “to keep it real simple” for those of us “at home watching on TV,” asks how you get a refund for a bill that doesn’t exist.
6:58: OK, folks, I’m taking off. Keep it going in the comments!
6:59: OK, one more: Kwame asks the question raised by the Examiner story: Would you resign if investigation reveals bogus checks were issued under your watch as OTR director? “If the council and the mayor were to ask me, yes,” he says.