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SEC joins scrutiny of D.C. CFO’s office

Comes after tax division worker charged with bilking $300,000

- The Washington Times - Tuesday, October 23, 2012

Troubles mounted on disparate fronts for D.C. Chief Financial Officer Natwar M. Gandhi on Tuesday with fresh accusations of employee-driven fraud in his office's tax division and an "informal inquiry" from the Securities and Exchange Commission compounding the scrutiny the city's purse-minder has endured for weeks.

Moments after Mr. Gandhi departed from a monthly breakfast meeting with Mayor Vincent C. Gray and D.C. Council members on Tuesday, at least one city lawmaker called for a closer look at how the District evaluates people hired to work at the Office of Tax and Revenue amid charges an employee bilked the city for $300,000.

Charging papers filed against city tax-office employee Kimberle Y. Davis say she participated in a scheme during the 2008 and 2009 tax seasons to inflate tax refunds and obtain larger fees for a private tax preparation firm she also worked for. Ms. Davis, whose dual employment violated city policy, was put on administrative leave after the U.S. attorney's office brought her suspected involvement in the scheme to light in February.

"It's symptomatic of an issue that been with us for a while," D.C. Council member David A. Catania told reporters after the Washington City Paper first reported the charges filed in U.S. District Court. "This is a particularly clever scheme, I have to tell you."

Hours later, Mr. Gandhi's office acknowledged it had received a request from the SEC for all "audits, inspections, reviews and investigations" conducted from January 2010 though Friday by the city's Office of Integrity and Oversight, a department created in 2003 to regularly audit operations at the CFO's office.

The dual spotlight on Mr. Gandhi's office comes on the heels of reports in The Washington Post that raised concerns about the office's commercial property appraisals and the timely release of internal audits from its oversight division. Last week, city lawmakers approved emergency legislation that requires the office to circulate internal audits to the mayor and council in a timely manner and publish them online.

Discourse about the office's performance has contributed to a dual snapshot of Mr. Gandhi — as either a masterful manager who has made Congress' grip on District finances a distant memory, or as a crafty politician who has managed to gain reappointment despite turmoil within his office.

Mr. Catania, at-large independent and frequent critic of Mr. Gandhi, said the grand sum of theft in recent years from the city's tax office has been "mind-boggling."

Court papers say Ms. Davis answered phones and entered personal data at tax return preparation business 2FT Fast Facts from January 2009 to April 2010.

Federal prosecutors accused her of leveraging data of 2FT clients through her city job in the tax office. They said Ms. Davis provided 2FT clients with false charity receipts in case they were audited, while she claimed deductions to which some 2FT clients were not entitled. The tax prep company secured inflated refunds, which in turn drew larger fees.

During the 2008 and 2009 tax seasons, prosecutors say Ms. Davis and her co-conspirators filed 973 fraudulent federal income tax returns totaling about $3.7 million and 282 fraudulent returns to the District totaling $304,909.

Ms. Davis is charged with first-degree theft and aiding and abetting a conspiracy against the government. The charges were filed as a criminal information, which is entered with the defendant's consent and typically signals a plea deal is imminent.

Mr. Catania said it is hard for Mr. Gandhi to "play defense" against fraud that was hatched by a company outside of the city government, but the charges "speak to a larger issue" of how employees at the city's tax office are vetted.

Mr. Gandhi's spokesman David Umansky said the office has been cooperating with federal prosecutors in the Davis case. It also "intends to fully comply" with the SEC's request for records related to the offices of Tax and Revenue, Finance and Treasury, and Financial Operations and Systems, according to a letter from Mr. Gandhi to the mayor and the council obtained by The Washington Times.

The SEC's request coincides with Mr. Gandhi's plan to borrow money for capital projects and to refinance city debt. On Tuesday, he told Mr. Gray and city lawmakers that low interest rates have created an "extraordinary climate" for borrowing.

Mr. Umansky said the office will attach information about the SEC's request to upcoming bond offerings as a matter of "full disclosure."

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