Problems lingered at D.C. tax office for years after 2007 scandal, audits show

The mail was strewn in 15 postal tubs in a storage room at the District’s tax office. Some of the postmarks were months old, but the envelopes had never been opened.

Investigators found the stash in December 2010, and two cashiers were immediately dispatched to open, sort and count the payments, found in the Recorder of Deeds unit at the tax office. The probe revealed unprocessed payments from D.C. taxpayers worth $2 million, along with real estate documents required to complete property transactions.

That account comes from one of about a dozen internal audits and reports citing significant security lapses in the District’s Office of Tax and Revenue in the five years since a mid-level manager was caught embezzling tens of millions of dollars and the city vowed sweeping reforms, The Washington Post found.

(Related: D.C. tax office was warned more than once about database security )

Chief Financial Officer Natwar M. Gandhi, who oversees the tax office, has drawn praise for turning a city once on the verge of bankruptcy into a Wall Street winner, with high bond ratings and balanced budgets. In July, Gandhi was appointed to his third term as the $199,700-a-year independent financial overseer for the District.

But problems linger just below the surface, according to reports obtained by The Post that have not come to public attention. Time and again, auditors have warned Gandhi about weak controls and oversight in the tax office — which handles $6 billion in annual revenue — including insufficient tracking of payments, “dummy accounts” with fictitious Social Security numbers and lax supervision of adjustments to taxpayer accounts. The reports describe a tax operation that has “inadequate controls” and a lack of “management oversight,” and that is “vulnerable to undetected errors, manipulation and fraud.”

Gandhi’s agency did not respond to repeated requests for comment about most of the reports and audits reviewed by The Post. But in a previous interview, Gandhi and his senior managers said they have made major improvements to accountability since manager Harriette Walters was caught in 2007 stealing $48 million through phony property tax refunds — the largest embezzlement in city history.

“We reinforced, strengthened to the utmost degree, all the controls and processes to make sure that something like that is most unlikely to happen again,” Gandhi said.

The audits and reports were written by Gandhi’s internal affairs unit, run for the past two years by William J. DiVello, a former assistant inspector general in the city. Last week, DiVello abruptly resigned, telling The Post that Gandhi and his senior managers were pushing to leave audits in draft format. Gandhi’s office has taken the position that draft reports are exempt from disclosure under public records laws.

The Post obtained one draft report, produced by internal auditors in March but not made public until The Post published a story in August, that described a “significantly flawed” system for tracking property assessments that allowed tax office supervisors to access property records and alter them without being detected.