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Sherryl Hobbs Newman
Committee of the Whole and Committee on Finance and Revenue joint public oversight roundtable on the operations of the Office of Tax and Revenue

November 15, 2007




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Testimony of Sherryl Hobbs Newman

Regarding the Operations of the Office of Tax and Revenue

Before the Committee of Whole - Vincent C. Gray, Chairman
Committee on Finance and Revenue - Jack Evans, Chairman


Thursday, November 15, 2007

Good afternoon Council Chairman Gray, Committee Chairman Evans, Council members, residents of the District of Columbia. My name is Sherry! Hobbs Newman, and I am the former Deputy Chief Financial Officer of the Office of Tax and Revenue. Thank you for inviting me to testify regarding the alleged corruption and collusion in our city government.

Let me begin by saying I share your shock and outrage over these developments. I would have moved heaven and earth to prevent what took place if I had seen a hint of wrongdoing or had been provided with any reports that suggested any wrongdoing, but as stated last week - not even the most sophisticated audit would have detected this scheme. If this is true, then this was both a management and audit deficiency and we must work to correct both.

I was appointed Deputy CFO in October 2005. My areas of expertise were operational improvement, organizational development and system implementation. I honed these skills over twenty years as a manager, including as head of the Department of Motor Vehicles.

I came to the District of Columbia with a commitment to public service. I was honored to join the leaders of this city as they led us through a dark time to now what I consider a world class capitol city. During my tenure with this government, I designed a highly successful customer center in OTR. Let's not forget that it used to take months not weeks to get income tax refunds. Let's also not forget that before 1999, our valuable and laudable 727-1000 did not exist. I was also proud to dramatically reduce wait times at the DMV during my tenure there. Let's not forget the incredible wait times that existed at DMV before my arrival. Most recently, in just two years, we increased overall revenue collections from $80 million to $127 million and from 2006 to 2007, increased audit assessments by over 45%. I was also the President of the North Eastern States Tax Officials Administration - a first for any tax official from the District. Like most successful managers, there is always more that they would like to have done. But I am proud that my body of accomplishments far exceeds any missteps that I may have made. I have made a positive difference and have left organizations better than when I arrived.

We may not have caught these alleged activities, but there are good people working hard at OTR who care about their city. A few bad people did something illegal. The alleged crimes of a few bad people cannot be allowed to destroy the hard work, dedication and integrity of over 500 men and women at OTR. I sincerely hope that the efforts we envisioned at OTR can and will continue. I believe, if given the opportunity, OTR can and will restore the confidence and integrity of the citizens of the District of Columbia. We had a solid plan and it should be implemented.

While I had no knowledge of the alleged activities, I have had a week to reflect on what took place and what, if anything, I could have done differently or better. I wish I had found this scheme, but I did not and do not think that I could have. Nevertheless, I come before you to answer four questions that I have asked myself and I am sure that many other people must be asking: How could this have happened? Why did we not uncover it? Were there checks and balances in this process? and, What was being done to address these issues? I will try to answer these and any other questions as best as I can, to help ensure this never happens again.

First, how could this have happened? Reportedly, this scheme goes back as far as 1999, six years prior to my arrival at the office. I know that the accused worked on creating the first system used in the Real Property Tax Administration. They also worked on the design for the current integrated system. It now appears that their involvement was to their benefit, not the city's. They appear to have created a network of employees and outside people that could circumvent the system. This was not an amateur scheme. Their knowledge of the operational strengths and weaknesses provided these people with the cloak to disguise their dishonest objectives.

In addition, the automated system for Real Property was fair at best. When I first arrived, I learned that the system for Real Property did not meet all of the needs of that administration. We worked tirelessly for 2 years to improve that process. I commissioned an independent assessment on the system. That draft study was recently submitted, and clearly supported my belief that the Real Property System needed improvements. I proposed that a new system be procured. We knew that it was time to upgrade to the next generation. I know that the new systems would have addressed this deficiency and stopped this operation from continuing.

Why did we not uncover it? My answer is short and simple; I was not looking for it! More than seven of my 20 years of experience have been in the areas of revenue and collections and I worked in New York for more than 11 years prior to coming to the District of Columbia. All of my education, training and experience have been either as a front-line manager, or as an executive/administrator. During the twenty-five months that I was Deputy CFO, I worked aggressively and quickly to resolve the problems that were brought to my attention while at the same time beginning to identify and fix weaknesses in the controls and systems, and all the while, doing the normal business of our agency.

Regrettably, there was nothing in our policies and procedure that was fool proof enough to prevent determined thieves that possessed the necessary inside knowledge and access from making this scheme so highly sophisticated that it was uncovered only because of the due diligence of an outside party.

And I want to be clear, neither myself nor the other 3 top officials relieved of their employment had anything to do with any criminal activity. What I can tell you is this: we were in the process of requesting a top to bottom process analysis of the agency. Had this happened, We would have discovered any process flaws in the refund area, and, as was the case whenever we found issues, they would have been corrected immediately.

Were there checks and balances in this process? Yes, but it now seems they were manipulated. At some point during the 7-8 year operation of this scheme, the accused gained final signature authority. Each of my predecessors and I have signed Court Ordered refund checks. It is my understanding that none of the checks in question were authorized by any of the Deputy CFOs over these past 7-8 years. The established procedure was to have supervisory sign off of refunds, as well as additional verifications in another unit that processes the vouchers before they go to Treasury. Unfortunately, this does not appear to have occurred. What is also evident is that there was a long history of insufficient controls and verifications in this area, long before my arrival in the office. There were procedures in place to verify and validate refunds in this area, but these procedures were circumvented.

What was being done to address these issues? My senior managers and I engaged staff in countless hours in meetings, walking through the office space, having lunch meetings, discussing issues as they arose, and in planning sessions to discuss systems issues and develop new processes and procedures. This interaction, plus my experience, coupled with the other seasoned managers who were formerly with the IRS and other government organizations, helped me detect challenges facing this unit. For instance, we immediately addressed problems in the Homestead program and assessed over $12 million against more than 2,000 people who were receiving benefits to which they were not entitled. I can assure you that had I found or been provided any indication at all that there was this type of fraud problem or even an irregularity in the amount of property tax refunds, it too would have been quickly and decisively addressed. But let me assure you, our only agenda was working to get the work done for the citizens of the District of Columbia.

While I had no knowledge of these alleged activities, I did have concerns about the management of the Assessment Services Division. I began to address these concerns in the Spring of this year. I reassigned the Director of the Administration. I hired a new Chief of the Assessment Services Division and directed him to document all processes and procedures, because none had existed before I arrived. I requested and received from the Chief a proposal to re-organize the units into a new organizational structure and worked to implement this new structure. These efforts were showing promise. There were more disciplinary actions. The documenting of policies and procedures was to become institutionalized by December 2007, and we had begun to take a much more comprehensive look at the workflows in this area. By the end of this year, this area would have seen supervisory changes, staffing changes and process changes. I cannot say this emphatically enough, I believe these improvements would have shut this operation down. I cannot say for sure that we would have uncovered previous illegal activity, but our reforms would have put it out of business, since nothing like the effort we planned to put in place had been undertaken before. Given reports about their increased frequency and size of their efforts, especially in the last year, even they must have known that their scheme was coming to an end.

I spent the last two years working throughout the agency to make changes and improvements and to put in place things that were never there, including job descriptions, management controls, performance plans for employees, and putting in place training, policies, procedures, standards and measures and more. We have not been sitting idly by.

My team and I were fighting to implement major reforms in areas that have never been addressed before. As the Deputy CFO, I take responsibility for our successes and our failures. While the alleged activities started long before my arrival, I am accountable for what occurred during my tenure as Deputy CFO. I have accepted this and my sincere hope is that the agency moves forward and that the reforms that we were working on are still completed.

I came to DC as a public servant always committed to doing good and doing it well. I came with my experience and skills. But, I also came with my faith; my faith in God and his people. I am a trusting person by nature. I do not know how you can lead people, motivate and improve them, or represent them well, if you do not trust them. Of course, my trust has been damaged by a few, but my faith has been strengthened by so many. So many people, strangers and friends have expressed support for me. I thank them and will forever be in their debt.

I have come to accept two truths about this situation. Some of the city's best, brightest and most honest public servants did not catch this for more than 7 years. But, what is more important and should be more comforting to us all, is that some of the city's best and brightest were very close to implementing new processes and procedures and a new organizational structure that would have provided unprecedented management controls and brought this scheme to an end.

Thank you. I'd be happy to answer any questions I can.

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