Federal prosecutors said Thursday they have found more fraud committed by tax office employees against the District government, bringing the total loss in the largest corruption case in city history to $20 million.

A federal judge ordered D.C. tax office manager Harriette Walters, the alleged mastermind behind the multimillion-dollar scheme, to remain behind bars at least until a bail hearing Tuesday.

Assistant U.S. Attorney Timothy Lynch requested the later bail hearing because he said investigators were still uncovering evidence.

When the charges broke Wednesday, prosecutors had identified $16 million they said was stolen from city tax coffers. In less than 24 hours, that amount had grown by 25 percent, and federal officials said it was probable that even more corruption would be revealed in the ongoing probe. More than 50 bogus checks have been uncovered.

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Federal agents have recovered only $2 million of the $20 million ripped off, Lynch said Thursday. Prosecutors were concerned that Walters could contact someone on the outside who might move the funds outside U.S. jurisdiction.

“Where did the money go? Is there more available to her?” Lynch asked.

Walters, 51, described by authorities as the flamboyant supervisor accused of spending more than $1.4 million on Neiman Marcus shopping sprees, wore blond-dyed dreadlocks and a red hooded sweat shirt during her brief court appearance. She appeared woozy, bracing herself against a wooden table as U.S. District Magistrate Judge Alan Kay read the

charges against her. She did not speak.

Kay ordered that Walters and alleged co-conspirator Diane Gustus, 54, have no contact with the three others named in the criminal complaint and arrested during early-morning raids Wednesday. Kay released Gustus, who worked for Walters, under house arrest and electronic monitoring.

Prosecutors also asked that the two women not have contact with five other employees of the D.C. Real Property Tax Administration Adjustment Unit.

Three of those named were described in federal charging documents as having helped prepare the fraudulent tax refund requests that were used to issue more than 50 checks averaging more than $388,000 each.

U.S. Attorney Office spokesman Channing Phillips said it’s not unusual for prosecutors to request that defendants be kept away from potential witnesses.

Asked whether the others named in the criminal complaint faced charges, Phillips answered, “All I can say is that it’s an ongoing investigation.”

A tax office spokeswoman would not say whether the employees named in court documents were still working in the office.

Federal agents launched the investigation after SunTrust bank employees at a Bowie branch noticed financial irregularities in some of the checks that had been deposited by people charged in the case. SunTrust officials would not allow the bank employees to talk to The Examiner because the case remains under investigation by law enforcement.

smccabe@dcexaminer.com

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