On the day that federal authorities announced a multimillion-dollar rip-off from the city tax office last week, the head of that office was expecting to be briefed by an outside consultant on major vulnerabilities to public funds.

Instead, Sheryl Hobbs Newman was fired that day as part of the fallout from the massive corruption case.

Newman plans today to tell a city council panel that the Wendell Group, who she had hired to review the tax office in late 2006, had found that the tax system badly needed to be automated and that the software required would cost $100 million, a Newman confidant and city hall sources said.

Her underlings in the tax office, Harriette Walters and Diane Gustus, had already discovered those vulnerabilities and had stolen tens of millions of dollars, federal prosecutors said.

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Natalie Wilson, spokeswoman for the city finance office, acknowledged the Wendell Group had done a report on weaknesses in the tax office, but refused to release it.

The council will convene its own investigation of the city finance office and the outside auditors who gave the office clean opinions for years. Walters, the alleged mastermind of the scheme, was known to shower fellow workers with cash and lavish gifts and some D.C. Council members are worried that she may have corrupted an entire bureaucracy.

Natwar Gandhi, the suddenly embattled head of the finance office, called for Newman’s resignation because she wasn’t “proactive” in rooting out the corruption. But Newman has said publicly that she was a sacrificial lamb. The Examiner has found evidence that the fraud dates back to the late 1990s, when Gandhi was in charge of the tax office.

Gandhi admitted Wednesday that his office ignored the tax refund division while the scam went on, but said he was still capable of protecting the public’s money as CFO.

He has promised to reform his embarrassed agency after more than a decade as one of D.C.’s most celebrated public figures. The man he placed in charge of resurrecting the tax office is Sebastian “Ben” Lorigo, who started his career in the city tax office in 1998 and whose Web site biography says he put internal controls in place there.

Gandhi did not respond to requests for comment.

Got a tip on the finance office? Call Bill Myers at 202-459-4956 or send an e-mail, bmyers@dcexaminer.com.