The argument tells us that gifts of cash/ objects valued above $100 count as graft, and on the basis of this definition alone, the chief concludes that there is no graft in his precinct. The issue is that graft generally involves any situation where a public official receives a benefit in the course of his official duties where no benefit is expected, e.g. a politician offered a police officer's relative a lucrative job in exchange for dropping the investigation, or a company executive shared insider information about an upcoming business deal that would increase the stock price. Essentially, a gift of cash/ $100 + objects is a sufficient condition for graft but not a necessary one. Since the chief fails to consider other instances of graft, the argument is flawed.
Let me know if this makes sense or if you have any further questions.