2 ex-DPS officials, 2 vendors indicted for bribery, extortion [Detroit Free Press]

Apr. 28--A federal grand jury has indicted the former chief of risk management at Detroit Public Schools, charging Stephen Hill with looting the financially ailing district of more than $3 million for himself, family members and friends, U.S. Attorney Barbara McQuade just announced in a news release.

Also charged in the indictment, unsealed today, are Hill's onetime assistant, as well as prominent Detroit businesswoman Sherry Washington, 53, and her sister, Dr. Gwendolyn Washington, 66, of Southfield. The Washingtons are accused for their roles as partners in Associates for Learning, a vendor hired to administer a health awareness program for the school district, but which district officials contend performed little work while receiving more than $3 million.

The Free Press reported extensively on the district's allegations against Hill, the Washingtons and others last month, including accusations in the district's pending civil lawsuit that Hill, 58, and an assistant diverted more than $57 million in improper wire transfers to a dozen vendors, including Associates for Learning.

--Related Free Press report:

--Related Free Press report: Hill loses job offer in Cook County, Ill.

--Related Free Press report: Lavish spending by Associates for Learning

The eight-count indictment alleges crimes ranging from bribery to fraud, extortion and money laundering between 2005 and 2006 in the troubled school district.

The indictment names Hill's assistant at DPS, Christina Polk-Osumah, 59, as helping Hill run the risk management office as his own fiefdom. He set up a separate computer system and secret offices outside the district to conceal a scheme to wire millions of dollars to vendors who were close business or personal associates of Hill or Polk-Osumah, the government contends.

Hill and Polk-Osumah appeared in federal court in Detroit today. Polk-Osumah was arraigned and Hill's arraignment will be completed Friday. If found guilty, they face up to 20 years in prison.

Federal authorities said their investigation into the DPS risk management department is continuing.

In a statement, McQuade said, "Stealing funds from a public school in these times is particularly egregious, as it threatens to rob our children of their futures and ultimately compounds future crime problems."

McQuade cited the roles of FBI, the Internal Revenue Service, the Wayne County Prosecutor's Office, and the cooperation of DPS officials helping to "weed out corruption" in the school district.

Robert Bobb, the district's emergency financial manager, said in a statement that DPS hopes the charges "send a message that the level of corruption that has been allowed to flourish in Detroit Public Schools in the past will no longer be tolerated. We will continue to work quickly and aggressively to root out

corruption wherever we find it."

In addition to Hill, the school district is suing a dozen vendors in an attempt to get the money back, including Detroit businessman Lawrence Long and his company, Long Insurance Services, the Washingtons and their partners in Associates for Learning, and two large insurance and risk management companies.

Among the allegations cited in the Free Press report on March 28 was that Hill was given a $40,000 farewell party when he left DPS in 2005. Hill has also acknowledged in the lawsuit that Polk-Osumah gave him two cars worth nearly $90,000. DPS says companies run by her relatives were among the vendors that received money through the district's risk management office.

The day after the Free Press report, officials in Cook County, Ill., which includes Chicago, announced that Hill had been offered a job as the county's director of risk management. The county rescinded the offer after a Google search turned up the Free Press story. A county spokesman said the county had conducted a criminal background search on Hill, but acknowledged it had not checked into civil lawsuits and had not called DPS to check Hill's performance in Detroit.

Sherry Washington has come under scrutiny before for her ties to school district contracts in Detroit, including one in which the district purchased more than $1 million in art from her downtown Detroit art gallery.

Earlier this month, the Free Press reported that Associates for Learning proposed a pilot wellness program to Hill in 2005, saying it would educate roughly 3,000 employees on the benefits of a healthy lifestyle for $150,000. By 2006, payments to Associates for Learning had ballooned to $3.32 million, and fewer than 150 DPS employees took part in a health assessment survey that was the key to the company's proposal. Software for the survey cost the district another $1.4 million.

Bank records for Associates for Learning obtained by the district show the company made repeated cash withdrawals at casinos and spent thousands of dollars on jewelry, pedicures, entertainment, restaurants, shopping sprees and a trip to the Cayman Islands.

Hill, who had performed risk management work for DPS in the mid-1990s, returned in 2001 as the district created a separate department of risk management and named him director. His office, at DPS headquarters in the Fisher Building, had fewer than five staffers who primarily handled workers compensation claims and district insurance policies.

Once on the job, Hill created two other offices: One was next to Long Insurance Services, another was inside the offices of a second vendor. Hill then began adding staff, eventually hiring 25 contract workers from Long Insurance. Rather than using the district's information technology department, he created his own computer system to hide improper financial transactions.

Among the vendors who received millions of dollars in wire transfers were Long Insurance Services and two large insurance and risk management companies: Arthur J. Gallagher & Co. of Itasca, Ill., and Marsh & McLennan Cos. of New York.

The district said Long Insurance received the most money -- roughly $25 million -- in wire transfers. While most of that, $15 million to $17 million, was for insurance premiums, the district claims the rest was for work that was woefully inadequate. DPS contends Long also paid Hill a $115,000 kickback.

Neither Long, his firm nor the Gallagher or Marsh firms were referenced in today's news release.

The district's lawsuit alleges Hill awarded more than $6 million to Gallagher to provide an emergency management information system that DPS has never used. The district alleges Hill approved some payments to Gallagher as he was seeking employment with the company and after he got the job in 2005.

Marsh received more than $17 million from 2002-2008 for insurance and consulting services. The district alleges Marsh intentionally billed inflated rates or commissions, and was paid for services the district didn't need.

In October 2005, Hill became an executive vice president at Gallagher & Co. in St. Clair Shores earning $200,000 a year, along with a $350-a-month car allowance. He had earned $124,000 at DPS.

While working for Gallagher, he was paid $115,000 by Long Insurance to write a 15-page report on school security for then-Mayor Kwame Kilpatrick. The district contends the money was a kickback from Long.

Within a year, in May 2006, Hill left Gallagher to become a senior vice president at Marsh & McLennan in Detroit, making $200,000 a year. While he was under salary to Marsh, the company loaned Hill back to DPS as an unpaid consultant and for a time he resumed running the risk management department. The arrangement created a classic conflict of interest, DPS attorneys contend, especially when Hill turned in a procurement form ordering the district to pay Marsh, his employer, a $450,000 "casualty consultant fee." Hill left Marsh in June 2007.

BEN SCHMITT contributed to this report. Contact JENNIFER DIXON : 313-223-4410 or [email protected].

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