School board suspects fraud
Detroit officials question $46 million spent on contractors
July 31, 2007
An independent investigation into irregularities involving at least $46 million in wire transfers from the Detroit Public Schools has led the district to consider seeking criminal charges against current and former contractors and employees.
Detroit Board of Education President Jimmy Womack, speaking on behalf of the board, said Monday that a report generated by the investigation suggests individuals could have embezzled or otherwise skimmed some of the money from those payments, which were made over more than 3 1/2 years.
The board also will direct its attorneys to pursue whatever legal action -- civil or criminal -- it can against anyone it suspects misappropriated district money.
The payments, made to a number of vendors for insurance and consulting services, came from the district's Risk Management Department, which oversees such financial areas as workers compensation and insurance. Such payments typically are made by check.
The wire transfers are also under investigation by the FBI, board members confirmed.
Earlier this year, the district hired Miller Johnson, a Grand Rapids-based law firm with a wide-ranging practice including municipal law and fraud and embezzlement recovery, to conduct the investigation.
District sources familiar with the report spoke about its contents on condition of anonymity, citing the fact it has not been publicly released.
The report accuses at least one former district employee, whose name they did not disclose, of extorting at least $100,000 from a vendor who was paid by wire.
No board members or their relatives are named in the report as being suspected of wrongdoing, Womack said.
One of the companies that received money by wire was Long Insurance Services, a long-time DPS vendor that got a $550,000 contract last year to consult with the Risk Management Department, records show. Those transfers were highlighted in an internal memo in March that let district officials know an investigation was under way.
W. Lawrence Long, president and chief executive officer of the Detroit company, said he has nothing to hide.
"We've been forthright and compliant with all and any requests we received from DPS ... for documentation."
Womack said the board reviewed the 113-page report in closed session but did not get a copy. At least some of the report could be made public within two weeks, after district lawyers figure out what could be released without impeding any investigations, he said.
The board became aware of the wire transfers after board member Paula Johnson, head of its Procurement and Contracting Committee, raised the issue, Womack said.
District chief financial officer Dori Freelain was dismissed this spring by the board, which cited concerns over the appropriateness of the transfers to Long Insurance, which occurred under her watch in a department directly under her.
School board member Jonathan Kinloch, chairman of the Human Resources, Policy and Legislative Affairs Committee, said the board's lawyers will pass along the report to local and federal law enforcement after an official board vote.
"There was a general consensus that we would explore our various legal options to include civil and criminal actions," Kinloch said. "Whatever the resolve of the board is, it will require action of the board at a meeting to be held ... later."
The next regular board meeting will be at 6 p.m. Aug. 9 at Southeastern High.
Contact CHASTITY PRATT at 313-223-4537 or cpratt@freepress.com
Copyright © 2007 Detroit Free Press Inc.
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