FBI probes contracting office at JHU Investigation opened into charges of kickbacks, fraud

Review shows overcharges

Two people fired, a third quits amid Hopkins allegations

September 03, 1997|By David Folkenflik | David Folkenflik,SUN STAFF

The FBI has opened a criminal investigation into allegations of kickbacks and fraud in the contracting office at the Johns Hopkins University, where officials say an external audit shows the scope of the improprieties is significantly larger than first believed.

A review conducted by KPMG Peat Marwick of university contracts between 1992 and 1997 found that the university lost HTC several hundred thousand dollars in intentional overcharges and payments for work that was never performed, senior Hopkins officials said yesterday. Two people were fired this year, and a third left her job Monday because of the inquiry.

In addition, the university said that a key contractor, Thermal Services Inc. of Finksburg, was awarded contracts despite submitting bids that were not among the lowest or the best received. For the past five years, TSI has received contracts to install and repair heating, ventilation and air conditioning services at Hopkins worth approximately $500,000 a year.

Although major construction projects attracted close attention from senior university officials and trustees, smaller projects, such as those for TSI, were often approved solely at the discretion of Robert J. Schuerholz, formerly the university's executive director of real estate and facilities, Hopkins administrators said.

Schuerholz's former office, which oversees about $80 million in projects annually, also was responsible for reviewing the work done and paying for it with few outside checks, said John J. Lordan, Hopkins' acting senior vice president for administration.

"Management was not sufficiently vigilant," Lordan said. "We've had a wake-up call on that, and at this point, we've put procedures in place to make sure it does not happen again." He also said that the university would seek to recover the lost money.

FBI spokesman Larry Foust confirmed yesterday that the agency had initiated a formal inquiry into the kickback and fraud charges. Stephen Schenning, the first assistant U.S. attorney for Maryland, would not comment on whether his office would pursue charges.

Until now, university officials have been skittish about commenting publicly on the accusations. But yesterday, senior Hopkins officials spoke in an effort to reassure businesses that their bids would be judged fairly.

"It is our hope that if any vendors have thought in the past that Hopkins was not an open place to do business with -- that there were favored contractors -- that those businesses were disabused of that" idea, Lordan said. "We want to do business with them in as open and as competitive an environment as we can foster."

Concerns were raised as early as 1992, and again in 1994, when Brendan Donegan, one of Schuerholz's deputies, told the university's chief auditor that Schuerholz appeared to be too cozy with some contractors.

When the auditor, Anthony J. Dowgiewicz, presented those concerns to Eugene S. Sunshine, then Hopkins' senior vice president for administration, he was told not to conduct a full inquiry without more specific proof. Sunshine left Baltimore this summer to take a similar post at Northwestern University.

Donegan quit as Hopkins' director of design in January, telling Dowgiewicz again of his misgivings. Donegan, who is now a consultant, said yesterday that the recent findings vindicated his suspicions. "The truth caught up with the situation," Donegan said. "If they had done it earlier, I would not have had to commit job suicide."

The concrete accusations that triggered action against Schuerholz surfaced in an April 11 lawsuit between two partners fighting for control of TSI.

One charge was that Schuerholz and Stewart Phillip Mayo, then TSI's chairman, had colluded to divert at least $109,000 from several projects -- $90,000 from Hopkins alone -- toward work done on Schuerholz's Eastern Shore vacation home.

Schuerholz was fired for gross misconduct the same day. Robert F. Seward, a technical support manager who worked for Schuerholz, was also fired in May, after Hopkins accused him of benefiting personally from his relationship with contractors.

A third Hopkins official, Gwendolyn M. Pinnix, a senior staff engineer who reported to Schuerholz and was also involved in approving contracts that were later questioned, resigned effective Monday after a series of meetings with university administrators. Pinnix did not return telephone messages seeking comment.

Lawyers for Schuerholz and Seward said yesterday they were unaware of both the external audit's findings and of the federal investigation. Schuerholz's lawyer, James P. Ulwick, rejected the allegations and said the auditors' findings appeared to offer little new. Seward's lawyer said that his client did nothing exceptional.

"It was common knowledge at all levels in Hopkins how business was done," said Bruce Richardson, Seward's lawyer. "Hopkins is eager to have the story end with Mr. Seward. That is simply not the case."

Although Richardson acknowledged that Seward had been friends with Mayo and others from their days at a company called Johnson Controls -- some of whom left that firm to form TSI -- the attorney also said any personal benefit Seward derived from the relationship was "dwarfed" by those given to Schuerholz and others. "I think it can be shown a wide variety of people received benefits of one kind or another from TSI -- labor or gifts -- over the years," Richardson said.

TSI's current attorney, Marc Cohen, represented Michael K. Maholchic in his ultimately successful effort to win control of the firm from Mayo. Cohen noted that the firm had changed its top three officers since Mayo's forced resignation.

Pub Date: 9/03/97

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