DETROIT—Two former Detroit Public School risk management executives have been indicted by a federal grand jury in Detroit on charges that they stole more than $3 million from the school system in an illegal kickback scheme with a local wellness company.

The eight-count felony indictment, unsealed late last month, charges Stephen Hill, former executive director and acting executive director of the DPS risk management department, and Christina Polk-Osumah, former risk finance manager, with crimes involving bribery, fraud, extortion and money laundering committed between 2005 and 2006.

Sisters Sherry and Gwendolyn Washington, co-founders of Bond, White, Washington & Washington Inc., a vendor Mr. Hill hired in 2005 to administer a wellness program for DPS, also were indicted in connection with the scheme.

“Protecting the integrity of public funds is always a priority,” U.S. Attorney Barbara L. McQuade said in a statement announcing the indictments. “However, 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.”

Mr. Hill and Ms. Polk-Osumah are accused of approving vendor contracts and making payments outside of DPS procurement and accounts payable protocols, according to the 15-page indictment.

In this particular case, rather than going through a competitive bidding process, Mr. Hill verbally hired Bond, White, Washington & Washington, which does business as Associates For Learning, to conduct a health improvement and assessment pilot study for nearly 3,000 DPS employees from November 2005 through March 2006.

Associates For Learning proposed a total fee of $150,000 for its services, but ultimately sent invoices to DPS for more than $3 million, for which either Mr. Hill or Ms. Polk-Osumah authorized wire transfers. In return, Mr. Hill received more than $158,000 in kickbacks for facilitating the payments, the indictment says.

During the period of time of the alleged fraud scheme, Mr. Hill was named the 2005 Public Risk Manager of the Year by the Public Risk Management Assn. He left DPS in September 2005 to work in the Detroit office of Arthur J. Gallagher & Co. and then joined Marsh Inc. in May 2006. As a Marsh employee, Mr. Hill returned to DPS to serve as its acting executive director of risk management until Feb. 1, 2007.

A spokesman for Marsh was not immediately available for comment.

In a statement, Gallagher said: "A small percentage of the conduct alleged in the indictment occurred within the time period Mr. Hill was employed at Gallagher. Gallagher has conducted a full investigation and had no knowledge of Mr. Hill's alleged criminal conduct, nor does the indictment implicate Gallagher in any way."

If found guilty, the defendants could face a statutory maximum sentence of 20 years' incarceration on each of the eight counts. A plea hearing is scheduled for June 29, and trial is set for July 6.

Robert Bobb, emergency financial manager of Detroit Public Schools, said: “By bringing to justice those who have sought to enrich themselves at the expense of our children, we hope to 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.”

Associates for Living is not the only vendor with which Mr. Hill and Ms. Polk-Osumah are accused of illegally scheming. DPS filed suit against Mr. Hill, Ms. Polk-Osumah and others in Wayne County Circuit Court in 2008, accusing them of diverting more than $57 million in improper wire transfers to a dozen vendors, including Associates For Learning.

Attempts to reach the attorneys for Mr. Hill, Ms. Polk-Osumah, and Sherry and Gwendolyn Washington were unsuccessful.