Star Witness's Cheating Ways Heating Up Trial

Jaws dropped and even the judge cringed when the former D.C. government official told a jury about the brazen ways he fabricated invoices and inflated bills to steal city money for himself and his friends.

Michael Lorusso once got his bosses to hand over to him $1 million, and he used it to lease space that wasn't even usable. Besides giving contractors inflated profits, Lorusso said he gave them gifts at taxpayer expense -- including antique barbershop chairs from a city warehouse and laptop computers purchased with a city credit card.

He is the prosecution's star witness in the federal court trial of developer Douglas Jemal. Prosecutors are trying to show that Jemal bribed Lorusso in return for favorable deals. Whether Lorusso is helping to build a case against Jemal is up to the jury to decide; the defense is challenging his credibility. But Lorusso's testimony has been as much an indictment of the D.C. government and the Williams administration, which was forced to make changes amid pressure from outraged members of the D.C. Council.

In an administration that prided itself on running a clean, reform-minded government, the swaggering Lorusso, the deputy director of property management, said he approved hundreds of thousands of dollars in contractor payments for work that was never done.

Lorusso worked for the city from November 2000 to January 2003, when he was fired after the council raised questions about his deals. He later pleaded guilty to bribery conspiracy and is hoping for a reduced sentence in return for his cooperation against Jemal and two other executives from Douglas Development Corp.: Jemal's son, Norman, and Blake Esherick. He is scheduled to resume testifying today in the courtroom of Judge Ricardo M. Urbina.

Only when Lorusso took the stand last week did many details of his crimes, and the breadth and gall of his fraud, become publicly known.

Lorusso, 40, admitted arranging leases that paid Jemal yearly rent so exorbitant it equaled the developer's purchase price. Lorusso ran his own furniture and investment businesses from his District offices and computer and took hundreds of thousands of dollars in city property, including the chairs, the laptops and other items. But no one flagged it.

"On my signature, I could take anything I wanted in the District," Lorusso testified.

Until Lorusso pleaded guilty in 2004, Mayor Anthony A. Williams (D) was reluctant to admit that the city was cheated -- despite several independent audits the previous year which determined that millions were spent for construction work, authorized by Lorusso, that had never been done. In an interview with NewsChannel 8 in summer 2003, Williams questioned what proof anyone had of outright theft but acknowledged that the city needed stricter controls on contracts.

Administration officials say several loopholes Lorusso exploited have been tightened.

Then-newly arrived Herbert R. Tillery, deputy mayor for operations, was tapped in 2003 to protect the city from another Lorusso. In an interview last week, Tillery said that the city largely had safeguards and good rules in place when Lorusso was working but that they needed to be diligently enforced. He said the city now has officials within each agency review all leases, contracts and routine price increases in contracts -- instead of continuing the unusual arrangement in which Lorusso single-handedly authorized such deals.

Each agency's contracting officer is now trained to spot fraud and given stern warnings about the responsibility to protect city money. Although the city had regulations allowing it to penalize such officers for losses and improper cost overruns, Tillery said, now it follows through. Similarly, the city had a computer system for tracking contracts before Lorusso, Tillery said, but now it has improved it and required that agencies monitor such contracts monthly.

"Now there are several extra eyes on the contracting process," Tillery said. "It takes longer . . . but when we take shortcuts on contracts, that's when we get into trouble."

Lorusso was fired after the council began challenging leases for office space with Jemal's company as well as a plan to buy an impoundment lot from Jemal in Prince George's County. Council members also looked into steep payments Lorusso arranged to a contractor at One Judiciary Square, a municipal building.

The first indications of trouble surfaced in fall 2002, when the council balked at the impound lease proposal. More was revealed in the summer of 2003, when Jim Graham (D-Ward 1) completed an extraordinary council investigation into Lorusso's dealmaking, revealing, among other things, that Lorusso had "cooked" an appraisal to suggest that the city should pay $12.5 million for the impound lot. It had cost Jemal just $1.5 million four years earlier. After a council outcry, the city did not buy the lot.

Lorusso is the only D.C. government employee charged in the case. But based on his testimony, D.C. officials have more digging to do. He asserted in court that other city workers helped him break the law. Lorusso told the jury, for example, that he invited two staff members to join in a plan designed to help him get rid of a burdensome car payment. Together, they fabricated a $25,000 bill to the city for moving services from a company that employed one of the staffer's relatives, Lorusso said. The moving company then cashed a city check for the staffers, Lorusso said. The staffers gave him most of the $25,000 in return for his Audi convertible, he said.

As of Friday, the staff members were still on the Office of Property Management payroll, although one is on leave. They did not return calls.

Carol Mitten, the new director of the office, said she was surprised by what surfaced in court. "The first I heard about this dummy invoice is from the trial," she said.

Lorusso's testimony raises questions about whether more protections are needed, according to council member Adrian M. Fenty (D-Ward 4), who likely will succeed Williams as mayor next year.

"This type of waste, fraud and abuse is inexcusable, and those responsible must be held accountable," Fenty said.

Council member Carol Schwartz (R-At Large), who was the first to balk at the impound lot proposal in September 2002, said she remains mystified at how top city leaders couldn't have known some of what Lorusso was doing.

Graham said the testimony vindicates his investigation but won't satisfy the larger question taxpayers should be asking the city: "Just how did he get away with all this?"

Staff researchers Rena Kirsch, Bob Lyford and Eddy Palanzo contributed to this report.