States probe company accused of buying IT contract awards

States probe company accused of buying IT contract awards

Prosecutors in South Carolina and New York are investigating Maximus Inc. of Reston, Va., amid allegations that the company has used its political influence to snare contracts for technology and program services.

The company has carved out a solid position in public-sector management contracting, including large-system-procurement consulting. It has also distributed tens of thousands of dollars annually to elected state officials' political campaigns, lobbying firms and party committees, according to public records, the Center for Responsive Politics in Washington, the National Institute on Money in State Politics of Helena, Mont., and company statements.

Maximus executives deny any connection between the company's contributions and the contracts it holds, saying that in similar investigations in other states, the company has been cleared of wrongdoing.

But the New York County district attorney, the U.S. Attorney for the Southern District of New York and the South Carolina attorney general are probing charges that the company has used undue political influence to gain contracts.

Following an investigation of Maximus' contracts in Wisconsin last year, the company returned $485,000 in excess billings to the state's Workforce Development Department and donated $500,000 to Wisconsin nonprofit groups serving the poor.

Wisconsin Sen. Gwendolynne Moore asked Attorney General Jim Doyle to investigate Maximus after she received a critical report from the Legislative Reference Bureau.

'Questionable accounting'

The bureau cited Wisconsin and federal laws prohibiting, with certain exceptions, corporate political contributions. According to the bureau, Maximus' political contributions did not promote the official goals of its state contract for the Temporary Assistance for Needy Families program. The bureau pointed out that using contract revenues 'to make a political contribution is not permissible under federal law.'

Doyle declined to prosecute the company, telling Moore in a letter: 'The fact that my office will not be commencing a criminal investigation based on the information available at this time should not be read as an endorsement of the questionable accounting and financial practices that have been identified. It is obvious that the oversight and accountability of Maximus need to improve dramatically.'

Maximus spokeswoman Rachael Rowland said her company has taken corrective actions in its Wisconsin operations and overhauled program management. She said that two subsequent audits of its operations there found no problems.

She added that state auditors also had discovered $1.6 million of underbilling on Maximus' state contracts in Wisconsin, for which the company did not demand payment.

The company declined to provide a complete list of its political contributions, which it said it reports to authorities under applicable state laws.

In South Carolina, Attorney General Charlie Condon charged in a statement, 'It looks fishy for the state to pay a big outside company big bucks to do the work the taxpayers pay the state to do.'

Condon cited Maximus' contribution of $2,000 to Gov. Jim Hodges campaign in the current election cycle. Condon also alleged business links between Maximus and Kevin Geddings, an adviser and former chief of staff to Hodges, calling them 'part of a continuing pattern to reward the governor's cronies at taxpayer expense.'

Maximus executives said Condon's office had not contacted them as of press time.

According to Maximus' filings with the federal Securities and Exchange Commission, prosecutors in New York subpoenaed company documents and interviewed Maximus employees. New York City's comptroller, Alan Hevesi, referred the matter to prosecutors after he charged that city officials had given Maximus special advantages in competing for $104 million in welfare-to-work contracts.

But the New York County Supreme Court in Manhattan rejected Hevesi's effort to prevent city officials from consummating the Maximus contracts, ruling that Mayor Rudolph Giuliani had sole power to do so.

'Open, fair, competitive'

When the New York court issued its decision, Maximus released a statement that the decision 'reflects our position from the outset that the procurement process we participated in last year was open, fair and competitive.'

Maximus founder and chief executive officer David V. Mastran told GCN/State & Local, 'Although Maximus has been investigated several times, we've been cleared every time.' The company previously has been investigated and exonerated for its activities in Connecticut and West Virginia, according to legal records, company statements and press reports.

Speaking of Maximus' political contributions, Rowland said: 'Any contributions we make are not connected to the projects and funding we receive. That would be inappropriate and illegal.'

In California, Maximus reported spending $20,037 on lobbyists in the 1999-2000 legislative session in connection with legislation that would affect the way regulations for the state's health program were drafted. The company holds a contract with California to help run its health care system.

According to the California Automated Lobbying and Campaign Contribution and Expenditure Search System, Maximus used three California lobbying firms to influence action on State Bill 1806, which would allow stakeholders such as Maximus to participate in drafting health program regulations.

Rowland, the company's spokeswoman, said Maximus reported the California lobbying expenditures because state law requires it to report spending on business development that is related to public policy.

Hasn't won every contract

'We're a company that has been around for 25 years,' Rowland said. 'We don't make policies, but we do work with governments to make programs more effective.'

She added that Maximus has been working in South Carolina for more than 10 years and has not won every contract it has bid on there. Maximus makes political contributions through its political action committee, she said, and in states where corporate contributions aren't allowed, Maximus employees make political contributions to officials who 'support the same ideals as the company.'

In fiscal 2000, Maximus reported revenues of $399.2 million and operating profits of $55.2 million. The company's net margin was 8.5 percent, and its return on average equity was 17.8 percent. Its total revenue increased by almost 25 percent.

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