Sunday, February 18, 2007

New Blunt client focus of grand jury investigation

A Virginia-based company that already has landed contracts with the St. Louis public school system and the city of Kansas City, is hoping to continue to cash in on the state's push toward outsourcing government responsibilities to outside contractors.
In its efforts to improve its opportunities to land those multi-million dollar contracts, Maximus, Inc. hired Andrew Blunt, the governor's brother, as its lobbyist, according to documents filed with the Missouri Ethics Commission Feb. 12.

Though the company's Missouri work has not created any controversy thus far, it has a long record of difficulties, and according to its own annual report, filed Dec. 13 with the Securities and Exchange Commission, it has been targeted in two investigations, one in Washington, D. C. and one in Illinois...and accusations of providing funding to a relative of a top official was among the reasons the company lost its contract to handle New York City's welfare program.

In addition, a 1996 Wisconsin state audit indicated the company billed the state for $400,000 in "questionable and unallowable expenses" and failed to document another $1.6 million it charged to the taxpayers.

Washington D. C. investigation

Maximus described its problems with Medicaid fraud allegations in its annual report:

In October 2004, MAXIMUS received a subpoena from the Criminal Division of the U.S. Department of Justice acting through the U.S. Attorney’s Office for the District of Columbia. The subpoena requested records pertaining to the Company’s work for the District of Columbia, primarily relating to the preparation and submission of federal Medicaid reimbursement claims on behalf of the District. The U.S. Attorney’s Office is investigating issues pertaining to compliance with the federal laws governing Medicaid claims. We are fully cooperating with the U.S. Attorney’s Office in producing documents in response to the subpoena and making employees available for interviews, and we have conducted an internal review of this matter through independent outside legal counsel. Based on the probable legal costs of the internal review, we recorded a charge of $0.5 million in connection with this matter in the quarter ended December 31, 2005. We are unable to quantify the probability or magnitude of any other expenditure, fine, penalty, or settlement amount we may incur in connection with this matter at this time.

Illinois investigation
The annual report featured the following description of the Illinois investigation:

In June 2005, MAXIMUS received a subpoena pursuant to the Illinois Whistleblower Reward and Protection Act from the Office of the Attorney General of Illinois in connection with a purported whistleblower investigation of potential false claims. The subpoena requested records pertaining to the Company’s work for agencies of the Executive Branch of Illinois State Government. Discussions with the Attorney General’s office have indicated that MAXIMUS was one of nine contractors that received such subpoenas and that the investigation is primarily focused at this time on the procurement and contracting activities of the Illinois Department of Central Management Services. Although there can be no assurance of a favorable outcome and we are unable to quantify the probability or magnitude of any expenditures we may incur in connection with this matter, the Company does not believe that this matter will have a material adverse effect on its financial condition or results of operations, and the Company has not accrued for any loss related to this matter.

Problems in Wisconsin
Maximus' difficulties in Wisconsin occurred after the welfare reform act of 1996. Wisconsin outsourced its Wisconsin Works program to Maximus and it was a disaster from the start.

The September 2004 Washington Monthly included an article examining the program:

In pitching welfare privatization, Maximus had promised to outdo government with "a professional work environment that is more conducive to employee productivity." Michael thought the place was coming unglued. At least two caseworkers were addicted to crack. Another was hospitalized for job-related stress. A Fep with whom he shared an office went off on gambling jags, staying out at a casino all night, then sleeping at her desk. "Baby, I gotta take a little nap," she'd say, locking the door. He wondered if he were just a magnet for misfits, but the memo traffic in the bosses' suite showed a broader turmoil. Leutermann, the office chief, warned one caseworker was "going off the deep end lately," causing "all kinds of problems about his behavior in the bathroom." Another Maximus worker chased his supervisor from his office when she told him to clean up his files. "I am a Marine combat veteran that deals with Post Traumatic Stress Disorder," he wrote. "I lost my head." A flirtatious caseworker, rebuffed by a colleague, walked into his cubicle and bit him.

The article indicates the Maximus operation was a hotbed of nepotism:

Maximus encouraged the hiring of family and friends, calling it an effective way to lure and keep talent. As head of the office, Leutermann certainly practiced what he preached. He put his wife, his son, and his niece on the payroll, along with his mistress and his mistress's mother. The gossip about the boss's affair reached the point that Leutermann urged subordinates not to mention it in front of his wife. In a memo labeled "Rumors and Soap Operas," Leutermann wrote: "Our office continues to suffer through a problem of useless, superfluous, and often insidious rumormongering… MAXIMUS does not have time to fixate on this type of drivel." Leutermann's girlfriend, a senior Maximus manager, was pregnant with his child when he hired her; at the time he circulated the memo complaining about rumors, they had an eight-month-old son. The woman who rose to the number-two job in the Maximus office, Paula Lampley, had her son on the payroll, too, until he drew thirty years for reckless homicide.

And to add insult to injury:

The company spent $100,000 of program money on backpacks, coffee mugs, and other promotional fluff. It spent tens of thousands on employee entertainment. It spent $3,000 to take clients roller-skating and $2,600 for professional clowns. Though Maximus later agreed to repay $500,000 to the state and donate another $500,000 to community groups, the true extent of the waste will never be known because the records were in such disarray.

Roadblock in New York

Maximus' deal with the Rudolph Giuliani administration to run New York City's welfare program in 2000 ended in accusations of conflicts of interest. A seven-page memo issued on Dec. 28, 2001, by the city's Department of Investigations indicated Maximus had a hidden financial deal with Commissioner Jason Turner, the man responsible for choosing which company received the contract to run the welfare operation, and received information to help it make the winning bid. The conflicts were outlined in a 2003 investigation by the New York weekly, The Village Voice:

Investigators discovered a previously undisclosed financial tie between Turner and Maximus, according to the report. The problem was serious enough to jeopardize federal funding for the contracts, investigators wrote. They were right. Months later, after city officials wrestled with the findings, Maximus was eased out of its city deals. Sources said the probe may also have cost Turner a high-profile job in Washington.

The conflict, in brief, was this: A top Maximus manager, while negotiating with Turner in early 1999 for city business, had simultaneously agreed to provide financial backing for a $50,000-a-year education contract with Milwaukee's public schools won by Turner's wife, Angela.

The Milwaukee project was rooted in the same conservative philosophy that guided the welfare-to-work schemes that had made Turner a national figure when he headed Wisconsin's workfare program. It called for the Center for Self Sufficiency—a for-profit company founded and owned by Turner and later headed by his wife—to provide counseling on sex abstinence to students in Milwaukee's schools. The contract required, however, that matching funds be contributed by a third party. Investigators learned that after being approached by Angela Turner about participating, Maximus had pledged to contribute up to $60,000 over a two- to three-year period, the report said.

The new finding was even more problematic because the Maximus aide who spoke to Angela Turner about the project was George Leutermann, at the time a vice president and head of the company's welfare reform division. Leutermann had already publicly acknowledged another embarrassing episode involving the Turners, whom he had known for years from welfare and job programs in Wisconsin: After a separate talk with Angela Turner, he had hired her father as a Maximus consultant. This too occurred at the same time he was negotiating with Jason Turner in New York.

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