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B.C. Contractor Maximus Mishandled Public Funds in U.S.

Liberals, as part of privatizing push, gave a $324 million contract to a firm with a history of controversy in five states. A TYEE SPECIAL REPORT

By Scott Deveau 3 Dec 2004 | TheTyee.ca
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The Tyee.ca

In its move to privatize PharmaCare and the Medical Service Plan, the provincial government hired a company that was found by the state of Wisconsin to have misappropriated public funds.

The same company, Virginia-based Maximus Ltd.,  has been embroiled in controversies in four other states, involving accusations of mismanagement, overspending or improperly receiving information while seeking a contract.

On Nov. 4, the provincial government signed a ten-year $324 million contract with the Canadian subsidiaries of Maximus to run the province's Medical Services Plan and PharmaCare program.

Outsourcing services to American firms has raised concerns about whether the Patriot Act opens B.C. medical records to U.S. intelligence agencies. Minister of Health Colin Hansen assured the province there is nothing to worry about.

But here in B.C., not much scrutiny has fallen on Maximus's corporate history of handling public funds.

A U.S.-based giant

The company, which is one of the largest providers of outsourced business and information technology to governments, has 280 offices in the U.S., Canada, Puerto Rico and the Virgin Islands and more than 5,000 employees worldwide. It provides a range of services from welfare, educational and judicial programs, to debt collection agencies on student loans and child support. 

In fact, Maximus runs B.C.'s Family Maintenance Enforcement Program through its subsidiary Themis Ltd., a company that has enforced child support payments in the province since 1988. Maximus bought-out Themis in 2002.

The Medical Services Plan and PharmaCare contracts were put out to tender last year.

Only one Canadian firm, CGI, was in contention, and Maximus put together the best proposal, according to the Ministry of Health.

Maximus ran the Medicaid management and enrollment programs in Vermont, New York, Colorado, Texas, California and other states. Its contract in B.C. is for services similar to its Medicaid programs but not the same.

However, Maximus ran into problems in the past when it moved into a new territory with a new program, admits Rachael Rowland, vice-president of government and public relations at Maximus. Though bad start-ups are more the exception than the rule, she added.

Wisconsin foul-ups 

The worst case of Maximus floundering out of the gates was in Wisconsin.

In 1996, the U.S. Congress handed new authority to the states for their welfare systems. Congress set fixed funding levels, a five-year time limit for most recipients and work rules. Wisconsin outsourced its welfare programs to several companies. Maximus won a contract to manage the welfare system in a portion of Milwaukee County.

Senior New York Times reporter Jason DeParle  documented the program in his book, American Dream, and an excerpt in the September 2004 Washington Monthly  documents the extent to which Maximus mismanaged public funds.

Maximus's proposal for Wisconsin's welfare program, Wisconsin Works, was simple. It planned to run a welfare program akin to Workfare in Ontario that called for welfare recipients to volunteer 30 hours per week in assigned work placements. But there were some additional touches.

Part of the program was the Learnfare program, which would garnish welfare recipient's cheques by $50 every time their child missed a day of school. The success of Learnfare is still in question, even to Maximus's senior management. Maximus vice-president Jerry Stepaniuk told the Milwaukee Journal Sentinel he had no idea how effective it was.

Ten months into Maximus's contract, out of the 1,100 clients who were supposed to have work placement assignments, only 507 had received them, and just 88 were actually participating, DeParle reported.

There were other problems DeParle noted.

Caseworkers were handling more than twice the caseload allowed under state rules; at least two caseworkers were addicted to crack and another was hospitalized with job-related stress; and some caseworkers were caught pressuring welfare recipients for sex and drugs.

Rowland told The Tyee that Maximus was very disappointed in DeParle's article. "It's not necessarily that it was inaccurate. The parts excerpted in The Washington Monthly are some of the more salacious elements of the book," Rowland said.

"Management and some judgment, in retrospect, probably were not the best, but it was a very unusual circumstance. It was one of the first outsourced welfare programs."

Government audit found misspending

In addition to the inner turmoil, a legislative audit found Maximus billed Wisconsin taxpayers for more than $400,000 in questionable and unallowable expenses and an additional $1.6 million in expenses that lacked sufficient documentation for reimbursement. 

The misappropriations of public funds in Wisconsin ran the gamut from sending staff members on a $15,000 Lake Geneva vacation to a $23,000 private concert for welfare recipients and staff by Broadway singer, Melba Moore. The company also inappropriately used administrative funds to solicit business in other jurisdictions, to pay for campaign contribution advice, and to buy $1.1 million in advertising.

The legislative audit prompted State Representative Mark Pocan to name Maximus the July 2000 Golden Turkey, awarded to the worst bill, agency action or political development each month in Wisconsin.

"When we went into Wisconsin, we were new to the area. When we got the contract we were an unknown commodity… We recognized that if we were going to have people take advantage of the services we were being paid to offer, we needed to let people know, 'Hey, we're here. This is our region. This is the number to call,'" Rowland told The Tyee.

The advertising campaign ran on billboards, brochures and radio spots, Rowland said, and the company also charged the state for thousands of dollars worth of promotional material.

"Because we used the name Maximus and not Wisconsin Works on everything, we agreed to pay back all that money," said Rowland, who added that the company's accounts were in such disarray that Maximus later found it failed to bill Wisconsin for legitimate expenses amounting to nearly three times what the state said it was owed in unallowable expenses. The company, said Rowland, chose not to pursue the issue.

"Some of those unallowable and questionable costs, the real reason we paid them back is because we didn't have the receipts, which is not Maximus's policy… Well, it's certainly not on our other projects," Rowland said.

Company paid back $1 million

Maximus immediately went in and fixed the situation and the welfare program they continue to run today has become a model to be used in other states, Rowland said. Maximus's success in the county was part of a phenomena felt across the country. Almost every state reported a decrease in its welfare rolls after the 1996 congress amended the welfare system.

In fact, Maximus eventually ran the program with such success they were awarded another contract in Milwaukee County, she added.

In the end, Maximus agreed to pay back $500,000 to the state and an additional $500,000 to community organizations in Milwaukee County.

Part of that repayment was for the public funds used to market the company in other jurisdictions, and in particular New York City. 

Maximus billed the welfare program for hundreds of hours that were spent negotiating for contracts in other jurisdictions, which added up to more than $51,000.

"Because Wisconsin Works was such a success, we were often asked by communities and states across the country what we were doing, what went well, and what could they do to help lower their welfare roll. It was a dramatic time. There was a lot of pressure. States and governments were looking at success stories to model their practices after.  At some point it was perceived that our travel, specifically to New York, was marketing us to New York City and we used Wisconsin Works funds - not welfare funds - to travel there. That was repaid to the state. We agreed that it should have been a corporate interest, corporate funded initiative and not something that had any bearing on the project we were performing," Rowland said.

New York controversy

In 2000, Maximus ran into some other problems in New York City. Then city comptroller Alan Hevesi refused to sign-off on Maximus's $104 million contracts with the city.

Hevesi, a Democrat, said it would take a court order to make him sign them because he said the contracts were fraught with favoritism. Hevesi accused Maximus of conspiring with high ranking officials in the administration of then Mayor Rudolph Giuliani, a Republican, to secure the contracts.

The investigation centered on then New York City Human Resource Administration commissioner John Turner and the hiring of his father-in-law and friend as Maximus subcontractors while the company was preparing its bid with the city.

Rowland said the concerns were a partisan issue, because at that time it wasn't clear whether Giuliani was going to run for the senate.

The New York State Supreme Court gave Hevesi the order to sign the contracts and ruled he had overstepped his bounds.

By then, the damage to Maximus's reputation had been done, Rowland said, and the company, although still under contract, did not run the welfare program in the city.

Despite the court ruling, the Village Voice reported after the decision was made that Hevesi's accusations were still under investigation when the case went to court. According to the Voice's report, an internal memo surfaced from New York City's Department of Investigations, dated October 28, 2001, which stated "there were strong indications that Maximus employees did get, as Hevesi had alleged, advance information about the shape and scope of new city welfare programs ahead of other competitors."

The report also was said to have discovered a new financial link between Turner and Maximus. According the Voice's report, "the problem was serious enough to jeopardize federal funding for the contracts."

But by then the contracts had been discontinued by the Bloomberg administration.

B.C. official offers assurances

Controversies and accusations have also surfaced in three other states:

In Florida, where Maximus ran the child support program, The Tallahassee Democrat newspaper reported that the company was overcharging for some services. Maximus's Rowland denies any wrongdoing. The company ended its contract early without making a profit.

In Arizona, where Maximus still has the contract for a welfare program, a state senate committee voted to end its contract with the company because Maximus had gone a million dollars over budget. The Arizona legislature, however, voted to continue the contract.

In Colorado, Maximus's contract was discontinued after the state received 3,000 complaints from people dependent on the company's services.

Leslie Wolfe, the provincial government's executive contract manager on the Maximus deal, said she is confident none of these problems will occur in B.C. because of the "comprehensive contract" they have in place.

The contract, which was not made public because of Maximus's proprietary concerns, is a flat fee which precludes overspending. If Maximus goes over budget, the difference comes out of its own pockets, Wolfe said.

Conflict of interest clauses stipulate that if Maximus is found influencing subsequent contracts or making political contributions, the contract will be terminated, according to Wolfe, who adds that Maximus is also subject to annual audits.

'Learning experience'

"What happened in Wisconsin was a great learning experience. There was no intention to do anything wrong and in fact the [Wisconsin] Attorney General said there was no criminal intent, that this was just bad bookkeeping," Rowland told The Tyee.

"The company has this philosophy of quality, profit, facility, and growth and what's ingrained in every person that works for the company is that quality comes first. As was the case in Wisconsin, and wherever we have had problems, there is a commitment to get in there and fix it, no matter what the cost," said Rowland.

When it comes to government contracts rather than doing work for private firms, Rowland said, "There is a significantly higher level of accountability in the public sector because we're doing things that are in the public trust."

She added: "We're very much excited about working in British Columbia."

Scott Deveau is a staff writer for The Tyee.

   [Tyee]

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