USATODAY.com - Secret military spending gets little oversight

By Matt Kelley and Jim Drinkard, USA TODAY

WASHINGTON — It took more than a decade for Mitchell Wade to turn his company, MZM Inc., from a small-time Pentagon consulting firm into a booming business that had nearly $200 million in government contracts.

Earlier this year, it took just a few months for it to fall apart. In June, the Pentagon revoked MZM's biggest contract, which had brought in more than $160 million in work for the company.

Wade also stepped down as the company's leader and sold its assets to a private equity firm after reports surfaced earlier in June of Wade's allegedly inflated purchase of a home owned by Rep. Randy Cunningham, R-Calif.

The rise and fall of MZM opened a window into the world of classified Pentagon spending and how Congress monitors it. Each year, billions of dollars are spent on classified projects that have little, if any, public oversight.

A USA TODAY analysis of MZM-related campaign contributions shows how the company's growth and its political activities became intertwined at key moments. In more than 30 instances, donations from MZM's political action committee or company employees went to two members of the House Appropriations Committee — Cunningham and Rep. Virgil Goode, R-Va. — in the days surrounding key votes or contract awards that helped MZM grow.

For example, MZM's political action committee gave Cunningham $5,000 in 2003 the day before his appointment to a congressional panel negotiating the final version of the defense budget. Ten days later, the day after the House passed the final Pentagon spending bill, Wade gave Cunningham $2,000.

Both lawmakers sit on the subcommittee overseeing the Pentagon's spending and have acknowledged putting language in bills that created or expanded contracts that went to MZM.

Larry Noble, an independent ethics expert with the Center for Responsive Politics, says the timing of the contributions creates the appearance that the company's political giving helped it get taxpayer-funded business from the Pentagon.

It is not illegal for defense industry political action committees or defense industry workers to make campaign donations, unless they are given with the intent of influencing Pentagon contract awards.

Political donations from military contractors are quite common, but timing those donations around contract decisions is not, said Noble, a former chief counsel for the Federal Election Commission.

In a civil lawsuit filed by the U.S. Attorney's office in San Diego on Aug. 25, federal prosecutors accused Cunningham of seeking and receiving a bribe in exchange for helping MZM get government contracts.

The alleged bribe involved Wade's purchase of Cunningham's home near San Diego. A company Wade controlled paid $1.675 million for the house, then sold it eight months later at a $700,000 loss.Prosecutors saythat Wade deliberately paid more than the house was worth and that Cunningham used the excess to trade up to a more expensive house in Rancho Santa Fe, Calif.

A criminal investigation started in June by the FBI and Defense Department of MZM, Wade and Cunningham continues. No one has been indicted. Cunningham referred all questions to his lawyer, K. Lee Blalack, who says Cunningham did nothing illegal or unusual to help MZM. Goode says the MZM donations weren't payback for his support. Wade and his lawyer declined comment.

Classified Pentagon spending has increased by nearly 48% to about $27 billion since the Sept. 11, 2001, terrorist attacks. Some of that money went to companies such as MZM, which provides computer systems and analysts for intelligence programs.

But the clandestine nature of this work and the budget that pays for it can obscure wrongdoing from public oversight, says Marvin Ott, who specializes in congressional intelligence issues at the National War College.

"For somebody who wanted to exploit a weakness in the system, it would be pretty easy," Ott says. "If rotten apples are showing up in this process, it's a serious problem because the potential for large-scale abuse is there."

In one case, the Pentagon didn't ask for a $23 million classified program awarded to MZM. Goode, who was on the committee writing the classified budget, said he added it.

For more than two years, from May 2002 to June 2004, MZM, Wade and others connected to the company made a series of donations coinciding with contract awards or budget votes in Congress. Since 2002, MZM and about 70 of its employees have been Goode's biggest single source of campaign money, giving nearly $90,000 of the $995,000 he raised. The company and its workers gave Cunningham more than $45,000 in donations since 2001 of the nearly $1.9 million he raised.

Since his first race in 1990, Cunningham has gotten more in defense industry contributions than all but two other members of Congress, according to figures from the independent watchdog group Center for Responsive Politics. Those two are Rep. John Murtha, D-Pa., the former chairman of the House Appropriations Defense subcommittee, and Rep. Duncan Hunter, R-Calif., chairman of the House Armed Services Committee.

A USA TODAY analysis of MZM's donations found that the contributions — often small — frequently followed important milestones for the company. Cunningham got thousands of dollars in campaign money from MZM, including:

• $1,000 from MZM's PAC in May 2002, two days after the General Services Administration put the company on its list of approved information technology service providers, a key step for MZM to get contracts from federal agencies.

• $5,000 from the PAC on Sept. 15, 2003, the day before Cunningham was appointed to a joint House-Senate committee that wrote a final version of the 2004 Pentagon spending bill that included provisions helping the company.

• $2,000 from Wade on Sept. 24, 2003, the day the House passed that Pentagon spending bill.

• $2,500 from the MZM PAC to Cunningham's PAC on June 22, 2004, the day the House passed the annual defense spending bill.

• In September 2002, MZM received an open-ended computer services contract from the Pentagon worth more than $163 million and announced its information technology work at the National Ground Intelligence Center in Goode's district. The company PAC gave Goode's campaign $1,000 that month; Wade gave $250. The Pentagon revoked that contract in June, saying new rules required that it be opened to competition.

• In March, April and November 2003, MZM's PAC and company officials gave Goode's campaign a total of $19,000 in the days surrounding the award of three Pentagon contracts to MZM.

MZM gave Goode and Cunningham tens of thousands of dollars in campaign money at other times, too. But the timing of some donations around contract award dates gives the impression of the company rewarding the congressmen, Noble says.

It's unusual for members of Congress to accept donations in the days surrounding contract awards because doing so can easily "blow up in their face," Noble says. "There's a fine line between a contributor supporting someone who helps them and giving a contribution in direct response to getting a contract."

Records from the Pentagon and the Virginia Economic Development Partnership (VEDP) show Goode was behind the creation of a military data collection project the Pentagon never requested. The Pentagon awarded the project to MZM, which put it in Goode's south-central Virginia district.

In 2003, Goode said he added a classified provision to a defense spending bill to create the Foreign Supplier Assessment Center, which he understood would be located in his district.

Workers at the center search publicly available databases to perform background checks on potential foreign suppliers of military goods to screen out those that might harm U.S. interests.

Goode said he backed creating the center because he's worried about the loss of jobs in his district to overseas firms. The center was one of about 50 budget requests he has made in the past several years, most of which involved work in his district, he says.

"The Pentagon never has asked me for any of these requests," Goode said in written answers to questions from USA TODAY.

Goode first encountered Wade and his company in 2002, when MZM landed a contract to provide computer systems and contract workers to the Army's National Ground Intelligence Center in Charlottesville, a university town in Goode's district.

By the time Goode arranged an initial $3.6 million for the center in 2003, MZM's PAC and its employees had given the congressman nearly $33,000 in campaign contributions, making them at that point by far his biggest financial supporter for the 2004 election.

Goode later urged local and state officials to help MZM open the center in Martinsville, a down-on-its-luck former textile center in his district. Records released under Virginia's open-records law show Goode contacted state economic development officials about the plans on Oct. 1, 2003, the first day of the fiscal year in which the FSAC was to be opened.

Goode says the negotiations were between MZM and Martinsville officials. But the records tell a different story.

The state records say Goode acted as a go-between during negotiations between Wade and MZM on one side and Martinsville and Virginia officials on the other.

The congressman was so involved that officials of the Virginia Economic Development Partnership referred to it in e-mails as "Project Goode."

Wade promised Martinsville up to 150 jobs that paid an average $52,000, jobs that Virginia economic development official Johnny Perez called "like gold," according to records released by the state development partnership under the state's freedom of information law.

The company refused any direct government assistance, which would have required it to repay the money if the company didn't meet job-creation targets. MZM insisted on paying only $400,000 for a building that cost the city more than $1 million, records show.

Throughout the process, Perez wrote in e-mails to his colleagues, Goode backed Wade and MZM, including when their requests fell "outside normal procedures."

The deal leaves Martinsville, not MZM, responsible for repaying the more than $500,000 it received from state and private sources if "the company doesn't perform," Perez wrote in an Oct. 31, 2003, e-mail to VEDP Research Director Robert McClintock. "The company didn't make any fans here at the state by acting this way."

Martinsville economic development director Tom Harned told USA TODAY that Martinsville was happy with the arrangement and had no indication MZM's current troubles would affect the center. "We value those jobs," Harned says.

Goode, Wade and Virginia Gov. Mark Warner were on hand to announce the deal on Nov. 3, 2003.

MZM's PAC gave Goode $1,000 on Oct. 18, during the negotiations, and another $1,000 a month later, records show. The local newspaper, the Martinsville Bulletin, quoted Goode at an April 2004 discussion of the project at a local country club as saying, "Every company that comes into the office for appropriations, the first thing I ask is how many jobs are you going to bring to the 5th District that are not already there."

The Pentagon's classified budget for buying goods and services has increased by nearly 48% since 9/11 — from $18.2 billion in fiscal 2002 to $26.9 billion this year — according to figures compiled by the non-partisan Center for Strategic and Budgetary Assessments.

The budget has long been a repository for spending that members of Congress want to shield.

"We had a classified annex to our bill, and we would hide all sorts of things in there," says Jim Currie, who worked as a Democratic staff member at the Senate Intelligence Committee until 1991 and now teaches at the National Defense University. "In theory, any member of Congress could find out about it, but in reality no one ever came in and checked. ... It's a beautiful way to hide something."

Harold Relyea, who studies government secrecy at the Congressional Research Service, says even if lawmakers had the time to study classified programs, most are not inclined to question the pet projects of their colleagues.

And within the defense industry, "there is a coziness that sometimes builds up. You are familiar with the company and their people, it's easy to go back to them" for more work. "It's a new phase of what we used to call the military-industrial complex."

Neither Congress nor the executive branch regularly produces reports on oversight of classified spending. None has been made during the buildup after the 2001 terrorist attacks. Without such investigations, it's impossible to know whether, or to what extent, the classified "black budget" is being abused.

"The amount of effort in looking at classified programs is very small," Ott says. "We don't have the manpower or time to look into this, so we take it on faith that all of the companies working the black world are basically honest."