Judge rules against company Cunningham helped North County Times - North San Diego and Southwest Riverside County News

By: WILLIAM FINN BENNETT - Staff Writer

SAN DIEGO ---- A Superior Court judge ruled Monday that a local company for which Rep. Randy "Duke" Cunningham, R-Escondido, helped secure millions in federal contracts must pay about $900,000 to a Florida software developer.

The decision came in response to a petition filed by the Florida company to confirm a private arbitration award against San Diego-based First Auditors LLC for fees it allegedly failed to pay Orlando, Fla.-based Integrated Actuarial Services for supplying the software and setting up a computerized auditing system for the IRS, an Integrated attorney said Monday.

Officials and attorneys with the Florida company held a press conference Monday, mentioning Cunningham's involvement in helping to secure the contract. The case does not appear to be related to the ongoing federal grand jury investigation into Cunningham's financial ties to a Washington defense contractor


First Auditors secured a one year contract in 2002, with a clause allowing annual renewals, to supply a sophisticated software program and services to the Internal Revenue Service. Cunningham wrote a letter to IRS officials in May of 2001, asking for them to meet with First Auditor officials about their ability to supply the computerized service.

The congressman later sent several other letters to the IRS in which he did not mention the company by name but continued to push for the program. After securing the contract, First Auditors failed to pay a subcontractor that is now pursuing court action against the company to try and recoup the money it says it is owed.

Federal records show that three of the principals in First Auditors made a combined total of $10,000 in campaign donations to Cunningham's re-election committee and a political action committee sponsored by the Congressman.

Based on Monday's ruling, Integrated attorneys expect to obtain a court judgement for the $900,000 within the week, they said. The judgement will also allow them to obtain court approval to subpoena documents and company officers in an effort to recover the money, said IAS attorney Steven Coopersmith.

By an earlier Superior Court order, the $200,000 in First Auditors' assets that have so far been identified are awaiting distribution to creditors. IAS officials, however, have said they believe that the company has significant additional assets.

After Monday's hearing, an attorney representing First Auditors said he would have no comment for this story. Officials with First Auditors did not return phone calls Monday for comment.

Earlier this year, the Internal Revenue Service backed out of a multi-year, $11 million agreement that First Auditors had to provide the federal agency with a sophisticated software program and its application. When First Auditors received the contract in 2002, the company subcontracted the software job to Integrated Actuarial Services. After receiving about $3.5 million for the initial phase of the work, however, First Auditors failed to pay IAS for its work, officials have alleged.

Integrated Vice President James Kavanagh said Monday that after it became apparent that First Auditors was not going to pay his company ---- "They never paid us a penny," he said ---- Integrated officials stopped providing technical assistance on the project. That was the reason the IRS decided to pull out of the project, he added.

IRS officials could not be reached for comment Monday.

According to news reports, First Auditors had no accounting experience at the time it closed the government deal, and the company was formed in 1999 with the sole purpose of securing the contract with the IRS.

That is where Cunningham apparently came into the picture.

The eight-term congressman is a member of the powerful House Appropriations Committee. In May 2001, he wrote a letter to Internal Revenue Service Commissioner Charles Rossotti, asking him to set up a meeting with executives with the San Diego-based First Auditors LLC to discuss that firm's desire to provide computerized auditing services to the IRS.

"I would like to request a meeting with you on behalf of my constituents, the principals of First Auditors LLC," Cunningham wrote to Rossotti in the 2001 letter.

Over the next 16 months, Cunningham sent three more letters to IRS officials asking about the issue.

Last month, Cunningham announced that he would not seek re-election to Congress in 2006, citing the stress on his family that has resulted from an ongoing federal grand jury investigation of his financial ties to Washington defense contractor, MZM, Inc.

Reached by phone late Monday Cunningham's chief of staff, Harmony Allen, said that she did not have thorough knowledge of the circumstances surrounding the First Auditors' deal with the IRS, however, "if money was spent inappropriately, of course the congressman would want that to be reconciled," Allen said.