Just over a month after agreeing to pay over $22.6 million to resolve allegations of fraud in the procurement of a government contract to provide support services for the National Center for Critical Information Processing and Storage at the Naval Oceanographic Major Shared Resource Center, Science Applications International Corporation ("SAIC") reported that its third-quarter profit has been wiped out by a $232 million charge against earnings relating to allegations of fraud in a contract with New York City.
Several years ago, the City of New York hired SAIC as the prime contractor to develop and implement a time and billing software program called CityTime to track employee time, generate payroll, and manage the City's workforce. At the end of 2005, SAIC had about 150 consultants working on the program. Two years later, that number more than doubled.
The United States Attorney's Office for the Southern District of New York and the City of New York have been investigating the program and have alleged "a massive and elaborate scheme to defraud the city" has corrupted the program. Two former SAIC employees, including the program leader, Gerard Denault, have been charged with conspiring to defraud the City of New York by receiving about $40 million dollars in illegal kickbacks; inflating hourly rates and the number of consultants without City approval; using offshore companies to receive payments as subcontractors and launder money; and delaying the implementation of the program through fraudulent means.
In October, SAIC removed three of its top executives: Deborah Alderson, president of SAIC's defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business. It also began an internal review of the program.
On December 6, 2011, SAIC reported a loss of $89 million (27 cents per share) in the quarter ending October 31, 2011, compared to a profit of $173 million (46 cents per share) for the same period in 2010. SAIC issued a statement in which it stated that it "believes that a loss related to the outcome of the CityTime investigations is probable and now estimates that the loss will be at least $232 million," but added that the amount could grow.
To Read the Washington Post article about the fraud, click here.
Fraud in the procurement or performance of government contracts is one of the most fertile areas for False Claims Act litigation. If you have information regarding a government contract fraud, contact Andrew M. Beato, an experienced whistleblower attorney with the law firm of Stein, Mitchell & Muse, LLP in Washington, D.C.
