U.S. federal officials on Monday announced the indictments of a New Jersey couple for "a massive and elaborate scheme" to defraud New York in connection with the city's CityTime software project.
CityTime, which is supposed to modernize New York's payroll system, was begun in 2003 with a budget of US$63 million. But since then costs have spiraled to more than $600 million, with more expenses yet to come, prompting authorities to launch a sweeping criminal probe.
The indictments announced Monday concern Reddy and Padma Allen, respectively CEO and CFO of New Jersey systems integrator TechnoDyne, which was tapped as a subcontractor on the project by SAIC, the primary contractor hired by New York.
TechnoDyne did not have to engage in a competitive bidding process to get the job, according to the indictment.
New York paid SAIC more than $600 million between 2003 and 2010, while SAIC in turn funneled more than $400 million to TechnoDyne, according to the indictment.
The Allens and others engaged in an elaborate overbilling and kickback scheme, to the point where "virtually all of the well over $600 million that the City paid to SAIC ... was tainted, directly or indirectly, by fraud," authorities said.
Staffing levels on the project ballooned dramatically over time, growing from fewer than 150 in 2005 to more than 300 by the end of 2007, "the vast majority of whom were hired and paid through SAIC's contract with TechnoDyne," it adds.
In February, the Allens went to India after being subpoenaed by a federal grand jury, and remain there now, according to the indictment. Much of TechnoDyne's operations and many of its employees have been transferred to India, it adds.
Officials also revealed Monday that Carl Bell, a former SAIC employee and CityTime systems engineer, had pled guilty to multiple charges and will cooperate with authorities on the case.
Bell received at least $5 million in kickbacks from TechnoDyne and the Allens "to ensure the continued success of the fraudulent scheme," according to the indictment.
Another former SAIC employee on the project, Gerard Denault, was recently arrested and charged in connection with the alleged scheme. Denault allegedly took more than $9 million in kickbacks.
A number of other suspects have also been charged. The Allens, Bell and others used shell companies and other means to disguise the kickback payments, according to the indictment.
All guilty parties will be brought to justice and "every penny of fraud" will be recovered, U.S. Attorney Preet Bharara said in a statement.
TechnoDyne could not be reached for comment.
"We are aware of these developments, but in light of the ongoing investigation it would be inappropriate for us to comment," an SAIC spokeswoman said in a statement.
The sheer size of many IT projects, especially ones for government bodies, helps foster this type of alleged fraud, according to one expert.
"Many executives do not understand the complexity and detail of their projects, creating a situation that tempts unethical individuals with outright theft," said Michael Krigsman, CEO of Asuret, a company that helps organizations run successful IT projects.
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com