NEW YORK – A city payroll technology project that has cost taxpayers more than $600 million was "corrupted to its core," with nearly the entire sum tainted by an epic fraud that involved hundreds of contractors, systemic overbilling and an international money-laundering conspiracy, federal prosecutors said Monday.
The indictment unsealed Monday alleges that the cost of the project, known as CityTime, ballooned tenfold as multiple layers of contractors and subcontractors conspired to hire consultants the city didn't need, inflate the prices the city was charged and multiply the hours for which the city was billed.
"The corruption on CityTime was epic in duration, magnitude and scope," U.S. Attorney Preet Bharara said as he detailed the new charges. "Today we allege what many have long feared. The CityTime project was corrupted to its core by one of the largest and most brazen frauds ever committed against the city of New York."
One company and eleven people have now been charged in the case, which prosecutors laid out in detail Monday as they spelled out how a project that began with a $63 million price tag in 1998 had grown into what they said was an international conspiracy with lead contractors earning a set dollar amount in kickbacks for each hour worked by consultants — an incentive to hire unneeded staff and falsely inflate the number of hours billed to the city.
In two earlier court filings authorities had said the fraud involved some $85 million, but Monday's indictment said the ongoing investigation had uncovered a deceit that reached much further. "Virtually the entirety of the well over $600 million that the city paid ... on the CityTime project was tainted, directly or indirectly, by fraud," the court papers said.
While calling the alleged fraud despicable, Mayor Michael Bloomberg has said he is pleased with the technology that resulted from the project — a system that has allowed the city to computerize the timekeeping system for about 165,000 city employees working under an array of different contractual agreements. He has said that some of the cost increases on the project were legitimate.
The indictment said the fraud had expanded dramatically after a 2006 contract amendment in which the city agreed to take on the responsibility for any cost overruns on the project. The decision was made at the advice of the lead contractors now charged in the case, prosecutors said.
Prosecutors and the city's Department of Investigation, which first uncovered the alleged fraud, also announced Monday that the chief systems engineer on the project, Carl Bell, had pleaded guilty to charges including wire fraud and money laundering and is cooperating with investigators. Bell is the second employee of defense and technology giant SAIC Inc. to be charged in the case.
Prosecutors claim the company, which handles a large number of contracts for the U.S. government, was warned about aspects of the fraud in a whistleblower's complaint in 2005, but the deception expanded despite an internal investigation. A company spokeswoman declined to comment.
The indictment revealed an SAIC subcontractor, TechnoDyne LLC, has been criminally charged in the case, along with the husband and wife who owned the company. Padma and Reddy Allen fled to their native India in February after being subpoenaed by a grand jury, and transferred much of their company's operations and personnel there, the indictment claims. A call to the Allens' U.S. lawyer was not immediately returned.
Of the 11 people charged in the case, two have pleaded guilty and a third has died. Because they have been out of the country, the Allens have not formally declared their guilt or innocence. The remaining six have pleaded not guilty.
In the wake of the investigation, Joel Bondy, appointed in 2004 by Bloomberg to oversee the city Office of Payroll Administration that was in charge of the project, was suspended without pay and resigned. He had previously worked for the company in charge of quality assurance on the project, the same firm whose contractors have been charged in the case.
One of those contractors, Mark Mazer, was given the authority to act as the city's agent on the project and recommend contract amendments on the project. Mazer had previously reported to Bondy at the city child-protection agency in the 1990s; his lawyer has denied that there was any fraud.
Following an internal review ordered by Bloomberg, the city has said it will reduce outside contracting on technology efforts and expand an office to oversee the projects. Future contracts will be for smaller projects and give contractors clearer requirements, Deputy Mayor Stephen Goldsmith has said.
"Our Department of Investigation uncovered this fraud, bringing it to federal prosecutors," Bloomberg spokesman Marc LaVorgna said Monday. "We will be using all available avenues to recover any funding owed to the City. SAIC has been removed from the project and substantial reforms have been made to the way large city contracts are managed."
The Office of Payroll Administration is jointly overseen by Bloomberg and the city comptroller — an arrangement that Goldsmith says may have contributed to the project's problems.
John Liu, the current comptroller, who arrived on the job last year, said Monday that he hoped the new charges would lead to restitution for what he called an "out-of-control project." Authorities have already seized more than $38 million in assets linked to the case.
"Today's announcement unfortunately sheds more light on just how flawed the management of the CityTime project was," Liu said in a statement.