This is Part 1 of 2 of a mini-series on the epic fraud committed right under the noses of the public and the City of New York.
The CityTime project, proposed in 1998, was supposed to modernize the timekeeping system for the City of New York’s 81 agencies. Once completed, the project would allow the city's employees to be paid more accurately, efficiently, securely, and in part, would prevent city employees from submitting fraudulent time sheets. It's ironic then that the development of the project was fraught with bribery, corruption, and fraud.
The project was initially budgeted at $68 million and grew to preposterous proportions, costing the city nearly $700 million by 2010. It was attacked by unions, taxpayers, and city officials for its numerous delays and exponential costs. According to court documents, “as of June 2010, only 35 percent of the intended user population… was using the CityTime system.” Yet, somehow the fraud behind this massive sinkhole went unnoticed until the scheme started to unravel in 2010.
According to news articles, of all the parties indicted in this scheme, only two individuals have not been convicted as they have fled to their native country of India. In 2012, Science Applications International Corporation (SAIC), the primary contractor for CityTime, paid the city $500 million in restitution and penalties. It was said in a statement by federal prosecutor, Preet Bharara, “This resolution is believed to be the largest, by dollar amount, of any investigation alleging state or local government contract fraud.”
Investigators claim that the schemes involved kickbacks, over-billing, money laundering, shell companies, and ghost employees, among other conspiracies.
So how did this enormous fraud go unnoticed for so long? Where was the due diligence? Surprisingly, there were plenty of warnings that there was something very wrong.
CityTime Project Background
In the year 2000, the Office of Payroll Administration (OPA) awarded SAIC a contract to be the lead software developer of the CityTime project. In 2001, OPA hired Spherion Atlantic Enterprises, LLC (Spherion) to provide quality assurance services on the project.
According to an audit report conducted by the City of New York Office of the Comptroller, the agreement with Spherion was determined to be mismanaged which “severely limited Spherion’s ability to oversee the development of CityTime and may have resulted in significant increases to the cost and duration of the project." A year after Spherion acquired the contract to provide quality assurance services, the contract was amended to allow “Subject Matter Experts” to be hired for project management services. The consequences of these actions may have allowed the conspirators of the subsequent fraud to run rampant.
On February 19, 2003, Richard R. Valcich, the Executive Director of OPA wrote a letter to SAIC warning of excessive waste and stated “SAIC has been guilty of producing deliverables far below acceptable standards. The City has found that SAIC’s commitment to quality is almost non-existent and is reflected from the top down.” Valcich complained that SAIC was attempting to renegotiate the CityTime project without involving city officials, “The City has repeatedly requested that SAIC involve the City in the development of the Schedule, the Work Control Plan, and the Deliverable Payment Schedule. To date, this still has not happened. SAIC continues to work on these contractual issues alone, in a void, utilizing staff that have had little or no past experience or familiarity with the project.” At the time of the letter, the City had already spent nearly $35 million on the project and Valcich complained that there was “no tangible system to show for it.”
Valcich resigned in 2004, and Joel Bondy, at the time a consultant for Spherion, was appointed the position of Executive Director of OPA. This meant that Bondy had the authority to oversee and authorize requests for many facets of the project, from the lead software developer, SAIC, to the quality assurance servicer, Spherion.
Key Defendants
Based on information gathered from court documents and news articles, it appears that there were a few key players involved in the CityTime scheme, whom without their involvement, this scheme may not have been possible. These individuals allegedly exploited their authority and influence to defraud the City and in the process solicited and introduced other conspirators to assist and conceal their illegal activities.
According to court documents, defendant Gerard Denault was SAIC’s Program Manager on the CityTime project from 2003 to 2010. His responsibilities included selecting and overseeing subcontractors to assist SAIC with the project, submitting bills to the City for work done by SAIC employees and subcontractors, and developing proposals and contract amendments for SAIC to perform additional work on CityTime.
Defendant Carl Bell, employed by SAIC as their Chief Systems Engineer in their New York office from 2003 and up to 2010 was responsible for development of CityTime and supervised the “technical aspects.”
In 2004, defendant Mark Mazer was hired by Spherion, through his company “MS Creative Technologies, Inc.” as a "Subject Matter Expert". According to court documents, Mazer reported directly to Bondy, OPA’s Executive Director, instead of to the OPA CityTime manager or to Spherion, the quality assurance vendor who was hiring Mazer as a consultant for the project. Court documents state that Mazer appeared “not as a representative of the QA Vendor, but as a representative of OPA.” Employees interviewed by investigators allege that Mazer, “in this capacity… had influence over the scope and size of contracts and work orders for work to be performed by the Lead Software Developer on the CityTime project.” The media reported that Mazer and Bondy worked together in the past at the City’s Administration of Children’s Services division, with Bondy as Mazer’s supervisor.
Together these three individuals, along with their friends and family, used their positions of authority to spin a web of deceit that would go undetected for nearly seven years and cost the City of New York hundreds of millions of dollars.
Read Part 2 of this mini-series as we examine the schemes and red flags that should have raised alarms, but were seemingly ignored.
To learn about MSA Investigations' fraud investigation and due diligence capabilities, contact us today.
