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CityTime Contractor to Pay $500 Million Fraud Settlement

By Jill Colvin | March 14, 2012 12:40pm | Updated on March 14, 2012 3:52pm
Preet Bharara, the U.S. Attorney for the Southern District of New York, announced the deal at a press conference Wednesday.
Preet Bharara, the U.S. Attorney for the Southern District of New York, announced the deal at a press conference Wednesday.
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DNAinfo/Jill Colvin

U.S. ATTORNEY’S OFFICE — The contractor responsible for the CityTime debacle will pay more than half a billion dollars in penalties and restitution for ripping off the city, officials announced Wednesday.

Preet Bharara, the U.S. Attorney for the Southern District of New York, said Science Applications International Corporation (SAIC), the main contractor responsible for developing the new payroll system, has agreed to pay the city a whopping $500,392,977 after investigators uncovered what he described as “a fraudster’s field day that lasted seven years."

The "staggering" settlement, which SAIC has until the end of the business day Thursday to pay, is believed to be the largest-ever in a state or municipal contract fraud case, Bharara said.

CityTime in action at the City Comptroller's office.
CityTime in action at the City Comptroller's office.
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DNAinfo/Jill Colvin

"Today the people of New York have more than half a billion reasons to celebrate," Bharara told reporters at a press conference announcing the deal, adding that the ripoff by CityTime was "perhaps the single largest fraud ever perpetrated on the City of New York."

In addition to the cash, SAIC will also be forced to forgive $40 million dollars in payments that it had invoiced the city, but had not yet received. Another $52 million in cash and property linked to the alleged schemes has been frozen or seized, driving the final possible recovery to nearly $600 million, Bharara said.

As part of the settlement, SAIC, a Fortune 500 company that generates more than 90 percent of its business from government contracts, has also agreed to adopt a series of internal reforms. It must appoint an independent monitor to prevent future wrong-doing and has been forced to take formal responsibility for failing to investigate red flags in connection with the alleged kickbacks and fraud.

If the company fails to comply to the agreement for at least three years, it will face criminal charges, which have already been filed in federal court.

In a letter to company employees Wednesday morning, SAIC Chief Executive Officer John Jumper said he hoped the deal would allow the company "to conclude the CityTime matter and move forward."

“We welcome this settlement as an important step in our efforts to move forward as a better, stronger company dedicated to the highest standards of ethics and performance for our customers,”  he said in a statement, adding that the company had “implemented strong improvements to our compliance program" and had "new leadership in place."

Officials would not comment on whether they are investigating other government projects managed by SAIC.

Court papers released over the course of the investigation have revealed the CityTime project was wrought with fraud, including alleged kickbacks, money laundering and cooked time keeping.

Department of Investigations Commissioner Rose Gill Hearn said the project "was riddled with fraud and improprieties" and that the agency's investigation had uncovered millions of dollars going to shell companies and overseas bank accounts.

Ironically, the new payroll system was intended to prevent bookkeeping fraud.

Two SAIC employees have already pleaded guilty in connection with the contract. Criminal cases against eight others, including a subcontractor company, are still pending, officials said.

Mayor Michael Bloomberg described the settlement as "a major victory" for the city, which he said has "a zero tolerance" policy when it comes to fraud.

"When you have as many contracts as we have, you have one or two bad apples," Bloomberg said. "Hopefully people will be more attentive the next time than in the past."

The CityTime project, which was initially supposed to cost just $63 million, ballooned to more than $650 million over the course of more than decade.

The system is now up and running, covering more than 160,000 city workers.

The case has raised questions about whether the city has sufficient oversight over its thousands of contracts, prompting numerous City Council hearings and new regulations.

Bloomberg said the $500 million settlement will go toward plugging the city's growing budget hole.