NYC’s Simple Plan for Reducing IT Fraud and Waste

After losing hundreds of millions of dollars, the city is starting to clamp down on IT contractors to make sure taxpayer dollars are being spent wisely.
by | June 2014
NYC Comptroller Scott Stringer AP/Jason DeCrow

New York City Comptroller Scott Stringer doesn’t mince words when describing the city’s problem with IT consulting costs and contracts. “We’ve seen millions of taxpayer dollars misspent because of a lack of oversight and accountability,” he says. One of his favorite examples of this is when contractors working on overhauling the 911 system billed the city $147 an hour to remove waterbugs from a bathroom and to photocopy conference room calendars.

But the city’s problems with IT contracts go way beyond timesheet issues. In 2012, contractor SAIC agreed to pay the city a record $500 million in penalties for a failed automated payroll system, the cost of which ballooned from $73 million to more than $700 million before it was shut down. The U.S. attorney who prosecuted the case -- which was ultimately settled -- called the project “a fraudsters’ field day that lasted seven years.”

To tamp down on some of the waste and fraud, Stringer has issued a directive that will enforce some minimum standards for how IT consultants bill their time. It’s a simple plan, but with the city spending more than $1 billion annually on IT, the comptroller’s office still has its work cut out for it.

Government has been struggling with how it procures IT and contracts for services ever since the first computer was sold to the public sector. And as is evident in New York City, those struggles can easily turn into cost overruns. The federal government, which spends more than $80 billion annually on information technology, has a long history of projects that have ended up costing far more than expected, thanks to balky procurement rules and expensive IT consulting services.

States have also struggled when it comes to oversight of IT contracts. In April, the Massachusetts Senate issued a report that faulted state agencies and IT contractor Deloitte Consulting for a series of problems with a $46 million unemployment benefits system and a $114 million online tax filing system. The report recommended the state reorganize how it awards and oversees IT projects, “including changes that would make it easier for more companies to bid on contracts,” reported The Boston Globe.

The problem is that technology changes fast. New, more nimble firms keep entering the field with innovative technologies, but government, with its cumbersome procurement process, makes it hard for these new players to bid on contracts and provide the best value. “Working with the government comes with certain hoops and hurdles to jump over,” says Scott Amey, general counsel for the Project on Government Oversight, an independent watchdog group.

“The smaller players may not have the kind of staff who are capable of navigating their way through the government marketplace. As a result, [government] ends up awarding contracts to vendors who are not necessarily meeting their needs.”

Certainly we’ve written many times in this very space about ways the government is trying to speed up IT procurement and reduce fraud and waste. Take the RFP-EZ program, an experiment launched last year by the federal Office of Science and Technology Policy.

It is designed to help small, high-growth technology companies do business with Uncle Sam. Or, notably, New York City launched an initiative a few years ago aimed at giving new companies a crack at government contracts, particularly on small to medium-sized jobs.

But New York City’s latest approach is focusing on some important basics: For the city, the problem lies with how it handles IT consulting contracts. Currently there are no minimum standards for so-called “time and materials” contracts. Stringer wants to require contractors who are paid by the hour to submit timesheets within 30 days and to require city agencies to verify that consultants are qualified for the jobs they do. Recently, city investigators found a firm had subcontracted work to low-paid consultants in India and Turkey, despite being required to use workers in New York. The firm fraudulently billed the city at least $6.5 million over a five-year period.

“Local governments are rushing to get on board with 21st-century technology,” says Stringer. “We have to be very mindful that not every contractor is a good actor. We have to do our due diligence in a serious and robust way.”

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