Research paper
Abstract
In the end of the previous century the New York City administration decided to enter the 2000's with a new, absolutely computerized and automated timekeeping payroll system; the idea that was originally incepted to change the only used standard system that was completely relying on good old pen and paper.
So, in 1998 the story of CityTime starts, with $63 million of initial budgeting and several years to complete; with it intended to be servicing 81 municipal agencies with their 165,000 workers. What began as a regular, but essential IT project for the "Big Apple" did turn into a fraudulent scheme of the decade, and worst for the history of the state of New York. As a result, the project got delayed by at least 5 years, with its budget mushrooming to the whopping $722 million, $80 from which were tainted through fraud.
Introduction
The CityTime project was undertaken by the city of New York as an initiative to modernize, as well as computerize timekeeping and municipal payroll operations, which would track the hours actually worked by city employees, thus preventing payroll waste, fraud and abuse. For over ten years, the city has been developing and putting a system into life, considering an idea to revolutionize the automated payroll management of 163,000 municipal employees to be easy enough to accomplish, with the original project budgeting to cost the city $63 million. But this was only on paper.
History of the CityTime
The history of the CityTime automated payroll project first began in the Giuliani administration in 1998 as an effort to modernize an enormous payroll system then managed entirely manually. Though the old system was reliable enough, still huge gaps and downsides in time accounting and management existed, with huge numbers of sheets of paper needed every day (the Police Department, for instance, was generating 1.5 million sheets of paper each month for timekeeping). New York City administration then through its Office of Payroll Administration (OPA), granted a contract to develop this automated time managing system to be interfaced with the City’s Payroll Management System. Thus OPA was the city agency charged with maintaining, managing and administering payrolls for city employees and retirees. It was responsible for safeguarding the billions of dollars of federal funds that were directed to the city each year and that the city uses to pay wages and salaries to certain employees administering federally funded programs. After a couple of false starts with other vendors, with MCI Systemhouse Corporation being originally contracted for the project’s development; later by 2000 the job had been awarded to a Virginia-based defense contractor Scientific Applications International Corporation in an absolutely no-bid contract by the Giuliani Administration; a job for which over $600 million was disbursed by the city between 2003 and 2010 (included). The primary subcontractor, New-Jersey based Technodyne LLC was shortly hired by SAIC itself in order to provide additional staffing services on the project, with SAIC obliging to pay at least $450 million for the work done between 2003 and 2010 (included). Along with that two sub-subcontractors were hired now by Technodyne LLC: D. A. Solutions, Inc. and Prime View, Inc. Both were hired on the grounds of providing the additional staffing services to the project as well. Between 2005 and 2010 these sub-subcontractors received over $55 million and over $20 million for their consulting services respectively, representing over 75% of the company’s income for that time period.
The initial budget for the CityTime payroll project was $63 million in 1998, and over the next thirteen years the budget had grown more than ten times, ballooning to the astonishing $722 million cost for NYC. The system was intended to be servicing 81 municipal agencies with their 165,000 workers.
The fraudulent scheme
People responsible for the project agreed to make material misrepresentations and material omissions in order to cause the city to spend significantly more money than it was necessary for the project in order to increase their illicit profits. Among other things they defrauded the city into: hiring consultants not needed to complete the project; inflating the rates charged for work performed by certain consultants; and inflating the hours worked by certain consultants.
They agreed to the payment of millions of dollars of kickbacks to individuals, whose participation was critical to the success of the whole fraudulent scheme; shell companies and bank accounts located in the United States and abroad were used to launder corrupt proceeds.
In 2006, when the city has already paid SAIC around $85 million for the work on CityTime, the leading fraud figures advocated for a certain amendment to SAIC’s CityTime contract. To be specific, they recommended to change the contract from the “fixed price” to the “fixed price level of effort”, which means that full responsibility for any cost overruns would be bore not by the contractor, but by the city itself. This should have caught the suspicious attention of the city administration, but nevertheless the contract was amended accordingly.
Following the contract amendment the staffing on the CityTime project expanded rapidly. At the end of 2005 there were fewer than 150 consultants working on the project, and according to the 2005 report the program was staffed adequately to meet any project needs. By the end of 2007 however, the number of consultants has more than doubled to more than 300, most of which were hired by the sub contractor TechnoDyne LLC and paid by SAIC. The city had to pay for the consulting services at rates that exceed $160 per hour, or more than $300 000 per year. Additionally, as the number of workers for the project grew from 2006 to 2010, SAID paid TechnoDyne LLC hundreds of millions of dollars for the unneeded services, despite the SAIC investigation of 2005 regarding the funding overuse, contract mismanagement and suspicions of multimillion kickbacks. As for the kickbacks, enormous sums of money went missing (approximately $80 million) because of kickback on every hour worked by every person, which varied from $2 to $5.
In December 2010 federal prosecutors officially charged eight CityTime/SAIC consultants with a multimillion dollar fraud scheme that started in 2005, though in 2004, the payroll office’s executive director had already spoken up thoughts that SAIC was delaying the project to make more money off of its development.
On May 25, New York City received a $466 million restitution and penalty payment for fraudulently-received funds from SAIC that relieved SAIC from any criminal charges for such behavior. NYC Mayor Michael Bloomberg has said that the money will be spent to cover the unforeseen budget needs of the city.
The CityTime aftermath
The city's long-delayed, over-budget computerized payroll system - a project at the center of a major criminal probe became fully operational on May 23rd, 2011. As of that date, 163 388 employees in more than 60 agencies were using the electronic payroll system, but recent data, collected in 2012, shows the lag behind the initial estimates for use, with only 118,000 city workers actually using CityTime, and that means that there were 47 000 people more were expected to start using the system. Nevertheless the New York Police Department started to get paid through CityTime, and it was the largest single deployment at one time onto the automated system.
Despite this fact a lot of people are stating that CityTime currently does not actually look for unauthorized overtime, and this might cause long term financial consequences for the city in terms of increased pension payouts to city workers because of the unauthorized overtime. Another question rising among the experts is why would not simply buy an existing commercial payroll system for around $300 000 and save all the money, the time and go without this whole fraudulent conspiracy. One of the theories suggest that the city decided to build its own payroll system so as to sell it in the future to other cities and state governments for $200 000 plus user fees. That though had turned to be just a dream that added to the difficulty of hoping to control an already out-of-control IT project.
The CityTime project, with its promise of saving millions of dollars thanks to new technologies like biometric readers, did definitely catch attention, thus allowing it eventually to get out of control. Still, the city Hall officials state that the payroll system, which was put in place despite the fraud, has actually improved a time tracking operations once dependent on pen and paper.
Conclusion
Despite being described as a disastrous project, taking 13 years to complete and an enormous amount of money, being a “vehicle for fraudulent activities”, New York City administration officials still consider it to be a milestone that is hailed as a modest victory on a project that has suffered huge cost overruns since its initiation in the 1990s.
References
Hennelly, B. (2011, June 29). CityTime Payroll Scandal a Cautionary Tale. New York Public Radio. Retrieved from http://www.wnyc.org/articles/its-free country/2011/jun/29/citytime-cautionary-tale/
Smtih, G. B. (2011, June 20). Prosecutors unveil new indictments in CityTime scandal; project was 'corrupt to its core': Bharara. New York Daily News. Retrieved from http://www.nydailynews.com/news/crime/prosecutors-unveil-new-indictments-citytime-scandal-project-corrupt-core-bharara-article-1.129803#ixzz2acQJcpoT
Saul, M. H. (2011, May 24). CityTime Finally Clocks In. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052702304520804576341880233533122.html
Filip, I. (2012, March 15). Info Technology Contractor Accused of 'Largest Fraud Ever' Against New York City. Courthouse News Service. Retrieved from http://www.courthousenews.com/2012/03/15/44715.htm
United States Attorney Southern District of New York. (2011, June 20). MANHATTAN U.S. ATTORNEY ANNOUNCES CHARGES AGAINST FOUR NEW DEFENDANTS IN AN UNPRECEDENTED SCHEME TO DEFRAUD NEW YORK CITY IN CONNECTION WITH CITYTIME PROJECT. Retrieved from http://www.justice.gov/usao/nys/pressreleases/June11/citytimes2indictmentpr.pdf
Grynbaum, M. M. (2012, March 14). Contractor Strikes $500 Million Deal in City Payroll Scandal. The New York Times. Retrieved from http://www.nytimes.com/2012/03/15/nyregion/contractor-in-citytime-payroll-scandal-to-pay-record-500-million.html?ref=citytime
Argoudelis, S. (2012, June 1). SAIC makes $466 million repayment for CityTime payroll management debacle. Essex Payroll Services. Retrieved from http://www.essexpayrollservices.com/index.php/saic-makes-466-million-repayment-for-citytime-payroll-management-debacle/2012248/
Charette, R. (2011, March 28). More Insight into the New York CityTime Payroll Project Fiasco. IEEE Spectrum. Retrieved from http://spectrum.ieee.org/riskfactor/computing/it/more-insight-into-the-new-york-citytime-payroll-project-fiasco
