Company Linked to CityTime Payroll Scandal to Pay $500M

The contractor hired by the city to oversee the scandal-tainted CityTime payroll project agreed Wednesday to pay more than half a billion dollars in restitution and penalties in an agreement that allows it to escape criminal prosecution.

The CityTime project, launched in 1998, was meant to streamline timekeeping for city employees and prevent attempts to pad paychecks with overtime. The initiative was supposed to cost the city about $63 million. But Rose Gil Hearn, commissioner of the city’s Department of Investigation, said the city ended up paying between $600 and $700 million due to alleged fraud by individuals connected to the project.

The contractor, Science Applications International Corporation, or SAIC, entered an agreement before a federal judge in Manhattan to pay $370 million as restitution and $130 million as a penalty. In addition, more than $40 million of unpaid invoices will be forgiven by SAIC.

“Half a million dollars is a staggering sum, but it is a sum commensurate with the staggering scale of the crimes and misconduct that we uncovered,” Manhattan U.S. Attorney Preet Bharara said, “and it is an amount, as I've said, that makes the city whole.

In court papers, prosecutors describe an elaborate fraud scheme, involving the creation of shell companies to enable the routing of kickback payments.

“The investigation revealed that SAIC managers responsible for CityTime placed profit ahead of principle time and time again,” Bharara said.  “That is why we insisted that the company pay from its own pocket every penny of the massive fraud perpetrated against the city.”

Under the deal, SAIC also agreed to adopt internal reforms, including whistleblowers protections, the appointment of an independent monitor and installing enhanced mechanisms for the reporting of fraud.

Pending criminal charges were filed in federal court against the company, but those charges will be dismissed if SAIC complies with all the terms of the agreement for three years, according to prosecutors.

The criminal investigation of CityTime began more than 15 months ago after major delays and cost overruns caught the attention of authorities, who uncovered, what Bharara called, a “fraudster’s field day” that lasted more than seven years. 

Eleven people were criminally charged as a result of the investigation. Two have pled guilty and one has passed away, leaving eight individuals still facing pending criminal counts.

Federal prosecutors have also seized or frozen about $52 million in assets from individuals involved in the alleged fraud. Once those assets are forfeited, Bharara said, the total recovery to the city will amount to about $600 million.

In a letter to the company last year, Mayor Michael Bloomberg had demanded that it repay the city more than $600 million spent on the project.

“In addition to getting repaid for the amount the city was defrauded,” Bloomberg said at the joint press conference with Bharara, “we’ve also gotten what we set out to create – a functioning, automated timekeeping system that saves taxpayers money.”

The lawyer for SAIC, Douglas Lobel pled “not guilty” Wednesday morning in federal court to a criminal information filed by prosecutors that charges conspiracy to defraud New York City.

Bharara noted two records at the press conference.  He called the case perhaps “the single largest fraud ever perpetrated on the City of New York,” and said the resolution of the case represented “the largest, by dollar amount, arising out of any state or local government contract fraud in history.”