DiNAPOLI UNCOVERS GRAFT IN STATE OFFICE FOR TECHNOLOGY

Press Release from State Comptroller’s Office

State Office for Technology (OFT) officials ignored state finance law and procurement guidelines in awarding business to favored companies, and in some cases did so for personal gain, according to an audit released Tuesday by New York State Comptroller Thomas P. DiNapoli. The actions of OFT officials cost taxpayers millions and may have violated the state Public Officers Law. DiNapoli has referred the findings of the audit to the Joint Commission on Public Ethics.

“These officials were supposed to lead New York State’s efforts to modernize technology, but my office found flagrant misconduct and that no one within OFT stepped forward to question these actions, indicating a systemic breakdown in agency ethics,” DiNapoli said. “OFT’s executive team needs to take immediate steps to address shortfalls in their organization that lead to this brazen abuse. My office will continue to monitor and scrutinize OFT procurement activity in the foreseeable future to ensure that similar problems do not recur.”

OFT is responsible for providing information technology services to the state and its governmental entities. OFT also sets statewide technology policy for all state government agencies, assists agencies with large technology procurements and monitors all large technology expenditures in New York. In October 2010, DiNapoli’s office rejected a contract submitted by OFT for staff augmentation valued at $7.5 billion because of flawed cost evaluations and the value of the contract appeared to overstate consultant spending. DiNapoli subsequently ordered a full audit of OFT’s contracting and procurement practices. Auditors had to perform additional costly and time consuming steps to conduct the audit because OFT impeded the auditors’ access to staff and data, raising concerns as to whether other abuses may exist but have yet to be discovered.

Auditors found OFT officials wasted at least $1.5 million in state money on a $5.7 million, three-year agreement with software security firm McAfee. OFT paid $1.9 million for the first year costs of the contract, and planned to recoup the money by reselling the licenses to other agencies. Soon after though, fatal problems with the procurement process emerged and the contract was terminated. In the end, OFT recouped less than $400,000 of the money it spent.

The McAfee agreement was primarily negotiated by OFT’s former Deputy Chief Information Officer Rico Singleton. Investigators found that at the same time he was personally negotiating the multi-million dollar contract with McAfee, Singleton befriended an account manager at McAfee and used his position at OFT to help obtain a job at McAfee for his girlfriend.

Singleton himself later interviewed for a position with the company within a month of the initial contract payment. Singleton’s airfare and hotel costs for the interview were paid for by the company.

In another case, DiNapoli’s auditors found Singleton had pre-negotiated with Computer Associates (CA) to win a contract to overhaul OFT’s monitoring program for State IT procurements and told CA his agency wanted Currier, McCabe and Associates (CMA) to become a subcontractor. Only after these discussions had taken place did OFT engage in a public bid for the procurement.

When the project ultimately failed due to poor planning, OFT officials moved to cancel the contract “for cause,” a determination that bears serious consequences for a company because it infers that the problems were the fault of the vendor and could affect the company’s future dealings with the state.

DiNapoli’s investigators and auditors found OFT officials attempted to coerce both CA and CMA into providing monetary credits against other unrelated projects in exchange for changing the determination to a termination “for convenience,” a classification that does not carry the negative stigma. Both vendors told investigators that they felt they were being subjected to “extortion” or being “held hostage.” In the end, CA ultimately relented to OFT’s demands, but CMA did not.

OFT officials also apparently violated the agency’s own procurement policies as well as New York State Procurement Guidelines. While state agencies purchases of goods or services costing less than $50,000 need not be approved by the Office of the State Comptroller, agencies must still document their method of procurement and the basis for their purchasing decisions.

OFT officials routinely granted contracts to favored vendors and did not ensure the price the state was paying was reasonable. Auditors reviewed 23 discretionary purchases totaling $891,618 and found only six had proper documentation.

DiNapoli’s auditors recommended OFT:

· Provide ethics training to all staff, including senior and executive management.

· Ensure that all senior officials and contract management staff receive up-to-date training in state procurement laws and office procurement policies.

· Develop a standard business case analysis to be performed for all purchases.

· Ensure that no one individual has the ability to influence or control the procurement process for any contracts or purchases and that full disclosure and/or recusal is required of all OFT employees in the case of a potential conflict of interest or the

appearance thereof.

· Better monitor contract end dates and reduce the office’s reliance on stop-gap contracts.

· Discontinue practices to avoid competition that would otherwise be required and appropriate.

OFT officials acknowledged the serious cases of misconduct detailed in the audit and indicated they would use the audit’s recommendations to improve internal controls over contracting and procurement. However, they also said the audit mischaracterized current OFT operations and failed to recognize changes made since the new chief information officer was appointed in April 2011.

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