Tech firm kickback scandal could claim many victims

The Department of Justice threw its weight behind three whistle blower lawsuits that contend some of the nation’s leading IT firms have been overcharging the U.S. Government for services and supplies, by way of a large scale “alliance” between companies that provided kickbacks and discounts that the government never saw.

As Grant Gross of the IDG News Service reports, the DOJ is backing three cases filed in 2004 by Accenture employee Norman Rille in U.S. District Court for the Eastern District of Arkansas. Rille alleges that three companies: HP, Sun and Accenture submitted false claims to the U.S. government on “numerous” government contracts since the late 1990s.

But the list of companies who may have had their hand in the government’s till is much longer — almost three dozen companies that reads like a who’s who of the tech sector: Cisco Systems Inc., Microsoft Corp., IBM Corp., Dell Inc. and Oracle Corp. and on and on.

Fishy business deals between and among IT firms doing business with the government are no secret, says Alan Paller of the SANS Institute, an IT Professional association.

IT professionals who worked within the beltway have long known about what was often referred to as “SPIFF,” a business term that typically refers to small, immediate bonuses paid to salespeople for selling a particular product. In the world of government IT contracts, it was often used to refer incentives and extras paid to companies that resold to the government, Paller said. The end result was that the cost of services and products sold to the government got inflated, he said.

“This could be the equivalent of the backdating of options scandal,” said Alan Paller of The SANS Institute, an IT professional association. “It’s the equivalent not just because it will bring some of these companies into ill repute and their officials into jail, but also because it’s something that was very widespread –so widespread that people thought it was OK,” he said.

While Paller isn’t critical of government IT purchasing per se, he thinks that paying inflated costs for basic goods and services leaves less money available to tackle important tasks — like IT security.

If found guilty, the firms named could be forced to pay triple the amount of losses in addition to civil penalties. While its not clear how much the DOJ reckons it has lost as a result of the alliance kickbacks, the numbers involved are likely to be quite large.

Accenture reported that its Government operating group reported revenue of $655 million and profits of around $93 million in the quarter ending February 28, and profits of $120 million on $1.2 billion in revenue in the last two quarters.