Computer and IT Company Fraud
We’re willing to bet that information technology—also known as IT—is not the first group of businesses you think of when you consider fraud against the government. It’s more likely that crooked Medicare providers or defense contractors come to mind when it comes to violations of the False Claims Act (FCA).
Nevertheless, high tech/IT companies have been involved in some significant technology-related fraud, prosecutable under the FCA’s provisions. Over the past ten years, such cases have produced a total dollar amount of $1.2 billion in settlements, and many of the cases have been brought by whistleblowers. Less than a year ago, a case that was settled during 2015 awarded a whistleblower $2.3 million. Amid allegations that two companies used employees who lacked the appropriate security clearances for Defense Department Information Systems (DISA) contracts, NetCracker Technology Corporation said they would pay the U.S. government $11.4 million, and Computer Sciences Corporation agreed to fork over $1.35 million.
Which Kinds of FCA Violations Commonly Occur with Tech/IT Companies?
The most common reason for FCA suits when it comes to IT companies is improper pricing used in contracts with the General Services Administration (GSA). About 56 percent, or $675 million, of the settlements from 2005 through 2015 have involved various violations of contract obligations between tech/IT companies and the government.
If an IT company wants to sell items or services to many different government users under one central contract, the company must agree to make their pricing policies transparent and public. If for any reason the company tries to hide the discounts they give to commercial (non-government) users, they will run afoul of FCA provisions and can be held liable for doing so.
A claim of kickbacks is the second most common reason that IT companies are charged with breaking FCA laws.
Roughly 14 percent of settlements ($172 million) have been recovered from cases encompassing such allegations that involve tech contractors, IT providers, and consulting entities. In 2011, Accenture paid the US government $64 million because it was alleged that they received kickbacks so they would push certain kinds of software and hardware to the government. Also alleged was that they increased prices and manipulated government contract bids.
The third most common reason that the FCA is violated concerns overcharging and disallowed costs, to the tune of $135 million from 2005 to 2015 (11 percent of settlements). Allegations of fraudulent software maintenance contract renewals involving overcharging meant that CA Technologies settled for $11 million in 2013.
In the past, other kinds of false claims violations in the tech and IT realm have included:
- Claiming compliance with government contract stipulations when such compliance did not exist.
- False representations of any kind in a government bid, a grant application, or a government auction.
- Trying to obtain reimbursement for anything outside the scope of the government contract.
- Visa fraud and abusing employment practices involving immigrants.
- Violating the E-Rate Program. This program provides funding to schools and libraries in order to buy internet services and computer hardware.
- Entering claims for payment that are tied to exporting goods or technologies that break trade laws like ITAR and EAR. These laws are meant to control the supply chain in order to prevent defense-related technology from falling into the wrong hands.
- Misuse of government funds.
An Abundance of Tech/IT FCA Cases
In addition to the NetCracker Technology Corporation case mentioned earlier, the year 2015 saw three Tech/IT false claims cases brought to positive close; two were due to whistleblowers:
- Allegations of improper pricing and overcharging by VMware and Carahsoft were settled for $75.5 million. Blowing the whistle was a former vice president for VMware. His award has not yet been decided.
- Allegations against PC Specialists Inc., d/b/a Technology Integration Group (TIG), led to a settlement of $5.9 million. It was claimed that prices for computers were inflated; the hardware was sold via another company to the National Nuclear Security Administration (NNSA) and eventually used at Sandia National Laboratories in Albuquerque, NM. The qui tam case was brought by a former executive with TIG. His award has not yet been decided.
- In a non-whistleblower case, Global Computer Enterprises, Inc. (GCE), along with its president and owner, settled for $9 million. It was alleged that GCE hid the use of prohibited employees and engineers on federal software services contracts.
Major tech whistleblower cases from 2009 through 2014 include the following:
- Oracle, in a 2011 improper pricing case, agreed to pay $199.5 million. Allegations centered on nondisclosure of sales practices and commercial discounts by the company. A former Oracle employee was awarded $40 million.
- NetApp and NetApp US Public Sector settled for $128 million in 2009. It was alleged that they did not disclose a number of discounting and pricing policies. The whistleblower was awarded $19.2 million.
Still to be settled is a whistleblower case involving Symantec, with government estimates of damages at $145 million. The company is facing charges that more favorable pricing terms and discounts on software were not divulged to the government.
Blowing the Whistle? We Can Help You with Your Next Step.
If you think you have the facts needed to bring a whistleblower case, our experienced whistleblower attorneys can review your case and help you file the appropriate disclosure statement.
For a free, confidential evaluation of your case, call today at 1-803-454-1200 or, if you prefer, you can fill out our online contact form.