NY Contractor Fraud Case Scandal a Thorn for Bloomberg

Mayor Michael Bloomberg landed his hard-fought third term in part by selling himself to voters as a savvy businessman and no-nonsense manager who could secure the city's finances in tough economic times.

But with yet another city contractor accused of profiting off a payroll technology kickbacks scheme on the mayor's watch, and still more arrests in the pipeline, the steady drip, drip, drip of bad news on the scandal is chipping away at his public image, some analysts say.

The project to computerize the timekeeping system for city employees started in 1998 and carried an estimated price tag of $63 million. In the years since Bloomberg took office in 2002, the timeframe has more than doubled and the cost has ballooned to more than $700 million — a total that prosecutors now say includes at least $85 million in kickbacks and falsified billing.

Analysts say the case — details of which have been unveiled over months in an array of audits and indictments — presents a political stumbling block for the billionaire mayor, who is already facing a drop in approval from voters displeased with his handling of budget cutbacks and city schools.

The scandal "attacks at the core of the administration's claim that it delivers good, effective, efficient, businesslike government under a businessman for mayor," said Gerald Benjamin, a political science professor at the State University of New York at New Paltz. "It attacks at the ethos of an administration."

Bloomberg, who has long touted his business savvy and commitment to technological innovation, argues that his staff has done "a pretty good job" on the mammoth technology project, known as CityTime.

As of last month, the system was being used by all but 2,000 of the 165,000 city employees it was built to serve, the mayor said. While calling the alleged fraud "despicable," he has also said that it represented an aberration.

Four contractors were charged in December, accused with others of laundering the money through layers of shell corporations meant to disguise a fraud that prosecutors said dated to 2005.

Late last month, the program manager formerly employed by SAIC Inc., the company hired to oversee the project, was charged with receiving more than $5 million in kickbacks and laundering the money overseas starting in 2003.

Joel Bondy, appointed in 2004 by Bloomberg to oversee the city Office of Payroll Administration that was in charge of the project, was suspended without pay and resigned. He had previously worked for the company in charge of quality assurance on the project, the same firm whose contractors have been charged in the case. One of those contractors, Mark Mazer, previously reported to Bondy at the city child-protection agency in the 1990s.

Bondy's department, jointly overseen by the mayor and the city comptroller, uncovered faked timesheets in a 2008 audit but didn't identify the practice as fraud. The audit went to Bondy's deputy, who had also once worked with Mazer. The deputy, who did not respond to a message seeking comment, remains on the job.

Mazer's lawyer, Gerald Shargel, said there was no fraud and points to the mayor's statements praising the timekeeping system. Bondy did not respond to messages seeking comment.

Investigators say they expect more arrests in the still-expanding case.

On June 3, authorities seized computers and documents from the Wayne, N.J., offices of TechnoDyne, a subcontractor that received more than $450 million for its work on the project, according to a person familiar with the investigation who spoke on condition of anonymity because the investigation is ongoing. The company has shut down its website and emptied its office of employees.

The husband and wife who own the company have left for their native India and haven't returned, the person said. The couple haven't been charged and did not respond to an online message seeking comment.

The fraud as detailed by prosecutors thus far totals $85 million, a relative drop in the bucket of New York City's $65.7 billion budget. But it remains unclear how much of the more than $600 million in project cost increases were legitimate.

Commissioner Rose Gill Hearn says the Department of Investigation, which first uncovered the alleged fraud in an ongoing investigation, continues to examine the cost increases.

"I think it was a worthwhile project and a necessary project, but we ceded too much control to project managers and consultants and consultants to the consultants," said Hearn, whose city agency is tasked with rooting out fraud and corruption among city employees and contractors. "We need better accountability and better checks and balances."

The mayor has argued that, to some degree, ballooning costs are an inescapable part of government technology contracts. He also said the initial $63 million project price tag was never expected to cover the full development of the system, which must accommodate a labyrinth of timekeeping rules for the city's 5,000 civil service titles.

"The estimates at the beginning of what these things are going to cost are typically not terribly accurate. There's probably no solution to that," he said last month.

The administration has long brushed off demands by unions and their allies to reduce city contracting, but after conducting the internal review that followed the indictments, Deputy Mayor Stephen Goldsmith said the city would shift more work from contractors to city employees and stop outsourcing its management of technology contracts.

Future contracts will be for smaller projects and give contractors clearer requirements, he said Thursday.

Bloomberg has also asked Goldsmith to examine how costs ballooned on the project.

"There are serious questions about SAIC oversight," said Goldsmith, who maintains that the technology will ultimately save the city money.

Court documents showed that SAIC, which handles a large number of contracts for the U.S. government, received a complaint in 2005 about one of its own employees, Gerard Denault. The complaint claimed that Denault, who was arrested last month, was delaying the project and likely accepting kickbacks, and said that subcontractor employees were complaining about receiving high salaries while doing nothing for weeks at a time.

SAIC's internal investigation lasted five months and Denault went unpunished, prosecutors say. A Bloomberg spokesman says no one in city government was told of the investigation.

A spokeswoman for the company, which recently reported quarterly income of $2.69 billion, did not comment. A spokeswoman for the quality-assurance company, Spherion, said it had done nothing wrong and was cooperating with authorities.

Victor Natanzon, one of the contractors named in the case, has pleaded guilty. Of the remaining seven people charged, one has died and six have pleaded not guilty.

The case has made headlines in local papers and provided fodder for local officials who may be seeking the mayor's job when his final term ends at the end of 2013.

But the case is simply too complicated to gain traction with voters, said Hunter College political science professor Kenneth Sherrill. It doesn't carry the same weight for residents as city services like snow plowing and schools — other issues that have followed Bloomberg this year, he said.

Still, it could impact Bloomberg's image in the years to come, said Marist College pollster Lee Miringoff.

"Clearly if he's thinking about his legacy, this becomes a chapter in his administration I'm sure he would have rather done without," he said.


Samantha Gross can be reached at http://www.twitter.com/samanthagross

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