Accenture Claims No Wrongdoing, Then Pays a $64 Million Settlement to US Department of Justice (2011)
Accenture paid the United States government $63.675 million to resolve a lawsuit regarding fraud, illegal commissions (kickbacks), and rigged bids, the Justice Department said in a press release from September 12, 2011.
The lawsuit alleges that Accenture submitted or caused to be submitted false claims for payment under numerous contracts with agencies of the United States for information technology services.
Accenture defense was made public in a press release which states: “Accenture continues to vigorously deny that there was any wrongdoing.”
The allegations were that Accenture:
- received kickbacks for its recommendations of hardware and software to the government,
- fraudulently inflated prices and
- rigged bids in connection with federal information technology contracts.
How it was Discovered
While working at Accenture (2000-2002), a Senior Manager discovered the company was involved in what it called an “Alliance” relationship with HP and other computer and technology vendors who sold computer equipment to the government.
Under these “Alliance” relationships, Accenture received kickbacks from HP and other companies in two forms:
- lump sum payments for recommending HP products to the government; and
- discounts given to Accenture when they purchased HP products for resale to the government.
The Senior Manager left Accenture with over 700,000 pages of electronic data related to the “Alliance” relationships. He shared this information with a certified fraud examiner. On September 8, 2004, the two whistle-blowers disclosed the documents involving the Alliance relationships to the government.
The lawsuit alleged the computer companies defrauded the government out of “hundreds of millions of dollars” by exchanging unlawful kickbacks to consultants for government referrals and by engaging in defective pricing schemes.
Was Accenture Guilty?
Accenture refuse to admit any liability in its press release and says it settled the case to “avoid additional time, inconvenience and expense that would come with protracted litigation.”
If that is true, then Accenture paid $63.7 million to save time, inconvenience, and expenses.
Surely a company with thousands of employees and external lawyers that represent them does not care about time and “inconvenience” before keeping $63.7 million. That goes against business logic. So, what they are really saying is that they do it to save legal expenses.
The amount in question would be equivalent to a lot of hours by defense attorneys. Even if Accenture pays as high as a hefty $500 per hour to its lawyers, it means 127.000 hours by lawyers to reach $63.7 million in legal fees.
Accenture claims to be completely innocent, so why would they need more than 127.000 hours of legal services (equivalent to 60 lawyers working full-time for one year)?
Exposing Evil Empire believes the settlement is a clear admission of guilt. It is up to the readers to judge if an innocent company would pay that amount in a settlement.
As stated in the press release from the Department of Justice, Christopher R. Thyer, U.S. Attorney for the Eastern District of Arkansas:
“Fraudulent business practices that steal hard earned and much needed tax dollars from appropriate use will not be tolerated. The United States Attorney’s Office is committed to pursuing these cases to the full extent of the law”
The fraud was quite extensive, with many federal agencies as victims.
|Facts about this Scandal|
|Defrauded Clients:||Various, all in the US:|
|Type of Projects:|
The lawsuit was initiated through the federal False Claims Act. Other IT firms, amongst others HP and Avanade, were also included in the case.
Accenture Thriving Despite the Scandal
Despite the fraud, no federal agencies have cut ties to Accenture. Two agencies stick out, though: the USPS and the Department of Education.
USPS Warned of Potential Future Accenture Fraud
In June 2013, USPS was warned by its Inspector General (IG) to not do business with Accenture.
According to audits, Accenture had:
- failed to review the system for estimating the costs and
- failed to fix its system for tracking actual costs in comparison with those estimated costs,
– Inspector General of the US Postal Service
According to Post & Parcel, besides potentially cutting off future business to Accenture, the Postal Service should consider ending existing contracts, the Inspector General said.
The IG said Accenture’s involvement in lawsuits regarding improper contracting practices created an “immediate risk of future fraud and abuse” in Postal Service contracts.
Surprisingly, the management of USPS has ignored the warnings as “not warranted”.
Department of Education Publish Open Accenture Contract, Then Withdraw It
On Nov 10, 2011, two months after the settlement the US Department of Education announced that it will replace Accenture as the prime contractor for its federal student aid programs.
This was a non-competitive contract (also known as sole-source contract or no-bid contract) that brought Accenture $163 million in 2011 alone.
The selection process was said to be handled in accordance with the guidelines set forth in the Federal Acquisition Regulations.
However, the public notice was quietly withdrawn in January 2012 and education department officials renewed the contract with Accenture.
Scott Amey, general counsel of the Project on Government Oversight, said he did not know what happened behind closed doors, he was nevertheless troubled by that sequence of events.
Accenture has earned $289 million from the Department of Education since the settlement (to Feb, 2014).
US States Not Working with AccentureSome US states and cities have stopped working with Accenture, including Colorado, Wyoming, Wisconsin, and Atlanta. However, these boycotts are unrelated to this scandal.
Accenture Grows Business with the US Government
A one-off cost of $64 million is a small price to pay for the decade long pattern of fraudulent contracts with the US government, especially when you consider how much federal contracts Accenture has had after the settlement.
Accenture’s revenue per year from the US Government, in millions of dollars:
Accenture’s revenue from federal agencies has been almost $1 billion per year the last few years (2014 is an estimate). The settlement of $64 million (shown in green in the graph) is a very small sum in this context.
The US Government is purchasing more and more from Accenture despite the fraud, and the proportion of non-competitive contracts has increased since the lawsuit; after the settlement 23% of all the contracts with Accenture have been non-competitive.
This makes you wonder about the public procurement in the US. Is Accenture – a generalist consulting firm – really the only firm capable of making proposals for the services the government needs?
According to Washington Examiner Accenture has links to Obama that go back at least to 2007 when Accenture leased an entire floor of its U.S. headquarters in Chicago to his first presidential campaign. The luxurious space provided a view of Lake Michigan.
Accenture said, “This settlement will not restrict Accenture’s current or future business with the U.S. federal government in any way.”
Even the Department of Justice itself has awarded contracts to Accenture after the settlement.
Accenture’s crisis management is world-class as assessed by Exposing Evil Empire.
Apparently the crisis strategy is to ignore scandals to silence them. That way, journalists have no sources to use in their reporting. If the scandal become too big and journalists will write about it anyway, Accenture sends out a minimum press release and then puts the lid on.
This scandal and the settlement were widely reported in the news, but most media outlets just cited the two press releases and did not dig deeper. And as shown Accenture’s federal IT contracting continues to grow year after year, despite all its embarrassing scandals.
One question arises: why don’t scandals and failures affect Accenture?
- Press release from the US Department of Justice
- The lawsuit document
- Accenture’s press release
- The USPS Inspector General’s report
- Department of Education’s Contract Solicitation (Federal Student Aid)
- Washington Examiner: Accenture’s success has come despite checkered federal contracting history