UPDATE: This case has been settled. Details below. Christopher Cotter is a 52-year-old Houston man who “suffers from peptic inflammatory disease and labile hypertension," according to a complaint filed against the Big 4 firm formerly known as Ernst & Young in a Southern District of Texas court on August 5th. In layman's terms, he has […]
Hell hath no fury like an obscure California county that feels completely gypped (to the point that they feel it’s fraudulent) by the largest professional services on Earth.
Marin officials fired another salvo in an escalating $105 million legal war with international computer consultants, filing a new lawsuit Thursday accusing them and a former county official of violating racketeering law in a bid to rip off taxpayers.
The new suit was filed against Deloitte Consultant LLP, software developer SAP and former assistant auditor-controller Ernest Culver, who served as project director of the county’s troubled computer installation before quitting to join SAP.
As you may recall, Marin County’s original suit against Deloitte for $35 million involved allegations of “fraud, misconduct and misrepresentation” which included using ‘neophytes’ on the implementation of the county’s ERP system. The new racketeering charges are especially interesting and the Marin Independent Journal has the details:
It alleges a conspiracy, asserting consultants wined and dined Culver and interviewed him for employment at the same time Culver was approving deficient work on the project, approving fee payments and helping line up new contracts.
“County taxpayers were charged for millions of dollars in services that Deloitte failed to properly perform” and residents were “defrauded of the honest services of a high-ranking county official,” according to County Counsel Patrick Faulkner.
Deloitte denied the allegations of the original suit, saying that Marin County was actually responsible for the snafu. However, and unfortunately for Deloitte, new shit has come to light:
Faulkner disclosed that the county has combed through its computer system to retrieve thousands of e-mails issued by consultants and Culver while they worked in county offices, providing a backbone for accusations leveled by the latest suit.
The complaint alleges six violations of the federal Racketeering Influenced and Corrupt Organizations Act by Deloitte and SAP, and three counts of illegal conduct against Culver, including a violation of the state anti-corruption statute.
So it doesn’t sound like there’s a smoking gun per se but enough back and forth that adds up to this:
The lawsuit, the county said in a press release issued late Thursday, claims that when problems with Deloitte’s work surfaced, Deloitte and SAP engaged in a “cover-up that included bribing Culver to falsely ‘approve’ Deloitte’s defective work, and silencing an SAP employee who tried to intervene on the county’s behalf.”
So, in other words, pretty bad stuff. The MIJ reports that “Settlement talks are expected and while the parties remain at odds, the latest court filing could spur negotiations.” Using our best translation skills, this more or less says, “Deloitte, SAP and Culver realize they’re fucked – begrudgingly – and will be going to the table any day now to sort things out.”
The Independent Journal also reports that SAP, Deloitte or Ernest Culver “could not immediately be reached.” Our own messages with Deloitte spokemen Jonathan Gandal and John La Place were also not immediately returned.
The following post is republished from AccountingWEB UK, a source that delivers topical, practical content to accountants and accounting professionals.
Merger rumors. What would we do without them? The past decade or so of my professional life has been shaped by the regular appearance of bid rumors around Sage, usually of the “who are they going to buy this week?” sort.
So you can imagine my surprise to hear on the grapevine that Sage’s share price had surged almost 5% on Tuesday night on rumors that it was an acquisition target for SAP, with Microsoft and Gapgemini reported to be sniffing around the undergrowth in Newcastle too.
I’m not a stock market analyst, so I don’t really need to chase geese like this, but I couldn’t help myself from doing a little background checking. The Daily Mail appears to have broken the story, without naming sources, around 10:30 pm on Monday night. By the next morning, Reuters and numerous other outlets had picked up the trail and various analysts were puffing up the story with blogs and tweets.
There was a tweet from China Martens at 451 group of “late night activity in Walldorf” to verify that something was up, but with none of the companies involved breaking cover this really was one of those stories where one bit of unfounded gossip was feeding off another.
Years of industry-watching have taught me never to be surprised at what a software company with a wedge of cash in its back pocket can get up to, but neither SAP or Microsoft strike me as being suitable suitors for Sage. Microsoft’s entire business solutions strategy has been in turmoil for years and if it ever enters Steve Ballmer’s consciousness, my guess is that he wishes the company had never got into bed with Great Plains and Navision.
SAP meanwhile, is everything that Sage isn’t: a technology-focused global monolith that still has trouble thinking of an SME as having anything less than a $500m annual turnover. On this point Dennis Howlett blogged, “So much of Sage’s business is at an end of the market about which SAP has little understanding. Sage is on a declining organic growth curve, has a rat’s nest of code from acquired companies, is propped up by maintenance fees and has a nightmare in the US to manage with the ongoing Emdeon fiasco.”
It doesn’t happen often, but for once I find myself in complete agreement with him.
Strangely, by Wednesday afternoon the rumors had simmered down and so had the share price (although somebody seems to have done very nicely out of the rumors with 1.7m of shares shifted at the peak of the frenzy on Tuesday night).
Now I’ve voiced my doubts, they’ll probably turn around an announce the deal in the morning.
Genzyme Rejects Sanofi’s Overture [WSJ]
“Genzyme Corp.’s board again rejected an $18.5 billion takeover proposal from Sanofi-Aventis SA, although Genzyme suggested it would be open to future talks if there were a higher starting price.
Genzyme’s suggestion contrasts with accusations from Sanofi Chief Executive Chris Viehbacher that he “encountered a brick wall” in trying to begin merger talks. And with the French drug maker stressing its discipline in pursuing the Cambridge, Mass., biotech, the rhetoric from both sides hints that any deal could take some time.”
No horsing around, IRS tells ex-NFL star [Forbes]
“The Internal Revenue Service says ex-football star linebacker Bill Romanowski owes more than $6 million, primarily for claiming losses from a thoroughbred horse-breeding investment whose promoters have admitted was a fraudulent tax shelter.
Romanowski, 44, and his wife, Julie, filed a lawsuit last month in U.S. Tax Court disputing an IRS bill for $5 million in taxes, $1 million in penalties and an unspecified amount of interest. According to his complaint, for the years 1998 to 2004, the Romanowskis said their total taxable income was a negative $11 million. The IRS said it really was $14 million. The difference is a cool $25 million.”
Higher Taxes May Not Push Firms To Cut Dividends [WSJ]
“The expiration of a tax cut on dividend income wouldn’t likely spur firms to significantly cut their dividend payouts, say some scholars who study the relationship between tax rates and corporate behavior.
One big reason is that a growing share of U.S. equities are held by retirement funds and foreign investors that aren’t swayed by U.S. individual income-tax rates.
‘If there is an effect, it will be modest,’ University of North Carolina professor Douglas Shackelford said of the pending higher tax rates. ‘Pension funds, 401(k)’s, foreigners and corporations–all of these don’t care’ about the individual tax rate, he said.”
Alabama county mulling whether to keep, jettison SAP [Reuters]
Jefferson County, Alabama is the latest to have trouble with their SAP system. Unfortunately for JeffCo, they don’t have a huge consulting operation to sue, only an unnamed “third-party consulting firm.”
Guess Who’s Coming to Dinner! [Taxable Talk]
James Traficant, that’s who. Traficant was indicted in ’02 (while serving in Congress) on federal corruption charges and ultimately found guilty on ten counts that included bribery and tax evasion. Despite that track record, he has managed to get the necessary amount of signatures to run as an independent in Ohio’s 17th Congressional District.
Accounting firm raided over alleged drug network [ABC Australia]
Don’t think it can’t happen to you!
Earlier in the summer, we told you about Marin County California, who was pretty displeased with Deloitte throwing a bunch of ‘neophytes’ at their ERP implementation project or in the County’s words ‘a trial-and-error training ground.’
As a result of Deloitte’s amateur hour, the SAP system – that Deloitte claims was just fine and dandy where they left it – is now being thrown to the scrap heap by the county because fixing it will cost more than replacing the whole system. And God knows Arnie won’t be helping them out with the bill, so they have to save on costs where they can.
The system is the subject of a lawsuit Marin County filed against system integrator Deloitte Consulting earlier this year. Deloitte used the project as “a trial-and-error training ground” for inexperienced employees, and the result was a “costly computer system far worse than the legacy systems it was intended to replace,” according to the county’s complaint.
Deloitte has filed motions against Marin County’s “completely unfounded allegations,” as well as a complaint seeking unpaid fees, a spokesman said via e-mail. The system “was working properly and could perform all the tasks consistently with the standards set forth in the written contract,” according to a Deloitte court filing.
Marin County tells a different story. The SAP implementation dates to 2006, but today only 50 percent of the functionality is in place and working properly, according to a county report.
The county hasn’t decided on who they’re going with for the new system but if you’ve got a one-person shop with no experience and present your RFP using overhead transparencies, you’ll still have an edge on Deloitte.
Geithner defends Obama policy on tax cut extension [AP]
“Treasury Secretary Timothy Geithner said Tuesday it would be ‘deeply irresponsible’ for the Obama administration to support a wholesale extension of Bush era tax cuts, including breaks for the wealthy.
Geithner said in a nationally broadcast interview that President Barack Obama strongly believes those reductions should be retained for the ’95 percent’ of taxpayers with individual incomes under $200,000 a year and families below $250,000.”
Bank of America, KPMG Settlement With Countrywide Investors Wins Approval [Bloomberg]
“Bank of America Corp. and KPMG LLP’s $624 million settlement with investors in Countrywide Financial Corp. led by New York pension funds won initial court approval.
U.S. District Judge Mariana Pfaelzer in Los Angeles ruled today on the accord. A fairness hearing will be held on final approval for the settlement, first announced in May.”
Snooki Tanning-Bed Protest Splits Sin From Taxes [Bloomberg]
“[P]eople don’t like government moralizing. If there’s one thing people dislike even more than taxes, it’s being told what to do.”
So does that mean that Alabama is imploring reverse psychology?
Reznick Group Promotes Four New Principals [Business Wire]
Reznick Group promoted Dan Fox and Renee Matthews in Bethesda, MD, Eric Jones in Sacramento and Daniel Worrall in Atlanta are the big winners.
Accounting & Consulting Group acquires Roswell’s Miller & Associates [New Mexico Business Weekly]
“With 95 employees overall, Accounting & Consulting Group is now the third-largest accounting firm in the state. Headquartered in Albuquerque, it has offices in Alamogordo, Carlsbad, Clovis, Hobbs and Roswell, and has a member firm office in Lubbock, Texas. The firm specializes in audit and financial reporting, tax compliance, business consulting and trust and estate planning.”
Becoming the Boss Can Cost Plenty [WSJ]
“When starting a business on a tight budget, a single spending gaffe can spell disaster. For this reason, experts in entrepreneurship recommend taking precautions, such as doing research to identify potential hidden fees, focusing only on necessities and setting aside emergency funds.”
SAP Business ByDesign 2.5: time to invest? [AccMan]
Dennis Howlett gives the lowdown on the “general availability of SAP Business ByDesign 2.5,” which means that it is available for any to purchase. Dennis reports that starter packs for as few as ten users are available for CRM, ERP and PSP.
Deloitte is being sued by Marin County in California, who is alleging fraud by misrepresenting its “skills and experience.” In other words, the County says that D used their ERP project as more or less a training ground for its newbie consultants. And no client likes it when you bring the blades of grass on site. They can’t even turn on their laptops without causing some sort of scene, amiright?
Channel Web has some of the particulars:
The County in April 2005 hired Deloitte to implement its SAP ERP system. However, the County alleged in the court document, “rather than providing the County with SAP and public sector expd the County’s SAP project as a trial-and-error training ground to teach its consultants — many of them neophytes — about SAP for Public Sector software, all at the county’s expense.”
Plus! The County claims Deloitte promised their very best people. From the complaint: “Deloitte further represented that for the County’s SAP implementation, Deloitte had assembled a team of its ‘best resources’ who had ‘deep SAP and public sector knowledge.’ ”
A Big 4 firm promising their best and brightest on the job in an RFP? There’s a shocker. “Best” being relative, as we all know but Marin County (obviously not familiar with a Big 4 sales pitch) must have been expecting a team to fly in from hyperspace that could slap this thing in lickity.
Thankfully, Michael Krigsman explains over at ZDNet that this isn’t exactly rare:
1. The court filing describes sales practices that are common through the consulting and systems integration industry.
For example, the complaint alleges that Deloitte committed to “dedicate our best resources and bring tailored implementation strategies to meet [Marin’s] long-term needs.” Many IT customers complain their system integrators do not follow through on such commitments and use inexperienced labor in attempts to reduce their own costs and increase profits.
We’d be so bold to say that this true of many Big 4 engagements, whatever the service line. Newbies have to get their teeth cut somewhere – why not on a public service job where money obviously grows on trees?
Deloitte isn’t impressed with this gnat of a lawsuit, claiming that they did exactly what they were supposed to do (not to mention to put up with the amateurs at MC that have zilch ERP experience) and the system was working just fine when they left:
As stated previously, we fulfilled each and every one of our obligations under the contract, as evidenced three years ago when all of our work was approved by the County officials responsible for the project. To be clear, the SAP (NYSE:SAP) software was working properly when we completed our work in November 2007. Not only is the complaint without merit, but we are filing our own claim against the County for breach of agreement and unpaid invoices. Although we are confident that we will prevail in court, it remains our belief that this dispute can and should be resolved in a more logical fashion that benefits the County and its taxpayers.
So Deloitte gets a little huffy basically saying, “Suck it, Marin County. MBAs love Deloitte. OH, and btw, you owe us some money,” but ultimately wants to keep things civilized for the sake of the taxpayers. Let’s hope it stays childish just for the sake of entertainment purposes. Taxpayers in California are f—ed anyway.
California County Sues Deloitte For Fraud In SAP ERP Project [Channel Web]
Marin County sues Deloitte: Alleges fraud on SAP project [IT Project Failures/ZDNet]