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Article 1 - Vol 18, No. 21, May 19, 2004

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Ottawa's Military Computer Scam Solution Stinks!

It started out as Information Technology (IT) support contracts enduring from FY 2000/2001 through FY 2002/2003, issued to what is now Hewlett-Packard Canada Co. (HP Canada) by the Government of Canada on behalf of the Department of National Defence (DND).

Since then it has become a befuddling muddle of bafflegab to dodge explaining how C$156 million in taxpayer cash was stolen.

Hewlett-Packard's position seems rocky given that it owns and inherits contractual obligations. It is a ripe candidate for the 'fall-guy' role in an amazing cover-up. It must now pay back money it billed DND and subsequently paid to phantom subcontractors DND told HP to pay.

Even as at least one fired DND employee is basking in the sunny Turks and Caicos, seemingly impervious to prosecution, the government implies Hewlett-Packard is to blame for everything. Hewlett-Packard appears to be accepting that blame with caveats, perhaps to allow the continuance of its substantial Canadian business prospects and to save the federal government from further bad press over persistent news of alleged pervasive contract fraud. Giving the appearance of compensating HP for being the 'fall-guy', DND says that HP "remains a valued IT supplier to the Canadian government" according to a brief DND statement issued late Friday. This is worthy of skepticism.

DND-assigned sub-contractors to Hewlett-Packard (Canada) Co. (a.k.a.: HP Canada) were involved. Some may not even exist as real working entities.

Because even lower level IT-support requires access and control authority over some system resources, some work legitimately needs a shroud of security. Intentionally that shroud within DND was exploited to block oversight--a colossal breach of security from the inside. Astoundingly the work appears to be simple Web content building and server maintenance, work that many of today's Canadian High School graduates can perform well.

HP Canada did not know what work the sub-contractors it was forced to compensate were doing. How on earth HP Canada's operations-control regime would allow this to occur in the first place is something it must grapple with as the Government of Canada requests it to open fully its books. HP claims there is no "evidence that HP employees derived any improper benefit from the scheme".

Clearly it should be said that too much was tolerated by this company perhaps fearing the ruffling of big-client (the entire federal government) feathers. No whistle blowers emerged over the multi-year contract period.

When Hewlett-Packard asked DND about the nature of work performed by these contractors it was required to compensate, HP says it was told "that the work was confidential and in the interest of national security", HP was not entitled to this information. These tasks have recently been taken from HP and assigned to The Baxter Group, a web site builder. This is not top secret work. Moreover, HP had been the prime contractor after it took over Compaq and at some point in time, the DND surely must have given its contractor some specific instructions about the job of work to be performed. The alleged DND claim that HP didn't have security clearance is absurdly Monty Pythonish. 

Behind the apparently vulnerable wall of bogus DND security (obscurity?), without proper oversight, and exactly as one would expect from such an incompetent layering of disconnected hierarchy, something went catastrophically wrong. Were DND-embedded crooks running the HP Canada contracts? What more rot exists at the core?

Emerging is evidence of a "complex scheme designed to exploit both parties through contracts inherited with HP's merger with Compaq Computer Corp", said the mother of all lame excuses, a brief Department of National Defence news release dated 14 May 2004.

About its Compaq merger, Hewlett-Packard said in its October 2003 annual Form 10-k statement filed under U.S. Securities regulations, "During fiscal 2003, we made substantial progress toward completing the integration of our acquisition of Compaq Computer Corporation, which we closed during May 2002."

On page 16 of the report, Hewlett-Packard revealed the conflict saying that, "The Government of Canada is conducting cost audits of certain contracts between Public Works and Government Services Canada and each of Compaq Canada Corp. and Hewlett-Packard (Canada) Co. relating to services provided to the Canadian Department of National Defence. Compaq Canada Corp. was combined with Hewlett-Packard (Canada) Co. following the acquisition of Compaq by HP."

"The cost audits began, following a notice from the Government of Canada dated August 1, 2003. The Government of Canada has indicated that it believes it may have been overcharged under the contracts, that it may not have received value for certain items billed under the contracts, or both. It has requested supporting documentation for certain invoices submitted by HP in connection with this audit. Pending completion of its audit, the Government of Canada has declined to pay outstanding receivables (C$49m) under the contracts at this time. HP is cooperating fully with the audit and has conducted its own inquiry into the contracts."

"Public Works and Government Services Canada"--the federal government's buyer for all departments, a sort of contract clearing house--had blown the whistle on something it saw as fishy. Unbeknownst to these supply and services contract overseers at the time, who apparently were on the ball, the only malfeasance yet evidenced was not within the contractor (HP) but within its DND client. In short, the Canadian government complained to Hewlett-Packard about wrongfulness that had actually occurred within the government's own DND department. It appears that Hewlett-Packard deserves credit for exposing a rat, not blame for the whole mess.

Hewlett-Packard released a statement mid-March 2004 about its own internal investigation which "revealed the potential that an employee of DND and others unknown to HP engaged in fraudulent activity", it believed HP Canada had unknowingly been duped into some wrongful billing practices. HP Canada's words were indignant and while maintaining the corporations' innocence it promised to investigate fully.

Meanwhile Ottawa's misleading action in the March 2004 'hissing' match was a threat of court action against HP.

"HP is concerned that it has been exposed to potentially fraudulent activities," HP Canada said. "That HP was misled in this matter, for the personal profit of others, is not acceptable."

"Whomever did these deeds betrayed not just their peers but Canada [as a whole]," insists one industry executive. 

Surely greed in this instance obviates all loyalties. The perpetrators' alleged actions must have compromised the nation's security to some degree if in fact DND's assertion is true that " the work was...in the interest of national security". The alleged fraud artist(s) would have subjugated oversight vulnerabilities while exploiting trust under a veil of bogus security.

The upshot of a little-noticed "fix" is that the Canadian taxpayer gets its money back. Nicely done, HP.

The dark side of this solution is DND's lack of accountability and wide-open gaps in subcontractor oversight. Look at the dozens of second-tier "sponsorship" contracts exposed by Auditor General Sheila Fraser wherein monies were repeatedly paid to pals without the return of goods or services. In the midst of this does DND arrogantly imply that its behaviour is normal? 

There is another problem. The mentality within DND has been for over a decade somewhat backwards in the IT arena. 

Anything to do with computers has a certain dark mystique to many Canadians over the age of 21. DND is no exception and is collectively intimidated by its own computer people. A strong argument could be made to say that an 'IT-aware' DND would be doing its own system support and maintenance. Hiring outside Level 4 support contractors to train and update DND technicians and engineers is likely a better option than the apparently unsupervised activities of current subcontractors.

It would be nice to hear from DND about:

arrests made,

internal dismissals,

an action-oriented plan to prevent future episodes, and

the results of a clean-sweep making certain no other activities of this type exist today.

Nevertheless, without any elements of our 'wish list', DND and Hewlett-Packard are working it out and Canadians can be glad that funds are promised to the public purse in an amount close to the known theft.

Hewlett-Packard (HP Canada) will repay C$146 Million "an amount determined by both parties to be appropriate upon investigation"to the Department of National Defence. 

The government says it will "take appropriate steps, including (civil?) action in the courts to recover these funds from the individuals and companies involved in the scheme". It doesn't prosecute criminals?

News last week of this cash-restitution is a breathe of fresh air in an otherwise stinky Ottawa environment recently fraught with allegations of government corruption wherein the taxpayer has not seen one recovered dime. At least the taxpayers get some of their money back if these promises are kept.

Too bad we are left with a tainted Department of National Defence.

The serving men and women of the Canadian Forces deserve better service and greater accountability than what is delivered by this Department of National Defence. 

See Complete Issue

Micheal O'Brien, Editor

Copyright © 2004 MPRM Group Limited. All rights reserved.

Publisher and Editor In Chief:
Micheal J. O'Brien
The Wednesday Report is published and printed weekly in hard copy by MPRM Group Limited
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