SUM has received the following report, written by an Ad Hoc Research Committee of U-M Alumni and Graduate Students, on the University of Michigan’s relationship with the multinational consulting and outsourcing firm Accenture. Talk about conflicts of interest! We are not the authors of the report, but we republish it here as an expression of the kind of changes and restructurings that are happening at public universities today as they become increasingly tied to and dependent on Wall Street and corporate models of management. From the perspective of SUM, the problem is not Accenture alone—any other consulting firm would be equally terrible—but the approaches, objectives, and priorities of the university administration. To find out more about “shared services”/AST and the financialization of the university, come to our teach-in on Friday, November 22 [Facebook event].
Report Regarding the University of Michigan ́s Risk in Continuing the Contractual Relationship with Accenture, LLP and Any of its Past or Present Executives
Prepared by Ad Hoc Research Committee of University of Michigan Alumni & Graduate Students
November 18, 2013
This report generated by both Alumni and Graduate Students at the University of Michigan presents evidence from the public record showing that the University of Michigan ́s continuing contractual relationship with the firm Accenture, LLP and/or any of its past or present executives potentially threatens the financial viability and prestige of our beloved University. Our research comes from sources available to the University of Michigan community, including the global network of Alumni. This record includes local, state, and national newspapers, municipal and government websites at all levels, online IT trade magazines and blogs, legal reports of published court cases, as well as official publications from Accenture.
Up to now, the University has been able to remain financially secure in the face of economic crisis. Recent announcements regarding a transition to “shared services” have prompted closer scrutiny of Accenture from University of Michigan Alumni and Graduate Student Researchers from around the globe about Accenture and its ability to carry out such major changes at what historically has been a financially healthy University. We have questions about the ethics, legality, and financial justifications for the contracts made with Accenture since 2009, particularly the hiring of Rowan Miranda, a former Accenture executive, as the Vice President of Finance for the University. Our multidisciplinary team has documented a disturbing pattern of problematic past performance on the part of Accenture in multiple U.S. States, the federal government, and the United Kingdom. This pattern suggests the company cannot be trusted with the University of Michigan ́s financial management, its IT systems, or with other sensitive information that makes our University so highly ranked. Furthermore, we are concerned that the University ́s relationship with Accenture could damage the prestige of our University and create potential future legal liabilities.
Our research-based findings and recommendations for immediate Administrative action are as follows:
- Any continuing relationship that the University of Michigan has with past or present executives of Accenture should be discontinued. This includes immediate replacement of Rowan Miranda, Vice President of Finance, in order to avoid potential financial and legal liability. The conflict of interest resulting from Rowan Miranda ́s former position as an executive partner at Accenture makes it impossible for him to make any credible decisions on University finance and IT issues. We recommend his immediate replacement in order to avoid potential liability and harm to the University ́s prestige.
- After having already received over $22.5 million from the University of Michigan, Accenture has demonstrated a record of underperformance; this record falls in line with a pattern of Accenture ́s performance in other contracts with public and private entities in the U.S. and in the United Kingdom. This pattern consists of underperformance and/or damaging performance coupled with ballooning costs over the time of the contract.
- Past, recent, and ongoing litigation against Accenture show the company ́s participation in corrupt practices including fraud, defective pricing schemes, misappropriation of trade secrets, bid-rigging, and the illegal “harvesting” of IP data from its clients. This makes it clear that the University of Michigan ́s contract places the University ́s well-being at risk.
Conflict of Interest with Accenture and Any of its Past or Present Employees
The lack of transparency surrounding the University of Michigan’s contractual relationship with Accenture is troubling, both because it limits the ability of the community to weigh in on the changes taking place at the University, and because such opacity can be extremely costly. One of the most troubling aspects of the University’s relationship with Accenture is the role played by Rowan Miranda, the Associate Vice President of Finance, and, from all reports, the driving figure behind AST (Administrative Services Transformation) and the Accenture contract. Prior to coming to Michigan, Miranda served as an executive partner at Accenture, the firm that was hired to provide AST services at Michigan. Miranda’s past employment relationship with Accenture creates an intolerable conflict of interest. Accenture ́s contracts with the university expanded markedly from the outset of Miranda ́s tenure with the University, raising the specter of a serious conflict of interest. Such conflicts of interests are in direct violation of University policies. More importantly, similar conflict of interest cases involving Accenture have been documented in Ohio and Massachusetts, where public state officials have admitted to steering state contracts towards the company. The Administration must assess this conflict of interest together with Accenture ́s problematic pattern of performance as well as its record of corrupt practices discussed below.
Risk to The University Of Michigan
While the University has already paid Accenture over $22 million dollars, little information has been provided about the work the outside consulting firm has done, let alone information about the value the firm has added to the University. Much more documentation must be provided by the Administration to explain the direct benefits to the University, before any further payments are made. We understand that the University of Michigan IT Governance Council concluded in 2011 that “The savings Accenture estimated are not as large as expected when the details are taken into consideration, and the costs are greater than expected for the same reasons.” These reduced savings estimates from 2011 to 2013, documented by different Administration officials, are part of a pattern in Accenture’s engagements with public institutions.
We have found a systematic bias in Accenture’s claims about savings and costs in such contracts, where costs are underestimated and savings are inflated. This has led to significant financial losses to its clients, and in the case of some public sector clients, irreversible injury to the citizens they are meant to serve, such as inability to access Medicaid in a timely way due to botched enrollment systems or problems with timely voter registration. Accenture’s failure to accurately estimate savings is evident in its relationships with universities, with the case of Miami University being particularly striking. We also are monitoring closely what is happening with the highly controversial Accenture contract at the University of Texas at Austin.
REVIEW OF PUBLIC RECORD
The following cases document performance problems on the part of Accenture that resulted in significant losses to their clients, together with immeasurable damage done to the public who depended on crucial services:
- British Gas Case: In 2010, the customer billing system of the United Kingdom ́s biggest supplier of gas and electricity was damaged when Accenture delivered a faulty IT system that affected 12.5 million customers. British Gas parent Centrica sued Accenture for £182 million claiming that the billing system Accenture implemented was fundamentally flawed and caused “huge disruption” for the company and its customers. British Gas alleges that errors in the system caused large billing problems and that 770,000 frustrated customers left the company directly as a result of the problem. The public record suggests that litigation may be ongoing in this case.
- U.K. National Health Service and E-Voting Cases: In December 2003, the U.K. National Health Service contracted with Accenture for US $3.3 billion over 10 years to digitize medical records and carry out 80% of an IT overhaul. Accenture cited sub- contractor delays to explain its failure to deliver services it had been paid for by the U.K. government between 2004 and 2006. It took the U.K. government nine years to recognize that the mass centralization Accenture organized did not reduce cost; rather, it killed flexibility and diminished public confidence in the U.K. government. Accenture ́s handling of the implementation of an e-voting system also invoked controversy.
- State of Texas: In 2005, Accenture entered into a $500 million contract with the State of Texas’s Department of Health and Human Services in which the company contracted to operate the state’s food stamp authorization system, the Children ́s Health Insurance Program, and Medicaid enrollment call centers. Accenture was then to get $899 million over a five year period of implementation. The Project fell behind schedule, cost $100 million over budget, and did not meet performance requirements. Accenture ́s performance left thousands of poor Texas families without much-needed aid to feed their families. By 2007, Texas terminated Accenture ́s services after having paid the company $243 million dollars.
- Ongoing Litigation Concerning Accenture ́s Pattern of Ballooning Costs and Nonperformance: In a 2013 lawsuit filed in U.S. District Court in Atlanta, ScanSource sued Accenture, alleging fraud and misconduct. A software project estimated to cost $17 million over 11 months instead mushroomed to $37 million over three years. ScansSource claims it still does not have the promised software up and running. Accenture has estimated it will cost $29 million more to complete the project, according to ScanSource’s lawsuit.
- State of Colorado: In 2002, Accenture entered into a $40.8 million contract to re- engineer the Colorado unemployment insurance system, which was to be deployed in 2004. The state terminated the contract in December 2005. Accenture had to refund $8.2 million of the $35.7 million paid for the system. In 2004, Accenture received another $10.5 million contract from the State of Colorado to design a centralized voter system (CVRS) in accordance with the Help America Vote Act (HAVA). Accenture failed to meet the deadline set by the law, and the contract was terminated. Accenture agreed to refund the money in exchange for state officials agreeing not to publicly criticize the vendor.
- State of New York: In 1996, Accenture entered into a $37.5 million contract to develop software used to manage child welfare programs that was to be completed in September 1997. The System was not fully operational until September 2005 with final costs estimated at 300% of original estimates.
- State of Wisconsin: In November 2004, Accenture received a $13.9 million contract to design, develop, implement, and maintain a HAVA-compliant CVRS. The System was error-prone, and Accenture missed the HAVA deadline. The Contract was terminated in December 2007 because Accenture fell behind schedule. A major controversy developed around alleged corruption in the contract formation stage as well.
- State of Wyoming: In February 2004, Accenture received a $3.9 million contract for HAVA-compliant CVRS (state-wide voter registration system). It failed to meet the deadline. The Contract was terminated with Accenture having to return most of the money it received.
The following cases demonstrate problematic performance on the part of Accenture that resulted in significant breaches of security data of both public entities and private citizens:
- State of Connecticut: In 2007, the State of Connecticut sued Accenture for negligence, unauthorized use of state property, and breach of contract in what then Governor M. Jodi Rell called an “unfathomable breach of security.” Both Ohio and Connecticut had hired Accenture to develop computer systems integrating payroll, accounting, personnel, and other fiscal functions. A computer backup tape containing bank account and other unencrypted sensitive financial data for nearly all of Connecticut ́s state agencies was stolen from an Accenture intern ́s car in Ohio. The company apparently used a template for both projects and accidentally mixed data. The tape contained the names and numbers of 440 checking, money market, treasury, savings, and other types of accounts held by the State of Connecticut. It also held memoranda, instructions, and files related to Connecticut’s new computer system. Perhaps even more alarming was that it contained the private identifying information of 58 Connecticut residents and 1.3 million Ohio residents.
- State of Florida: In cases involving voter registration databases in the early 2000s in Florida, Accenture ́s performance was full of widely-publicized glitches including an error-prone felon purge list, discarded after the court forced its disclosure. The Miami Herald discovered that Accenture had wrongly included 2,119 names on its list for the November 2004 election. The significant cost to public citizens are immeasurable in this case.
A Pattern of Impropriety on the Part of Accenture
Not only are we concerned about Accenture ́s ability to complete its contractual duties in a timely and cost-savings manner as promised, we are alarmed by lawsuits in federal court that implicate Accenture in corrupt practices:
- Misappropriating trade secrets of a corporate client: In 2013, the U.S. Court of Appeals for the 5th Circuit ruled in the case of Wellogix, Inc. v. Accenture, LLP (716 F.3d 867) to uphold a Texas jury ́s verdict against Accenture for $26.2 million in compensatory damages and found that Accenture should pay $18.2 in punitive damages for misappropriation of trade secrets. Wellogix, Inc. had entered into six confidential agreements with Accenture, which had access to trade secrets uploaded in a confidential portal. Accenture ́s emails spoke of “harvesting IP” from Wellogix while they were engaged in a confidential partnership.
- False Claims Act Whistleblower Lawsuit Against Accenture: Accenture agreed to pay the U.S. Government $63.7 million to settle a False Claims Act whistleblower lawsuit filed in the U.S. District Court for the Eastern District of Arkansas by a former manager of Accenture and a partner at another consulting firm. The lawsuit alleged 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” and that Accenture had “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.” According to Tony West, Assistant Attorney General for the Justice Department’s Civil Division “kickbacks and bid-rigging undermine the integrity of the federal procurement process.” He also advised that “at a time when we’re looking for ways to reduce our public spending, it is especially important to ensure that government contractors play by the rules and don’t waste precious taxpayer dollars.”
The Ad Hoc Research Committee of University of Michigan Alumni & Graduate Students has documented multiple concerns regarding the University ́s contractual relationship with Accenture including:
- An ongoing conflict of interest at play in Rowan Miranda ́s employment as Vice President of Finance for the University of Michigan and his past employment at Accenture.
- A pattern of impropriety on the part of Accenture that has been documented in federal cases, particularly Federal Claims Act concerns. This pattern includes corrupt practices such as fraud, defective pricing schemes, misappropriation of trade secrets, bid-rigging, and recently, the illegal “harvesting” of IP information from its clients.
- Indications in the public record that Accenture has a pattern of non-performance and/or disastrous performance in contracts which are of major import to the public. In those cases, Accenture promises to save the public sector millions but fails to deliver or delivers services that are severely under par, resulting in irreparable damage to the public.
Companies with this kind of record should not be permitted to contract with the University of Michigan, taking over financial and IT management in a system that already functions well. Our committee of Alumni and Graduate Students finds that Accenture cannot be trusted to handle any part of administration of the finances or provision of IT services at the University of Michigan, and the University should take steps to end its contractual relationship with the company immediately. Inaction on the part of the Administration together with a lack of transparency threatens the prestige and well-being of our beloved UM.