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Fraud Charged by Washington DOC Whistleblower

An employee of the Washington Department of Corrections Office of Correctional Operations contacted the state auditor's office in August 1997 pursuant to the State Whistleblower Act. The unnamed whistleblower [we'll call him/her "Doe"] told the auditor that the DOC used improper and illegal methods to award a $560,000 contract to an inept and unqualified software vendor to develop a custom "Inmate Banking System." Doe also alleged that a $21,500 contract for a digital "Inmate Badging Intake System" was awarded to the same company without soliciting competitive bids.

After an eight-month investigation, the state auditor dismissed the most serious allegations related to the $560,000 banking system contract, and concluded that procedures used to acquire the badging intake system were improper but not illegal.

In documents obtained by PLN, Doe describes how in early 1995 the DOC put out bids for a new Inmate Banking System that would not only modernize the mainframe system then in use, but would also include certain additions and modifications needed to comply with newly-enacted legislation. [The 1995 Offender Accountability Act mandated a plethora of new deductions from prisoner accounts including: recreation fees; medical co-payments; education fees; and automatic deductions from all money sent to prisoners from the outside for victims compensation (5%), cost of incarceration (20%), mandatory savings (10%), legal financial obligations (20%), and debt recovery (20%)]

Doe describes how the banking system software contract was awarded to a "Canadian company doing business in the United States as OCS," despite clear warnings that OCS was financially unsound and verging on bankruptcy. OCS's main selling point was the its "Inmate Trust Accounting System" software code, which it claimed ownership of.

"By fall of 1995," Doe wrote to the auditor's office, "OCS did, indeed, declare bankruptcy. To make matters worse, DOC soon discovered that OCS had never owned the base code to the ITAS program. OCS had licensed that code from the government of British Columbia for limited use... In short, OCS was selling program code that it simply did not own to begin with."

By this time, other DOC employees were joining Doe in "voicing serious concerns about the OCS contract. One senior Information Systems manager in particular, though, vehemently defended OCS and authorized continued payments to the company because the necessary software "modifications were almost complete and there was still a chance of getting our system" before OCS went completely under.

That was not to be the case, however. OCS went belly up, leaving DOC staff and state attorneys frantically scrambling to untangle the resulting legal mess.

"At about the same time," writes Doe, "former management staff of OCS... started a new company that they named SYSCON. It is critical to note that these are the same folks who had been taking Washington State taxpayer money from DOC for services never performed. The new SYSCON managers quickly moved to court DOC with the promise that they would pick up where OCS left off and finish the ITAS program. SYSCON was able to negotiate an agreement with the Canadian government whereby they could license the itas base code for one year. The right to license and distribute that code would then be bid annually thereafter. Again, SYSCON does NOT own the code... As such, if SYSCON fails to win future bids... [or] should the Canadian government ever decide that they no longer wished, for whatever reason, to support this arrangement... this would result in the agency having to go back out to bid for an entirely new system."

Despite Doe's clear warnings, senior DOC administrators decided that contracting immediately with SYSCON offered an "easy answer and would prevent the agency from getting more egg on its face," Doe wrote. And, so without re-bidding the contract SYSCON was allowed to finish the ITAS system. Which it eventually did. More than three years behind schedule.

The state auditor, despite finding some minor irregularities in the bidding process, concluded that the original OCS contract "appears to have been legally awarded." As to what occurred after OCS went out of business, the auditor concluded that awarding the contract to SYSCON without re-bidding was legal under the "sole source" exception to a state law that requires competitive bidding for contracts exceeding $100,000.

In short, since the second contract was for completing the unfinished ITAS software project as opposed to developing a new software system from scratch, as Doe and others had urged SYSCON fit the "sole source" criteria because it was the only company "qualified" to pick up where OCS left off.

Doe's other allegation was that the "Inmate Badging/Intake System" contract (worth $21,500) was improperly (and unwisely) awarded to OCS, and that once OCS declared bankruptcy, that contract was illegally awarded to SYSCON without re-bidding.

The state auditor's investigation was hampered by the fact that the DOC administrator in charge of the badging system contract, "who has since retired from DOC... wasn't known for saving documents." As a result, the auditor had to conclude that, "because the agency was not able to provide any documentation... I must conclude the OCS purchase for the badging intake system did not follow requirements."

However, since the contract was for less than $100,000, which allows DOC to advertise for competitive bids, or not, at its discretion, the auditor concluded: "I can't answer the allegation that the contract was inappropriate and possibly illegal because a contract was not required for this type of purchase." As with the ITAS contract, the auditor noted that "no competitive solicitation was required [for SYSCON to take over the contract] because only one vendor could supply the necessary product...."

Certainly, the acquisition of both software systems demonstrates bureaucratic ineptitude, wastefulness and a "circle the wagons" mentality when problems arise. But as far as the state auditor's office is concerned, ineptitude, inefficiency, idiocy, and irresponsibility are technically not violations of the law. Therefore, the case is closed. Then again, when DOC bureaucrats "circle the wagons," is the state auditor inside or outside of that circle?

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