News Blog

The U.S. government is looking into allegations that Chinese officials snagged a laptop left unattended by a top U.S. official there, copied the data and then used it to try to hack into U.S. government computers, according to a report by The Associated Press.

The incident is alleged to have happened during Commerce Secretary Carlos M. Gutierrez's trip to Beijing in December, unidentified sources told the AP. Gutierrez told the wire service he couldn't comment on an ongoing investigation.

Since then, the U.S. Computer Emergency Readiness Team, known as US-CERT, responded to computer network break-ins at least three times, the report says.

"The Pentagon, State Department and Commerce Department all have been victimized by widespread computer intrusions blamed on China since July 2006," with the Commerce Department even having to unplug itself from the Internet, as a result, the article says.

The U.S. Department of Justice has closed the books on one of its cases targeting allegations that high-powered companies swapped unlawful kickbacks in government agency technology contracts.

Nearly four years after whistleblowers filed a lawsuit that named, among other companies, Computer Sciences Corp., CSC has agreed to a $1.37 million settlement with the Justice Department to resolve the allegations.

CSC--a major government contractor that specializes in consulting, systems design, and outsourcing--had been accused in September 2004 of "knowingly solicit(ing) and/or receiv(ing) payments of money and other things of value, known as alliance benefits, from a number of companies with whom it had global alliance relationships," according to the Justice Department, which announced the settlement Tuesday.

The Justice Department conducted an investigation after the suit was filed and ultimately intervened in the case. The agency said it had determined that those business relationships amounted to kickbacks and undisclosed conflicts of interest, violating federal rules governing contracts in the process.

The settlement is part of a broader investigation into the relationships between government technology vendors. Last April, the Justice Department said it had joined a case against Hewlett-Packard, Sun Microsystems, and Accenture alleging that they paid unlawful kickbacks in federal contracts. Those companies have denied the charges. Much of the case remains under seal, so details are scant, but a Justice Department spokesman confirmed Tuesday that litigation involving those companies is still happening.

The original court complaint claims that alliance of kickback swappers consisted of "virtually all of the major sellers of hardware and software in the United States," but the government has not agreed to intervene with regard to all of the companies named, including Microsoft and Dell.

IBM and PriceWaterhouseCoopers agreed to pay the United States more than $5.2 million to settle similar allegations last summer.

CSC did not immediately respond to requests for comment on Tuesday. The Falls Church, Va.-headquartered company has been awarded, among other things, a major contract for shepherding a much-criticized overhaul of the Internal Revenue Service's aging computer systems.

Updated 11:10 a.m. PST Thursday May 8 with information that laptops were located

Hundreds of laptops used by the U.S. Department of State that were missing have been located, according to a report in the Congressional Quarterly.

Given the sensitive and often secret nature of data the State Department workers deal with, officials had been bracing for repercussions like congressional hearings, according to CQ. That's what happened when a Veterans Administration official had a laptop stolen in 2006, IRS laptops went missing in 2001, and a State Department laptop containing the names of foreign agents working for the U.S. government was stolen in 1999.

News of the missing laptops first surfaced in late March in an anonymous post on the Dead Men Working blog written by foreign service officers.

IBM and the U.S. government are back in business.

The company announced Friday that a temporary suspension order, which had banned IBM from participating in new federal government contracts, has been lifted.

But while the ban, which lasted nine days, has been removed, Big Blue is still busy cooperating with the Environmental Protection Agency with the investigation that had triggered the broad suspension. The environmental agency is examining possible violations of its procurement process over IBM's bid for EPA business.

The U.S. Attorney's Office for the Eastern District of Virginia is also investigating the issue.

For Big Blue, removing the ban will bring a few more bucks its way. Last year, IBM generated nearly $1.43 billion from federal government contracts. That represented a 1.4 percent slice of its overall revenues of $98.8 billion last year.

Shares of IBM were down a hair in early morning trading to $115.80, down 19 cents.

Because of various glitches, government officials plan to scrap plans to use handheld devices, like the one shown during a test phase here, to collect data from households that don't mail in their 2010 census forms. The GPS-enabled gadgets are still expected to be used, however, to help compile accurate address lists before the decennial tally begins.

(Credit: U.S. Census)

So much for a "high-tech" census in 2010.

Department of Commerce Secretary Carlos Gutierrez plans to tell Congress on Thursday that the next constitutionally mandated count of the U.S. population will be taking place, once again, via old-fashioned pencil and paper, according to a report by National Journal's NextGov blog.

Census officials had been hoping to introduce handheld computers into the process of collecting and transmitting data, but numerous glitches along the way have stymied those plans.

That means, in part because of "recent increases in gas prices, postage, and printing" and the need to hire more census workers, Congress will need to allocate as much as $3 billion in additional taxpayer dollars for the 2010 census, Gutierrez was expected to tell a House of Representatives subcommittee that oversees such spending matters. That means the entire price tag for the decennial process could climb to as much as $14.5 billion.

In mid-March 2010, the U.S. Census Bureau plans to send out forms to all American households, Gutierrez said in prepared testimony obtained by NextGov. Then, from April through June, some 580,000 census "enumerators" will go door-to-door in an attempt to interview those who haven't mailed in the data.

After the 2000 census, government officials started plotting ways to make that "non-response follow-up" process, as it's called in bureaucrat-speak, more efficient, and they settled on the idea of outfitting census workers with handheld computers. But that project, managed through a 5-year, $600 million contract with Harris Corporation inked in 2006, has since "experienced significant schedule, performance, and cost issues," Gutierrez said in prepared testimony.

The Commerce Department, which houses the Census Bureau, decided after conferring with a panel composed of independent consultants to scrap the handheld-computer method this time around and go with paper. Gutierrez said the department has since made "substantial management changes" in an effort to keep the census on track.

The handheld gadget project isn't entirely a lost cause, though, Gutierrez plans to say.

Workers enlisted by the Census Bureau to validate and update the location of every household in the country still plan to use GPS-enabled Harris computers to do that work during the year before the decennial count, which Gutierrez says will permit "the most accurate and comprehensive address list in the census' history."

(Credit: Project SHAD)

Thousands of people who may have been exposed to chemical or biological agents during military tests remain unaccounted for, and the Defense Department and Department of Veterans Affairs have given up on tracking them down, according to a new report.

Some of the tests were conducted as part of a weapons testing program known as "Project 112." In others (click here for PDF), individuals were intentionally exposed to hazardous substances such as blister, nerve, and biological agents as well as LSD and PCP, according to a Government Accounting Office report (PDF).

Any veterans who believe they have sustained a disability from exposure during testing may file a claim (PDF) for compensation with the VA.

The DOD stopped actively searching for test subjects in 2003 "but did not provide a sound and documented basis for that decision," the GAO reported. At the time, it had identified 5,842 service members and about 350 civilians as having been potentially exposed during Project 112 alone (PDF). It is estimated that tens of thousands of military and personnel and civilians may have been exposed over the last 60 years.

(Credit: VFW)

However, in 2004 the GAO reported that there was still a chance that additional test subjects could be located, and it recommended that the DOD determine the feasibility of continuing the search. Instead, the Pentagon determined that it had reached "a point of diminishing returns" and called it off; a decision not supported by an "objective analysis of the potential costs and benefits of continuing the effort," the congressional agency charged.

Further, the GAO found that the Pentagon's efforts lacked oversight, clear and consistent objectives, and most of all transparency, because it had not kept Congress or veterans organizations fully informed of its progress, or lack thereof.

The DOD was pretty much an equal-opportunity employer when it came to its human test subjects--healthy adults, psychiatric patients, and prison inmates were all used. In some instances, service members who consented to serve as test subjects found themselves participating in experiments quite different from the one they had been pitched when they volunteered, according to the report.

Also known as "Project SHAD" ("Shipboard Hazard and Defense"), the highly classified Project 112 was started in 1962 to determine the vulnerability of U.S. warships to chemical and biological attacks. In this case, service members and civilians were not the test subjects, but rather conducted the tests on animals, in some cases with foreign observers present, according to the DOD. Veterans of the tests tell another story.

The same week this GAO report came out, a federal judge ruled, in dismissing a lawsuit brought by individual members of the military, that there is no reason for troops to second-guess the Food and Drug Administration when it comes to the safety of anthrax vaccinations. DOD says the shots are now mandatory. If this means you, make sure you leave a forwarding address.

PR wonk and buddy Joshua Weinberg sent me a rant that the driving time app and interactive map on the Bay Area's 511.org Web site is down, "due to a high volume of users." It's a pretty stormy day here in the Bay Area, but as Weinberg points out, it's during storms and emergencies, when public transit is a mess, that people will go to state-sponsored route-finding systems.

The error message's advice to use the text version is flawed: It, too, is overloaded. Google's traffic maps are working, though. Leave it to private industry to provide better emergency services than our tax-supported agencies.

That's ok, I'll use Google.

See yesterday's Dept. of Missing the Point on another navigation product.

Did you know that the president has a Corporate Fraud Task Force? That's right, he does. It's led by the deputy attorney general, whoever that is.

Anyway, this task force has apparently been very busy. Over a five-year period since its inception, the task force claims 1,236 corporate fraud convictions, including 214 CEOs and presidents, 53 CFOs, 23 corporate counsels, and 129 vice presidents.

That's a lot of fraud. Who knew there were so many dysfunctional executives in this great nation? The dark side of greed and capitalism must be pretty attractive, huh?

I also wonder what these executives' boards of directors were doing while all this fraud was going on? Aren't they supposed to be looking out for shareholders? Isn't that what corporate governance is all about?

Anyway, members of the task force have successfully brought a laundry list of fraud and other charges against executives of Adelphia, Cendant, Comverse, Computer Associates, Dynegy, Enron, Enterasys, Homestore, Imclone, Impath, Monster, Network Associates, Prudential Securities, Qwest, Refco, and WorldCom.

The Justice Department has also recovered $1 billion in ill-gotten gains and distributed the funds to victims of corporate fraud. Want to know how much money shareholders actually lost in all those fraud cases? Me too, but I'm confident the number has two or three more zeros than what was recovered.

According to a Department of Justice fact sheet, President Bush created the task force in July of 2002 "to restore public and investor confidence in America's corporations following a wave of major corporate scandals." Did it work? Has your confidence in America's corporations been restored? Not mine.

You know what I think? I think it's great that the government is cracking down on white-collar crime. Sure, it's sad that so many officers of public companies have such flexible views on ethics and morality. But you know, if that's the way it's got to be, then I say lock 'em up...without the severance package.

While that might be rewarding, I have to admit it doesn't help investors. If, like me, your confidence in America's corporations has not been restored, there's only one thing you can do about it. Don't let your investment and retirement strategy depend on a branch of the government to cover your butt.

The only way to truly mitigate the potential risk of corporate fraud is to diversify your portfolio, plain and simple. If you don't, you're asking for trouble. I hate to say this, but with these kinds of fraud conviction stats, anyone with 5 percent or 10 percent of their assets in one company's stock really doesn't deserve to keep it.

This blog's supposed to be about corporate dysfunctionality, but somehow we've gotten sidetracked. We've never really looked at the big picture. The big picture is this: a reasonably significant percentage of executives and their boards are dysfunctional.

What do I mean by that? I mean they shouldn't be doing some of the things they're doing, and those things can get them in big trouble with a variety of law enforcement agencies. Why do they do it? Who knows.

As for you good folks--investors and employees--well, I don't want to be an alarmist, but if you knew what really goes on out there, the countless ways you can get screwed, well, let's just say you'd need a good dose of Ambien to get any sleep.

The good news is you can protect yourself; we'll get to that in a minute.

Until then, here are the most common ways that dysfunctional executives and directors can mess up. I've included a few well-known examples, but the scary part is that, for every big-name scandal, hundreds fly under the radar screen.

The seven deadly sins of corporate dysfunctionality

Creative accounting
Most of the biggest scandals of our time have included some form of creative accounting: shell companies, offshore accounts, creative expensing, or just your run of the mill accounting fraud. That's what did in Enron, WorldCom, Adelphia and a host of others.

Conflicts of interest
One of the biggest scams in history was the conflict of interest between investment banks and their research analysts leading up to the dot.com bust. The top ten investment banks coughed up $1.4 billion to get the SEC, the N.Y. attorney general and a host of others off their back. A few analysts were banned, but amazingly, nobody went to jail.

Insider trading
If you really think this is just the domain of Martha Stewart and ImClone ex-CEO Sam Waksal, then I've got some nice used cars from New Orleans to sell you. I'd be willing to bet that at least half the executives who say they've never traded on inside information would be lying. The other half have so much money they don't need to.

Dysfunctional families
I don't care if it's IBM in the old days, Motorola all too recently, Adelphia, Wang Laboratories, or Atmel. If you're considering a company with any family relations on the executive management team or the board, forget it. And if a family actually controls the stock's voting rights, as was the case with Adelphia, soon enough you'll read about it in the newspaper.

Rubber-stamping boards
Behind every dysfunctional executive and company is a board that fits nicely into the CEO's back pocket and rubber-stamps everything put in front of them. Tyco was a great example, but there are probably hundreds, if not thousands of boards that are blindly loyal to their company's CEO.

Generic SEC filings
10Ks have to be the biggest waste of paper since An Inconvenient Truth was published. The risk factors are generic and watered down while the business sections do more to hide than highlight competitive challenges. The lawyers and Sarbanes-Oxley consultants are in charge. That's really scary.

Ludicrous compensation
How many CEOs and other officers have been sacked as a result of stock option backdating scandals? Must be 30 or more in the technology space alone. Besides the sometimes ludicrous equity and monetary compensation, CEOs can sometimes make even more money by quitting or getting fired. Sure, some deserve their pay, but many don't, and there's everything in between.

Well, that's the seven, and I'm not even talking about the rare psychopath that can take down an entire sector. Take Bernie Ebbers of WorldCom. How smart do you have to be to ask a simple question: in what universe does it make sense for a guy who was a motel owner, a milkman, and a gym teacher to somehow be competent at running one of the world's largest telecom companies? Just thinking about it makes me feel delusional.

With all these ways to get hosed, what's an investor to do? Simple, diversify. If you have more than five or ten percent of your net worth in any one stock, you're asking for trouble. As for employees, you need to manage your own career. Don't expect anybody or any company to do it for you. Trust and protect yourself and you'll do fine.

The only person you can be sure isn't dysfunctional is yourself. If you're not sure if you're dysfunctional, take this quiz and find out.