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SAP Project Fraud Allegations in Marin County v Deloitte, SAP Services

March 28th, 2011 by
System Integrator Legal Liability

Legal Liability

To my talented friends and colleagues at Deloitte, Sorry folks!  This needs to be addressed.  It is not that all of Deloitte has a problem, I know some incredibly talented Deloitte folks, unfortunately a few bad apples CAN and sometimes DO spoil the whole entire bushel (or barrel if you prefer).

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The recent Marin County California Lawsuit against Deloitte Consulting took an interesting turn.  The initial complaint was filed in mid 2010 against Deloitte only for fraud in providing inept and incompetent consultants (for background see my previous post SAP ERP Project Failure Lessons Learned and Mini Case Studies 1).

Not long ago Marin County amended their complaint (a pretty standard legal practice after the initial legal complaint is filed) and included several other failed Deloitte projects as examples of a common practice.  Along with that SAP AG and SAP Services were joined to the complaint as additional parties.  The basis of SAP’s liability, as alleged in the complaint, is that SAP through its partnership with Deloitte knew or should have known of Deloitte’s fraud and continued to give them credibility.  That modified complaint was filed on December 16, 2010.

The SAP software itself was still not alleged to be the problem

The introductory statement of the complaint lays it out:

This action arises from defendants’ illegal and continuing scheme to defraud the County and other governmental entities while reaping tens of millions of dollars in ill-gotten gains in connection with the implementation of enterprise resource planning (“ERP”) software known as SAP for Public Sector, licensed by the German software developer SAP AG.  As part of this scheme, Deloitte, with the knowledge and assistance of the SAP Defendants, targeted the County by misrepresenting its skills and experience in SAP for Public Sector software to obtain a highly lucrative public sector implementation contract for itself, and licensing, maintenance and support contracts for SAP Public Services, Inc.

As a further part of the scheme, Deloitte falsely represented to the County – which had no ERP or SAP for Public Sector experience – that Deloitte had the requisite skills and experience in SAP for Public Sector software to deliver a successful implementation for the County.  Deloitte and the SAP Defendants also falsely represented that Deloitte, by virtue of its “alliance” with the SAP Defendants, was uniquely qualified to properly implement SAP for Public Sector software.  These representations were false because, at the time they were made, Deloitte and the SAP Defendants knew, or were reckless in not knowing, that Deloitte in fact lacked the ability and/or the intention to provide the County with appropriately skilled consultants.

As a further part of the scheme, to conceal implementation problems that resulted from Deloitte’s lack of skills, Deloitte and the SAP Defendants engaged in unlawful conduct to ensure that the County proceeded to go live with the SAP system on the scheduled go-live dates, in order to secure payment of their fees.  Such misconduct included deliberate under-testing of the SAP system by Deloitte to obtain artificially positive results and thereby conceal system defects; attempt by Deloitte and the SAP Defendants to silence an employee who raised issues with Deloitte’s deficient implementation work; and efforts by Deloitte and the SAP Defendants to corruptly influence defendant Culver, a County official who was also the County’s Project Director, to cover up Deloitte’s deficient implementation work, obtain payment for work that was not properly performed (or not performed at all) and cause the County to enter into additional contracts with Deloitte and SAP Public Services, Inc.

The fraudulent scheme that Deloitte and the SAP Defendants perpetrated on the County is consistent with a pattern and practice of similar misconduct that they have perpetrated on other public entities, including those in Los Angeles, San Antonio, Colorado and Miami-Dade in connection with the implementation of SAP for Public Sector software.

On January 26, 2011 it appears the case was removed to Federal District Court for Northern California from the Marin County Superior Court.   On February 23, 2011 SAP filed motions to be dismissed as parties from the case, and to strike their name from the complaint.  On March 21, 2011 the Motions to Dismiss and Strike were terminated because the parties all agreed to allow the complaint to be amended, and allowed for additional time to respond to the newly amended complaint once it is complete.

So, the case continues.  Once again there is a key and noteworthy item in this case, the SAP software itself was still not alleged to be the problem.  The allegations within the case surround the consulting practices of Deloitte and SAP is “guilty by association” because they put their “seal of approval” on Deloitte as a qualified integrator.

Consulting Industry Implications – Especially for SAP Partner Programs

This case reminds me of something Michael Doane wrote about some time back about the need for SAP system integrators to be certified as well as their consultants (see Certainly Certifiable – SAP System Integrators Not Just Consultants).

After reading through the entire complaint I can 99.999% guarantee that one or more of the “consultants” Deloitte brought to the project had partially or even completely fake resumes and SAP backgrounds.  I wouldn’t be surprised at all if the number of fake or fraudulent “consultants” on that project was closer to 30% or even higher.  I’m not talking about fake or fraudulent because they didn’t have public sector experience, I’m talking about completely fake and fraudulent work histories and experience in general.

If the Marin County outside attorneys at Kasowitz Benson Torres & Friedman LLP subpoena the employment application information and contractor resumes and do a thorough background check on the Deloitte consultants I wouldn’t be surprised if they find massive fraud.  Worse still I’m equally sure that a careful review of the Deloitte vetting process will reveal that the experience claims and employment history for contractors was not verified.  It wouldn’t surprise me if many of these “consultants” listed fake “certifications” on their resumes as well which was not verified (for more background on the MASSIVE fraud around SAP “consultants” please see Screening and Interview Methods to Find the Right SAP Consultant and the follow-up piece Screening and Interview Methods to Find the Right Consultant – Part 2).

What Would be the Impact on SAP and SAP System Integrators if the County Wins?

If SAP bears even a small amount of liability by the end of this case it will have huge ripple effects throughout the entire business application space.  It might actually force SAP to ensure that their partners have some measure of verifiable skill rather than just buying a seat at the table.  On top of that it will put all system integrators on notice that if the current failure to verify skill and experience continues they may be held liable.

Maybe it’s time SAP finally put in that “transcript” service for consultants who claim to have SAP training or certification.  Let decent training programs apply to be “certified training centers” or “training alliance partners” to submit the training information to SAP’s transcript service.  After all, SAP offers a Higher Education industry solution so they have the software to support it.

One Way SAP MIGHT be able to Get Out of the Marin County Case Fast!

I’m guessing here that the reason SAP was joined to the complaint was because Marin County recently ripped out the SAP system and wants to get their SAP license fees and maintenance fees back.  If they can get treble damages for fraud, all the better.  Guess what SAP, if you are REALLY smart you might want to try to negotiate that with the County in a private settlement IMMEDIATELY.  Cut the legal fees, end the PR headaches on the heels of the Oracle debacle, give them back their money for the software and the maintenance fees and then fix the partner program!  Get those settlement negotiations started IMMEDIATELY because your private settlement discussions are NOT admissible in court.  Run from this mess fast!

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Complete Marin County Deloitte-SAP Complaint Removed to Federal Court

I have attached a copy of the entire, lengthy case for anyone who is interested in reading this.  Even if every allegation is not true, I have seen enough of these kinds of tactics to know that this type of thing happens routinely.  This complaint should be REQUIRED READING FOR EVERY POTENTIAL SAP CUSTOMER IN THE RFI OR RFP STAGE!  (Complaint document here).




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Industry Specific SAP Consulting vs Deep SAP Application Experience

March 21st, 2011 by
SAP project success requires business and consulting experience

SAP project success

The “need” for industry-specific SAP configuration experience is probably one of the most over-rated ideas in the SAP consulting field.

The most successful SAP implementations require integration of the business requirements with application functionality.  To do this well requires three separate domains of expertise–, industry expertise, application expertise and consulting skills.  One of those domains — consulting skills — requires a skill with change management, communication, process engineering, people skills, and other factors.

The need for industry specific SAP consulting is often oversold

In a single domain of expertise, rather than 3 separate domains (industry, SAP application, and consulting), research indicates it takes at least 10 years to achieve “expert performance” levels.  For more background on the expertise required see Successful SAP Project Team Composition – Technicians or Experts? where this extract was taken from:

“[E]ven the most ‘talented’ need 10 years or more of intense involvement before they reach a level where they can consistently demonstrate superior performance in international adult competitions in sports, sciences and the arts… Even in cases of famous legends, such as prodigies like Bobby Fischer, the required time to reach grandmaster status was still around nine years, and it took another two decades before Fischer played for the world championship.  In many domains of expertise, most elite individuals take considerably longer than 10 years of intensive practice to win international competitions consistently.  Further, outstanding scientists and authors normally publish their first work at around age 25 after an extended preparation, and their best work takes an additional 10 years…[E]ngaging in particular practice activities produces dramatically elevated levels of performance over an extended period of time.” (Ericsson, K., et. al. 2007, ppg. 16, 17)

Just how talented is someone who has to understand an industry AND the SAP software AND solid consulting skills?  Put this in context of Chess Master Bobby Fisher’s game.  The Chess set has a board with 64 squares and each person plays with 16 pieces (32 pieces total).  SAP software settings combined with master data options provides more possibilities than that for a single stage of a business process chain with multiple stages.  Is an “industry specific” consultant with 3 or 4 years, and possibly 2 or 3 SAP implementations going to make much of a difference for your business?

Then there are the critical consulting skills necessary for a successful project, see Expert SAP Consulting to Reduce SAP TCO and Improve SAP ROI.  These skills can take several years and several SAP projects to gain competence with as well.  Long before I started doing SAP consulting I had numerous corporate training and education courses on managing conflict, facilitation, project planning, negotiation, communication, managing people, organizational change, etc.  Along with this training I had several years to put this training into practice before ever being exposed to SAP.  The expectation that you are going to see significant business-centered results from a “consultant” with a few years of SAP experience is optimistic at best but disastrous in practice.

As an SAP software customer what can you do to ensure the greatest possibility of success?  Focus on bringing in those with deep SAP business software experience and strong consulting skills.  That should be the key focus of your search for a consultant or for a system integrator.

Where does the industry experience come from then?

Integration of Industry and Business Experience in the SAP Software

Industry experience comes from you as a customer.  That is why it is so important to bring the best you can from the ranks of your business to the SAP project.  These are usually the people in departments or organizations that are depended on or have the answers for the difficult issues that arise.

The key to success in your SAP project is to combine your business and industry experience with the most seasoned SAP consultants you can budget for.

Those within your own company know that is usually takes 8-10 years to really start to know the industry.  Often it may take 15-20 years or more to become skilled within a particular industry. You need industry expertise from within your own company when you are trying to decide on strategic corporate direction, plan for the future, or determine new marketing and sales opportunities.

An SAP consultant with many years of SAP configuration can successfully translate your business requirements into more of the standard application functionality. What I have personally discovered is my broad industry and solution exposure in SAP has provided me insight into new ways to solve nagging industry problems in unrelated industries.

The Ivey Business Journal recently offered a great, insightful post about gaining value from consultants noting:

Clearly, a key ingredient in enabling a consultant to meet or exceed expectations is to avoid diluting value-adding expertise with the consulting firm’s unskilled or inexperienced resources. Consulting firms are too quick to dismiss the capabilities of client personnel, when in fact such personnel can orient the consultants, navigate political minefields, get to the data more quickly (as they understand the company and the industry), and facilitate the buy-in process. Companies must demonstrate leadership not by simply accepting a consulting firm’s proposal, but by applying their own considered perspective as to the best approach for embedding maximum, value-adding expertise in the project, while cost-effectively filling non-expert roles with resources from other sources…

Assessing whether a consulting firm can deliver the necessary expertise can be difficult if the company itself does not already have the particular expertise. Consultant credentials and resumes are carefully crafted to make the consultant appear to be the perfect fit for the role called for in the proposal.  But just because assessing consultants’ capabilities can be challenging, companies should not simply take refuge in a favorite or familiar brand.  Rather they need to invest the time to verify that the proposed team can deliver.

http://www.iveybusinessjournal.com/article.asp?intArticle_ID=927

Many of the larger consulting firms recruit smart graduates directly form college.  How much business experience do these smart grads have?  How much practical work experience do they have?  What do they have to draw upon?  The extent of their industry experience usually consists of the 1, 2, or 3 SAP projects they participated in.

To gain real value from your SAP implementation project hire the best possible SAP consultants you can find and bring the strongest employees you have to the project.  Set the expectation that the consultants are supposed to help the employees learn the software setup, and that the employees are to be relied upon for key business direction.  Let the employees know that they have been empowered to make the key decisions.  After this have weekly meetings with your internal employees to talk about lessons learned on dealing with consultants and how to ensure the company gets what they need from the SAP vendor.

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Using Your SAP Steering Committee for Business Transformation

March 14th, 2011 by
Using SAP Business Technology Convergence for competitive advantage

SAP Business Technology Convergence

 

How Long Term SAP Steering Committee Integration Changes the Enterprise

One of the biggest benefits of an SAP implementation is the business transformation it can bring.  At first the changes and challenges are uncomfortable, even downright painful.  But in the mid to long-term SAP brings about a business culture transformation.  When that transformation is enabled by ongoing steering committee involvement then business to IT convergence occurs.  Over time this convergence of business and technology produces financial and marketplace improvements.

Use the Steering Committee’s Experience for Ongoing Governance

An SAP best practice is to form a steering committee before the project even begins.  In other words this group should be together before the first RFI is issued.  They (the steering committee) should be key members of senior leadership who have the ability to make business altering decisions.

The most effective SAP steering committees typically:

  • Set SAP project scope and then help manage it.
  • Define project objectives and evaluation criteria.
  • Monitor project progress, including key milestones and deliverables progress.
  • Oversee Quality reviews at key check points.
  • Evaluate and mitigate organizational impact of business changes.
  • Promotes the project throughout the organization.
  • Coordinates staffing and resource levels from key business areas.
  • Makes critical decisions which the project team is unable to resolve (escalations or key business decisions).
  • Etc.

Even on a relatively short duration project of six months, many of these steering committees will have worked together in this fashion for a year or more.  Going through the initial business needs analysis, software selection, vendor selection, the project execution, and then go-live support for some period brings this group together for some time.

Gaining Competitive Advantage through the Ongoing Integration of SAP into the Business

As a steering committee works together over the course of a year or two they develop a unique and key skill set that is well-suited to ongoing technology integration into the business (called “convergence”).  As the SAP project goes live and some stabilization occurs the SAP steering committee has learned more about the enterprise from a leadership perspective than anyone in the company.

While the project team is gaining the focused process skills within an SAP module the steering committee is gaining invaluable insight into the overall operations of the business from a leadership perspective.  This steering committee is also exposed to technology and how it applies to business, solving problems, its capabilities, and its limitations.  They have become the most capable future leaders of business transformation and of competitive advantage in the marketplace.  They have worked through the hard things in an interconnected and integrated way.  They have set the stage for future advances.

What happens next?

Your company moves into maintenance mode and the steering committee disbands!

That my friends is a crime!

Do NOT Disband Your SAP Steering Committee After Go-Live

The ideal solution is to retain the SAP steering committee and convert their role to one of managing technology to business integration.  The skills they gain during the course of their duties cannot be underestimated.  They are invaluable to future IT initiatives of expanding the SAP footprint in the enterprise or other key business centered technology projects. This is a role and a function that is seriously lacking from today’s businesses.

In 2007 the BTM Institute (or Business Technology Management) published research indicating that companies who focused on converging business and technology enjoyed greater revenue growth and net margins than their competitors.  They were also found to have consistently greater returns on their investments than their competitors. [FN1]  The BTM Institute defines four broad categories for analysis of business and technology convergence which are:

  • Strategy & Planning
  • Strategic Investment Management
  • Governance & Organization
  • Strategic Enterprise Architecture

Think about it, your SAP steering committee has engaged in all of these broad dimensions throughout their existence.  Assuming the SAP steering committee was in place before the project for RFI and RFP preparation they would determine business objectives, priorities, strategic direction, and then develop scope.  These are clearly strategy, planning, and strategic investment activities.  As the project progresses they would engage in oversight, decision making, high level technical architecture analysis, and organizational requirements.

The steering committee must continue to function but take on a new role as the SAP project goes live and you move into stabilization.  Don’t kill the strategic engine of business transformation just as it is finished being built.  They are a critical component of the conversion to an SAP Center of Excellence after your SAP system goes live.

Steering Committees can ensure SAP or IT to business convergence to move from project, to competency center, to center of excellence.

The idea of a center of excellence is the integration or convergence of technology, leveraged in a powerfully competitive way, to ensure business benefit.

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For more information on developing an SAP Center of Excellence please see:

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[FN1] Business Technology Convergence Index, The Role of Business Technology Convergence in Innovation and Adaptability and its Effect on Financial Performance, BTM Institute, June 2007




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