Affiliated Computer Services

Affiliated Computer Services, Inc. (ACS), is a private firm that specializes in the privatization of government administrative services for some of the nation's most vulnerable citizens. Since 2009, it has been a subsidiary of the publicly-traded Xerox Corporation (NYSE:XRX)

The services ACS markets include processing Medicaid claims, managing the electronic toll collection system E-ZPass, servicing student loans, processing child support payments, managing electronic payment card programs (such as Temporary Aid to Needy Families, Unemployment Insurance, Social Security Insurance), and processing parking tickets. ACS obtains contracts to perform functions as administration, including health care claims processing; finance and accounting; human resources; payment processing; sales, marketing, and customer care call centers; and supply chain management in both the public and private sector. As of August 2013, ACS has over 74,000 employees. Its parent company, Xerox, grossed $22.39 billion in revenues for the fiscal year 2012, with nearly $1.2 billion in total profits.

ACS has come under fire for siphoning off excessive fees from recipients of Temporary Assistance for Needy Families, the mismanagement of services from parking meters to Medicaid payment systems, and the failure to complete major multimillion dollar contracts.

PROFITS AND OWNERSHIP: ACS is owned by Xerox Corporation, whose gross revenues were $22.39 billion and whose total profits were nearly $1.2 billion in 2012. In 2009, the last year in which it was an independent entity, ACS took in more than $6.5 billion in revenues and reported profits of approximately $3.5 million.

BUSINESS MODEL: ACS/Xerox provides "business process outsourcing" and IT services to private companies (including communications, finance, healthcare, higher education, and manufacturing industries) and governmental agencies (in the areas of administration/finance, energy/environment, "federal solutions," healthcare, human services, K-12 education, public safety/justice, and transportation). In the public sector, the company notes, its primary services are "customer care" and "fraud prevention services," which "eliminate inefficiencies, monitor online transactions and perform other functions to safeguard against fraud, waste and abuse of government programs."

FOUNDING: ACS was founded in 1988 by Darwin Deason as a financial computer services provider focused on processing bank transactions. In 1992, it acquired Dataplex and switched its focus to business process outsourcing, going public two years later. According to Hoovers:


 * "The company continued its rapid rate of growth throughout the late 1990s, building a string of acquisitions that included Intelligent Solutions (1997), Computer Data Systems (1997), Betac International (1998), and Canmax's retail systems subsidiary (1998) . . . . Later in 1999[,] ACS bought Consultec, a provider of IT services for state health programs, from GenAmerica's General American Life subsidiary in a $105 million deal. In 2000[,] the company sold its ATM business for about $180 million. It also boosted its government outsourcing capabilities with the acquisition of Intellisource Group. The next year[,] ACS acquired Lockheed Martin's IMS subsidiary, a provider of outsourcing services to municipal and state governments, for $825 million. In 2002[,] the company acquired FleetBoston Financial's education services subsidiary, AFSA Data, for about $410 million, and with it a student loan portfolio worth about $85 billion . . . . ACS obtained Argentina-based customer care services provider Grupo Multivoice for an undisclosed amount in late 2008. The deal expanded . . . its services . . . throughout the Americas and Europe." In 2010[,] ACS was acquired by copier giant Xerox for $6.4 billion in a cash and stock transaction.

Contract Failures
IN: Failed Private System with Patronage to ACS

In 2006, Indiana Governor Mitch Daniels signed a ten-year $1.16 billion contract with a consortium led by IBM (with ACS as the lead subcontractor) to privatize the state's Family Social Services Administration (FSSA). According to a report by the Los Angeles Times, "Key players involved in the process had ties to Affiliated Computer Services, the company that benefited the most from the deal. Mitch Roob — a Daniels appointee who ran the state's Family and Social Services Administration when it awarded the contract — was a former ACS vice president. As the state began the project, Roob occasionally sought advice from former Indianapolis Mayor Stephen Goldsmith, a political ally of Daniels and fellow privatization advocate who also had been an ACS vice president."

The program launched in 2007 but two years later Indiana cancelled the contract. According to the privatization watchdog group In the Public Interest, “the state had privatized 59 out of 92 counties, but stopped the rollout in early 2009 due to pressures from Indiana lawmakers and federal officials. The new FSSA secretary, Anne Murphy, acknowledged that there were problems with the privatized system.” Clients reported a decrease in service quality, including long waits, lost files, slow approvals, and mistaken cutoffs of benefits. In the Public Interest also reported that “as eligibility determination error rates rose, many families lost access to critical safety net services like food stamps and Medicaid. These rising error rates put Indiana in danger of federal sanctions. At least one resident died as a result. Ronald Alexander of Evansville died of heart ailments in October 2009 over a year after he was erroneously denied Medicaid benefits.”

In October 2009, Governor Daniels announced the cancellation of the contract, calling the fully privatized system "a failed concept." However, as reported in the Los Angeles Times, ACS, which many blamed for the problems, “was later given a new eight-year contract worth $638 million to continue its work, according to state records.” Coincidentally, ACS had contributed approximately $50,000 to Daniels’ campaigns and his state leadership PAC between 2003 and 2010, funneling the money through a variety of other PACs.

CA: Excessive Fees Siphon off State Aid to the Poor

In California and many other states across the nation, state governments have contracted with private companies to administer funds from relief programs such as unemployment benefits and emergency rental assistance. ACS was awarded a contract for the administration of California’s welfare benefits in 2007 that runs through 2015. Janelle Ross wrote in the Huffington Post that the state's agreement with ACS “to distribute cash welfare assistance, aid for international refugees, utility grants, and other emergency support cost the state's poor nearly $17.4 million in surcharges and fees” during 2010 that would not have accrued had these services been provided as a public service, according to California Department of Social Services data.

The additional fees went to ACS and many of the nation’s largest banks, such as Wells Fargo, Bank of America, and JP Morgan Chase. State data show that ACS collected $806,238 in fees from California’s public benefit recipients using electronic benefits cards (EBTs) and $12.9 million in ATM fees from low-income Californians during the first eight months of 2011. The California Health and Human Services Agency released a pamphlet designed to inform EBT users of the terms of benefits provisions, which are governed by the state’s contract with ACS. EBT card holders were permitted to get cash back from “point of sale” machines at many stores when making a purchase without a fee. They could also make four ATM withdrawals a month without a fee. However, each withdrawal after the fourth of each month at an ATM and cash back requests without making a purchase would incur an 80 cent surcharge. Checking an account balance at an ATM also cost 25 cents.

DC: Parking Meter Mismanagement Leads to 903% Increase in Complaints

A 2007 audit found ACS had failed to take care and keep track of parking meters it operated in Washington, D.C. The audit claimed that 35 percent of parking meters listed in ACS’s inventory were missing, about 16 percent of the remaining meters were completely inoperative, among other problems. ACS also failed to fix meters within the 72-hour period mandated by its contract, according to the audit. The broken meters led to unfair tickets, with 6,888 tickets, or nearly one percent of parking meter tickets, being improperly issued at unfixed meters, according to the audit. The audit also found a 903% increase in overall parking meter complaints under the privatization contract with ACS. Washington, D.C. also had to pay $8.8 million, or 33.4 percent, more under privatization than projected trends under public management.

MD: Speed Camera Contract Encourages Traffic Tickets in Violation of State Law

In 2006, state lawmakers granted Montgomery County the authority to place speed cameras throughout the county and issue citations that carry a $40 fine. That same year, the county contracted ACS to administer the program, which includes processing violations, generating and mailing notices, scheduling adjudication and appeals, providing document imaging, correspondence management, walk-in customer service, pay-by-web, pay-by-phone, and integrated voice response systems, as well as maintaining camera equipment.

According to the Maryland Code, if a contractor operates a speed monitoring system on behalf of local jurisdiction, "the contractor’s fee may not be contingent on the number of citations issued or paid.” But according to the minutes of a January 29, 2007 meeting of the Rockville City Council, ACS gets paid “$16.25 per paid citation for each fixed site and $16.25 per paid citation or $2,999.00 per month per deployed mobile unit[,] whichever is greater," in direct violation of the law.

The Washington Times criticized the program by stating there was a direct financial incentive for mailing out tickets and “no corresponding incentive for accuracy.” They also noted that “at least 1,200 motorists have improperly received tickets because the trigger speed on the camera was set five miles per hour too low. Another 3,145 citations went out with the wrong location listed.” According to county records, as of September 2012, ACS was still paid on a per citation basis, with a compensation rate of “$16.25 for speed violations and $29.34 for a red light violation.” ACS frequently lobbied Maryland state legislators in order to receive the rights to administer traffic violation processing. In June 2008, ACS contracted the lobbying firm Alexander and Cleaver to organize a $3,700 dinner for Maryland’s lawmakers. During the 2007-2008 campaign cycle, ACS made contributions to the campaigns of Gov. Martin O’Malley, Senate President Mike Miller, Comptroller Peter Franchot and Deputy Majority Whip John L. Bohanan Jr. Each of these politicians played a key role in granting the speed monitoring system contract to ACS.

MN: Failed Health Database

In 2003, the Minnesota Department of Human Services contracted with ACS to develop an automated system for matching citizens with state-operated healthcare plans. The system, known as HealthMatch, was scheduled to be completed by 2005. When work was still not close to completion in 2007, a Legislative Auditor’s report was performed. The report concluded that Minnesota’s DHS had paid $8.7 million of the $22.4 million contract price to ACS as well as an additional $13 million on related implementation expenses. Michael Krigsman of ZDNet, opined that both the state and ACS were to blame for the multiple failings of the project which included “basic aspects of technology, management, staffing, business requirements definition, and so on.”  The parties entered litigation and eventually settled for an additional $7.25 million payment to ACS for partially completed work. Krigsman added that most of the work completed by ACS is unsalvageable.

NC: Failed Medicaid Payment System

In 2004, the North Carolina Health and Human Services Department awarded ACS a contract to deliver a new Medicaid payment system for the state. Upon award of this contract, a dispute erupted between ACS and EDS Inc., which was the previous Medicaid payment administrator for North Carolina. EDS charged that North Carolina was improper in its award of the contract to ACS. When ACS failed to fulfill the terms of the contract, the state terminated the agreement, after several warnings and deadline extensions, in July 2006. ACS blamed the failure on the protests by EDS which diverted state and ACS attention and resources away from completing the tasks of the Medicaid payment system. The contract was originally scheduled to run for a five-year period and would have provided ACS with $171 million. In April 2007, a settlement was reached, giving ACS $6.2 million for services rendered and an additional $4.3 for the completion of some Medicaid billing software.

ND: Years of Delays in Updating Medicaid System

The North Dakota Department of Human Services hired ACS to implement a new software system for the state's Medicaid bills, which was to be finished in 2009 after nine months. In 2010, after months of delays, an ACS vice president promised the system would be functioning by June 2012. In 2011, another executive, David Bywater, apologized for the additional delays, and told legislators the system would be working by mid-2013, years behind schedule.

NH: More Years-Long Medicaid Computer System Delays

The New Hampshire Health and Human Services Department also hired ACS to implement a new computer information system for the Medicaid program in 2005 with the goal of completing it by November 2007. In the end, the project was delayed for nearly six years, with ACS missing eight additional deadlines after the first one in 2007. The computer system was finished on April 1, 2013. Even then, the project had problems such as over payment of providers and improper rejection of claims.

TX: Allegations of False Claims

ACS was contracted to enroll people in several federally-funded programs administered by the Texas Workforce Commission and the Dallas County Local Workforce Development Board. However, between 2002 and 2005, several ACS employees incorrectly reported enrollment numbers resulting in overpayments to ACS. ACS reported these errors voluntarily to government officials. A federal False Claims Act case was brought against ACS in the Northern District of Texas. On July 3, 2007, U.S. Attorney Richard B. Roper announced a settlement in which ACS would reimburse the government for $2,645,987.30.

Health and Safety Violations
The United States Department of Labor Occupation Safety and Health Administration (OSHA) has inspected ACS facilities 31 times. The majority of the OSHA inspections stemmed from safety complaints. Ten of these inspections showed a total of 16 health and safety violations across six states (Kentucky, Washington, California, Oregon, Florida, and Minnesota) from 2003 to 2012.

Political Activity
According to the Center for Responsive Politics, ACS has spent over $1.5 million lobbying at the federal level since 2010 and over $7.2 million since 1998. ACS has lobbied on the following issues:
 * Transportation
 * Education
 * Medicare and Medicaid
 * Agriculture
 * Welfare
 * Disaster and emergency planning
 * Energy and nuclear power
 * Environment and superfund
 * Taxes
 * Tobacco
 * Homeland security
 * Government issues (specifically federal contracting opportunities)
 * Finance (specifically relating to the implementation of Dodd-Frank Wall Street Reform, the Consumer Protection Act, and financial services).

ACS, its employees, and its PAC spent more than $3 million on political contributions at the federal level from 1990 to 2013, according to the Center for Responsive Politics. At the state level, ACS, its employees and its PAC have spent over $1.06 million in 27 states from 2003 to 2013, including contributions to candidate races, party committees, and ballot measures.

Corporate Subsidies
According to "Subsidy Tracker," a project of Good Jobs First, ACS has received over $15 million in government subsidies. These have taken the form of enterprise zones, training subsidies, tax credits, loans, and property tax abatements.

Chief Executive Officer
Lynn Blodgett was the President and CEO of ACS until the company's acquisition by Xerox Corporation. He then became Executive Vice President of Xerox Corp. and President of Xerox Business Services, LLC. In 2012, Mr. Blodgett's salary was $850,000. He also received $3,000,005 in stock awards, a $663,000 bonus, and $3,048,944 in other compensation, for a total compensation of $7,561,949. In the three years since Xerox bought ACS, Blodgett's compensation has been $17,475,776.

The current CEO of Xerox Corp. is Ursula Burns, who has been with the company since 1980 when she started as a mechanical engineering summer intern. In 2012, Ms. Burns' salary was $1,100,000. She also received $7,750,006 in stock awards, a $1,072,500 bonus, a $3,093,779 increase in pension value and $53,960 in other compensation, for a total compensation of $13,070,245. She has received a total compensation of $124,842,705 from 2008 to 2012.

Board of Directors
Xerox Corporation board members as of August 2013:


 * Ursula M. Burns - Chairman and Chief Executive Officer
 * Glenn A. Britt - Chairman and CEO, Time Warner Cable Inc.
 * Robert A. McDonald - Chairman, President and CEO, The Procter & Gamble Company
 * Charles Prince - Retired Chairman and CEO, Citigroup Inc.
 * Richard J. Harrington - Chairman and General Partner, The Cue Ball Group; Retired President and CEO, The Thomson Corporation
 * Ann N. Reese - Executive Director, Center for Adoption Policy
 * William Curt Hunter - Retired Dean, Tippie College of Business, University of Iowa
 * Sara Martinez Tucker - President and Chief Executive Officer, National Math and Science Initiative
 * Robert J. Keegan - Operating Partner, Friedman Fleischer & Lowe; Retired Chairman of the Board, CEO and President of The Goodyear Tire & Rubber Company
 * Mary Agnes Wilderotter - Chairman and CEO, Frontier Communications Corporation

Corporate Officers
Xerox Corporation key corporate officers as of August 2013:


 * Ursula M. Burns - Chairman and Chief Executive Officer
 * Lynn Blodgett - President, Xerox Services
 * James A. Firestone - President, Corporate Operations
 * Kathryn Mikells - Chief Financial Officer
 * Armando Zagalo de Lima - President, Xerox Technology
 * Don H. Liu - General Counsel and Secretary
 * Tom Maddison - Chief Human Resources Officer
 * Dave Amoriell - Chief Operating Officer, Government and Transportation Xerox Services
 * Tom Blodgett - Chief Operating Officer, Commercial Xerox Services
 * Christa Carone - Chief Marketing Officer
 * Michael Festa - Chief Financial Officer, Xerox Services
 * Connie Harvey - Chief Operating Officer, Healthcare Xerox Services
 * Joseph H. Mancini, Jr. - Chief Accounting Officer
 * Ivy Thomas McKinney - Chief Ethics Officer
 * Sophie Vandebroek - Chief Technology Officer
 * Carol Zierhoffer - Chief Information Officer

Contact Information
ACS Headquarters 2828 N Haskell Ave Dallas, TX 75204 Phone : +1-214-841-6111 Fax : +1-214-823-9369

Web: http://www.acs-inc.com/ Facebook: http://www.facebook.com/XeroxCorp Twitter: http://twitter.com/XeroxCorp

Related SourceWatch Articles

 * MAXIMUS, Inc.

External Articles

 * Eric Bradner, "Good government groups always thought IBM deal smelled of patronage", Evansville Courier & Press, July 21, 2012