Affiliated Computer Services
Once known as Affiliated Computer Services, Inc. (ACS), ACS Government Solutions is a subsidiary of Xerox that specializes in the privatization of government administrative services for some of the nation's most vulnerable citizens. Xerox acquired ACS in 2009 and announced that it would be retiring the ACS name in 2012.
The services ACS Government Solutions 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 $19.5 billion in revenues for the fiscal year 2014, with $1.1 billion in total profits.
ACS Government Solutions 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 Government Solutions is owned by Xerox Corporation, whose gross revenues were $19.5 billion and whose total profits were $1.1 billion in 2014. 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 Government Solutions/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.
SEC Probe (2013)
In October 2013, Xerox announced that the U.S. Securities and Exchange Commission (SEC) would be investigating ACS and its accounting practices. According to Bloomberg, the investigation was "focused on whether revenue from ACS equipment and resale transactions should have been recorded on a net rather than gross basis," and the SEC did not intend to bring charges against Xerox. Then-executive vice president Lynn Blodgett, along with two other employees, received a Wells notice from the SEC, indicating that the SEC might bring a civil enforcement against them. As of July 2014, no information could be found about the results of the investigation.
TX: Xerox/ACS Medicaid Contract Terminated, Xerox Sued
The Houston Chronicle reported on June 15, 2015, that the federal government is requesting that the state of Texas "repay at least $133 million in Medicaid funding spent on unnecessary or unjustified dental and orthodontic care." A Texas Health and Human Services Commission spokeswoman told the newspaper that they would not pay the federal government until their lawsuit with Xerox is resolved. According to the newspaper, the federal audits uncovered that "annual spending on Medicaid orthodontic services grew from $67 million in fiscal year 2006 to $229 million in fiscal year 2011."
On May 9, 2014, the Texas Attorney General sued Xerox "over allegations that it let unscrupulous dentists put braces on thousands of poor children who didn’t meet the government’s strict criteria for the expensive work," as reported by the Dallas News. The lawsuit claimed that between 2004 and 2012, the company "permitted an unprecedented loss of Medicaid funds to predatory and unscrupulous dental providers," reaching to hundreds of millions in allegedly improper charges. ACS had been awarded the Medicaid contract in 2003, and Xerox continued when it acquired ACS in 2010.
The problems had been discovered much earlier. According to the Texas Tribune, "In December 2011, an investigation by WFAA-TV in Dallas revealed that Texas was spending more on Medicaid orthodontic services than the nation’s nine other most populous states combined," and that the contractor was "rubber-stamping" claims. A New York Times report on May 1, 2014 noted that "by 2012, federal and state auditors found that the contractor’s actions had opened the door for a “massive Medicaid fraud scheme” that cost taxpayers hundreds of millions of dollars." However, it wasn't until May 9 that the state announced it would sever the contract and would sign a new three-year contract with Accenture--another Xerox subsidiary.
A 2012 report by watchdog group Texans for Public Justice found the ACS had been a client of lobbyist Mike Toomey, a " former roommate and ex-chief of staff" of Gov. Rick Perry. Toomey worked as a lobbyist both before and after serving in Perry's administration, and his clients have donated millions to Perry's campaigns since 2001.
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.
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:
- Medicare and Medicaid
- Disaster and emergency planning
- Energy and nuclear power
- Environment and superfund
- 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. 
According to "Subsidy Tracker," a project of Good Jobs First, Xerox has received over $51,689,177 in government subsidies since the year 2000, much of that through various ACS subsidiaries. These have taken the form of enterprise zones, training subsidies, tax credits, loans, and property tax abatements.
Xerox/ACS Government Solutions Key Corporate Officers as of June 2015
- Ursula M. Burns, Chairman and Chief Executive Officer
- Robert K. Zapfel, Executive Vice President and President of Xerox Services
- David Amoriell, Vice President and Chief Operating Officer of the Public Sector Business Group at Xerox Services
- Richard M. Dastin, Vice President and Chief Development Engineer of Xerox Services
- Michael R. Festa, Vice President and Chief Financial Officer of Xerox Services
- Connie Harvey, Vice President and Chief Operating Officer of Commercial Healthcare Business Group at Xerox Services
See Xerox for Boards of Directors and expanded list of officers.
45 Glover Avenue
P.O. Box 4505
Norwalk, CT 06856-4505
Phone : 1-877-414-2676
Resources and Articles
Related SourceWatch Articles
- Eric Bradner, "Good government groups always thought IBM deal smelled of patronage", Evansville Courier & Press, July 21, 2012
- Christa Carone, "Xerox Retires the ACS Handle: A Texas Name Rides Into the Sunset," Xerox marketing blog, January 25, 2012. Accessed July 24, 2014.
- Xerox Corporation/ACS Inc., Government at a Glance, corporate website, accessed August 2013.
- Company Report: Affiliated Computer Services, Inc., Hoovers credit report, accessed August 2013.
- Xerox Corporation, 2014 Annual Report Shareholder Letter, corporate website, accessed June 2015.
- United States Securities and Exchange Commission, Affiliated Computer Services, Inc. Form 10-K, corporate securities filing, August 27, 2009.
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- "S.E.C. Investigates Accounting at Outsourcing Division at Xerox," Reuters/New York Times, October 9, 2013. Accessed July 24, 2014.
- Brian M. Rosenthal, Feds ask Texas to return $133 million in Medicaid payments, Houston Chronicle, June 5, 2015.
- Robert T. Garrett and Gary Jacobson, "Xerox allowed ‘unprecedented loss of Medicaid funds,’ lawsuit alleges," Detroit News, May 9, 2014. Accessed July 24, 2014.
- Becca Aaronson, "Texas Cancels Medicaid Contract, Sues Xerox Over Allegedly Misspent Money," Texas Tribune, May 9, 2014. Accessed July 24, 2014.
- Becca Aaronson, "Faulted in Medicaid Fraud, Company Keeps Contract," New York Times, May 2, 2014. Accessed July 24, 2014.
- Texans for Public Justice, Rick’s Revolvers: The Governor’s Office Runs a Farm Team for Lobbyists," report, January 2012. Accessed July 24, 2014.
- Texans for Public Justice, "Perry’s Roomie Mike Toomey MobilizesThe Corporate Lobby to ‘Make Us Great Again’," report, January 2012. Accessed July 24, 2014.
- In the Public Interest, "Indiana Public Benefits Eligibility System"
- Matea Gold, Melanie Mason and Tom Hamburger, "Indiana's bumpy road to privatization", Los Angeles Times, June 24, 2011
- Janell Ross, California's Welfare Families Paid Banks Millions In Fees For Public Assistance, Huffington Post, November 18, 2011.
- California Electronic Benefit Transfer (EBT) Card, CA Department of Social Services, Accessed October 3, 2013
- District of Columbia Auditor, Auditor's Examination of Privatization of Parking Meters Operations and Contractor's Performance Billings Under Parking Meter Services Contract, government audit report, February 22, 2007.
- Speed-camera contractor paid per citation, Washington Times, March 31, 2008.
- Charm City camera crackup, Washington Times editorial, December 5, 2012.
- Montgomery County, Memorandum to Public Safety Committee, government memo, September 11, 2012.
- ACS Wine and Dine State Legislatures over Speed Camera Bills, Maryland Drivers Alliance, June 13, 2008.
- Speed Cameras Attract Lobbyists in Annapolis, Maryland Drivers Alliance, June 13, 2008.
- Rachel E. Stassen-Berger, State health database encounters new snag: HealthMatch creator ousted for years of delays, Pioneer Press, March 5, 2008.
- Rachel E. Stassen-Berger, [http://www.zdnet.com/blog/projectfailures/minnesota-healthmatch-a-perfect-storm-for-it-failure/12648 Minnesota HealthMatch: A perfect storm for IT failure ], ZDNet, March 21, 2011.
- Ethan Butterfield, North Carolina ends Medicaid pact with ACS, Government Computer News, July 19, 2006.
- Patty Enrado, North Carolina, ACS settle, Healthcare IT News, April 30, 2007.
- Associated Press, North Dakota Medicaid payment system changes delayed again, Bismarck Tribune, September 15, 2011.
- Bob Sanders, Medicaid computer system delays again raise hackles, New Hampshire Business Review, September 23, 2011.
- Garry Rayno, NH officials say new Medicaid computer system improved, New Hampshire Union Leader, April 17, 2013.
- Affiliated Computer Services Inc., Lawyers and Settlements, Accessed August 2013.
- U.S. Department of Justice, Affiliated Computer Services, Inc. (ACS) to Pay U.S. More Than $2.6 Million to Resolve Allegations it was Paid Improper Incentives, press release, July 3, 2007.
- Occupational Safety and Health Administration, Affiliated Computer Services, OSHA establishment data, accessed August 2013.
- Center for Responsive Politics, Lobbying: Affiliated Computer Services (Summary), OpenSecrets lobbying database, accessed August 2013.
- Center for Responsive Politics, Organization Profiles: Affiliated Computer Services, OpenSecrets federal political influence database, accessed August 2013.
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- Good Jobs First, , Good Jobs First, June, 2015.
- Xerox, Leadership 2014 Annual Report, Xerox, 2015.