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The Whistle-Blower : Hours of Agonizing Precede Filing of Fraud Allegations Against Litton

<i> Times Staff Writer</i>

James Carton didn’t immediately suspect his employer of fraud.

He figured there was a reasonable explanation for the inconsistencies he had discovered in the accounting records of a Litton Systems data center in Woodland Hills.

While working on an in-house project in early 1986, he alleges in a lawsuit he later filed against the company, Carton noticed that the company’s software system looked like it was designed to underrecord the computer usage of Litton’s commercial clients, which caused the government to be overcharged for the same type of service.

He thought he must be reading things wrong. “There were some discrepancies that I just attributed to myself for lack of understanding of the system,” said Carton, 46, a former technical director for Litton.

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But upon further inquiry, the suit alleges, Carton came to the conclusion that Litton had rigged its computer billing service to overcharge the federal government more than $25 million during a six-year period for computer work on hundreds of defense contracts.

Suit Filed

Nearly 18 months after his initial findings, Carton and the Center for Law in the Public Interest filed a lawsuit charging Litton with improperly billing the military between 1983 and 1988. The case was submitted under the federal False Claims Act, which says a whistle-blower can receive 15% to 30% of any damages awarded to the government in a successful case.

The U.S. Justice Department announced late last month that it has taken over Carton’s suit. Damages could reach $175 million, said John Phillips of the Center for Law in the Public Interest. The False Claims Act permits damages of three times the overcharge plus additional fines for every instance of false billing.

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The electronics giant has denied all of Carton’s allegations and said it was actually reducing the government’s costs by letting commercial customers use the same computers.

“We are incredulous that we are being charged with false claims for an action that saved the government substantial sums of money,” said Robert Knapp, Litton’s director of public relations. “The plaintiff’s suit has no merit.”

Regardless of the outcome, experts say Carton’s story is a valuable glimpse at the issues the average whistle-blower must confront before deciding to expose suspected fraud, including the fear of getting blacklisted and being permanently unemployed. For every Serpico or Silkwood, there are plenty of people who blow the whistle reluctantly.

“It took him a long time after finding out to actually make a move to make a public disclosure,” said Hampshire College Prof. Penina Glazer, co-author of the recently released book, “The Whistleblowers.” “He went to his supervisors and waited to see if anything would be done. That is very typical. Whistle-blowers don’t jump on their high horse right away.”

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Company Wanted Report

Because Carton was its technical director, Litton asked him in early 1986 to write a report on how profitable its business was with commercial clients, such as credit unions and corporations.

Litton provides both computer storage and computer services. Commercial or trade clientele use the data center to do work such as their taxes or accounts receivable; the government relies on the data center to process defense contracts being worked on by other Litton divisions.

Just a day into his study, Carton noticed that most of the commercial customers--which account for 40% of the data center’s revenue--were actually costing the company money. This puzzled Carton because the data center overall consistently reported a profit.

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“The accounts that I’m looking at singularly, the majority of them were in the negatives,” Carton recalled in an interview. “The data center itself was reporting profits for all computer usage.”

Something wasn’t adding up. So Carton decided to compare the invoices that were being sent to commercial customers with records of the services they were using. “I’m finding more discrepancies,” Carton said.

For instance, Carton claims one company was charged for using two disk drives when it was using three. The government on the other hand was allegedly being overcharged for services.

Went to Supervisors

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He went to his supervisors. “Their first explanation to me was they can’t be doing that,” Carton said. “They said ‘That’s not supposed to be happening.’ ”

Carton said he waited a year for something to change but that Litton continued to overcharge the government.

“I’m getting very uncomfortable,” Carton said. “Nothing is happening. I started thinking if I don’t do something, how responsible am I?” Carton called the General Accounting Office’s government fraud hot line but hung up before officials could get his name or where he worked. He went to the library and read articles about whistle-blowers.

“People often worry they can be personally implicated and get into trouble,” said Glazer. “Whistle-blowing is not always an altruistic, selfless action.”

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Felt Caught

Carton says he felt caught between doing the right thing and protecting himself, his wife and his four children. “I start thinking, geez, half of the people I could work for are in the aerospace industry,” he said.

But during his research, he came across information on the False Claims Act and the possibility of collecting millions of dollars if his allegations were proven in court. He was confident that his allegations were valid.

“I felt this was a calculated risk,” Carton said. “It’s like buying a $1 lottery ticket with better odds. I had confidence in my ability to get employment even if it meant bagging groceries.”

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Several years will pass before Carton will reap any reward--if ever. He now works for Northrop, which Carton says hired him without knowledge of his lawsuit against Litton. Northrop itself is the target of several False Claims Act lawsuits.

Carton was worried about how Northrop would react last month after the Justice Department joined his suit and had it unsealed in U.S District Court. “I really felt palpitations,” he said. “I’m walking from my car into the building and a manager I work with . . . walks up to me and says congratulations. I’ve had nothing but positive comments.”


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