EDS bust-up exposes its dirty linen

EDS, the Texan technology firm that runs the Inland Revenue and Child Support Agency computers, has been accused by a former senior director of manipulating its figures, putting pressure on executives to resign and spending millions on lavish entertainment for clients and staff.

Fred Steingraber, the former chief executive of EDS's consulting arm, AT Kearney, details the accusations in a damaging legal document, lodged in a US court last year.

The deposition says that EDS chairman Dick Brown and finance director James Daley inflated the group's profits by early recording of income from contracts, failing to record the risk factors on contracts and hiding problems with deals. Among the contracts affected were a $6.9bn (£4.2bn) deal with the US Navy and a number of European deals.

Mr Steingraber claims that he and other senior Kearney executives questioned Mr Brown about these issues in the spring of 2000.

Last year EDS admitted to problems with a number of contracts, including one for the UK Department for Work and Pensions. It is now being investigated by the US Securities & Exchange Commission.

Mr Brown, who was headhunted in 1999 by EDS from his job as chief executive of Cable & Wireless, made Mr Steingraber step down as chief executive of Kearney in late 2000. However, Mr Stein- graber stayed on as chairman emeritus until last August. Then, after a terse meeting in Chicago, he was sacked by EDS, accused of fiddling his expenses and sued for embezzlement.

Mr Steingraber rejects the accusations, though he admits to over-invoicing for $6,600 of costs, and has accused EDS of using the writ to put pressure on him to drop claims for share options worth $7m.

In his defence, first published in Business Week, Mr Steingraber claims that his expenses were low compared to those of other EDS executives.

He cites a party hosted by Mr Brown at his home at Moosehead Lake, Maine, where guests were flown in on the company jet; a party at the 2001 Comdex conference in Las Vegas, which cost millions of dollars; and a meeting hosted by Dietmar Ostermann, the current head of Kearney, in Hamburg in October 2000 which cost $1.4m.

Mr Steingraber also says he was told to make it "unbearable" for certain senior executives to work at Kearney, hoping that would "force them to 'voluntarily' walk away from their employment agreements".

EDS declined to comment on the specifics of Mr Steingraber's claims, saying they were the "false and malicious allegations" of a "disgruntled former employee".

However, the row with Mr Steingraber is highly embarrassing for the company and, even if it succeeds in its legal action, it may be hit by other claims, not least from Kearney clients who could claim to have been overbilled.

The row has blown up at a tricky time for EDS. Last week Andrew Smith, the Secretary of State for Work and Pensions, said he had negotiated a settlement with EDS in the long-running dispute about the Child Support Agency computer system. EDS will have to pay the DWP up to £30m for delays to the system.

EDS is also close to making a joint bid, with Accenture, for the £7bn Aspire contract to run and modernise the Inland Revenue computer system.