Nearly all of the more than $600m New York City paid to the principal contractor for a new payroll system was tainted by fraud, US prosecutors said.

Prosecutors newly indicted two technology executives and their company TechnoDyne LLC, "in connection with a massive and elaborate scheme to defraud", the New York attorney's office said in a statement on Monday.

"In just the few months since the first announcement of arrests and seizures, we have developed evidence that the corruption on the CityTime project was epic in duration, magnitude, and scope," Preet Bharara, the Manhattan US attorney on the case, said in the statement.

Michael Bloomberg, New York City mayor, has been trying since 2003 to implement "CityTime", a computerised accounting system to automate payroll for hundreds of thousands of municipal employees.

Seven years later, the project is still unfinished and has overrun its original cost estimate from $63m to more than $600m.

Padma Allen served as the chief financial officer and her husband as the chief executive officer of Technodyne, the fraudulent company they had set up.

The Allens are believed to have fled to their native India, prosecutors said. The Associated Press reported that efforts to reach them for comment through online contact were unsuccessful.

The couple and six other city employees are indicted on numerous counts of wire fraud, bribery and money laundering.

Monday's indictment alleges that some of the defendants had conspired to hire unnecessary consultants. They are also accused of inflating charges and work hours.