iHonest companies with well-meaning owners can still fall victim to the False Claims Act, often through the acts of their employees or a misunderstanding of the requirements in their government contracts. Even if the error is harmless, the allegations can cause your company’s reputation to be damaged, subject you and your business to suspension and debarment, and increase costs, all while dealing with the threat of civil and criminal penalties. False Claims Act complaints can be filed by the Department of Justice or by individuals with first-hand knowledge of the fraud. These are referred to as qui tam claims, and they have incentivized the filing of False Claims Act complaints by allowing the individual to receive up to 30% of the Governments recovery. Therefore businesses should always be prepared to receive reports of fraud whether they are frivolous or not. Here are 10 simple steps that you can take to reduce the risk of False Claims Act filings and be prepared to efficiently deal with accusations.
1. Personnel Records
Your business is about people. Disgruntled or terminated employees can commit fraud in your company’s name or make whistleblower accusations after termination. These whistleblowers are incentivized to file a False Claim action in a qui tam action where they may stand to recover a percentage of any of the damages the Government collects. It is not unheard of for an employee to have committed the fraud himself only to try to recover in a qui tam suit. These bad actors are prohibited from recovering for their own fraud, but the burden of proof is on the business to show they were the culpable party. Documenting employee performance, negative reviews, and reasons for termination can help refute allegations that the employee was terminated as retaliation for trying to prevent a False Claim from being perpetrated on the Government. For example, documenting an employee counseling session instructing the employee not to use a certain inaccurate measuring technique can be the difference between you proving that you made efforts to prevent fraud and an employee cashing in on acts he committed in your name.
2. Clear Policies
Your corporate policies are effective tools in creating an atmosphere of honesty, equality, and fairness. Whenever possible, you should have an open door policy that encourages early reporting of concerns and fosters an atmosphere of trust. Employing a law firm versed in employment law to review your personnel policies annually ensures that your policies are fair and meet updated federal, state, and local requirements. Should your company be accused of illegal behavior, it is helpful to be able to point to your policy and mandatory training to show that you are making every effort to comply with the law. If an alleged whistleblower was actually fired for cause and not as retaliation for exposing fraud, your written policy prohibiting the unacceptable behavior is a key piece of evidence in your defense against the retaliation accusations. For example, if you can show that the employee was fired for violating a conduct policy, the burden is on the terminated employee to disprove that assertion and show that he was actually terminated as retaliation for threatening to report fraud. However, if your conduct policy hasn’t been updated to allow for the National Labor Relations Board decisions prohibiting conduct policies that go too far to chill speech in the workplace, the noncompliant conduct policy may be used against you. Thus it is important to have the right policies for your business that are regularly updated by a trusted legal team.
3. Be Aware of Mandatory Disclosure Triggers
The Federal Acquisition Regulation (FAR) requires the reporting of “credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations.” It also imposes a requirement for a written code of business ethics for certain contracts. Simply not reporting “credible evidence of a violation” is in and of itself a violation that could subject you and your company to suspension and debarment. Where accidental overpayment has occurred, it is important to work with legal counsel to promptly alert the Government and offer to immediately repay outstanding amounts. This strategy can demonstrate a commitment to compliance and prevent additional liabilities. The Department of Defense has additional requirements for disclosing information related to fraud, including requirements to post agency specific posters for reporting fraud, waste, and abuse.
4. Have a Plan in Place to Deal with Accusations of Fraud – Even Frivolous Ones
As a policy, businesses would be wise to mandate formal investigations for all allegations of fraud. Prompt action preserves evidence and allows witnesses to better recall relevant events related to the allegation. Using an attorney familiar with government contracts to conduct the investigation may allow for the investigator to both understand the regulatory issues and encourage honest reporting if the information is protected by the company’s attorney-client privilege. It is important to document what action was taken and what steps are to be taken when you receive allegations of fraud. Showing the Government that you are proactive in your approach may mean the difference between debarment and probation.
5. Reliance on Counsel and Outside Audit Agencies
The intent element of fraud is very important in a False Claims Act case. If you reasonably relied on the advice of counsel or had independent experts (ex. auditors) review your paperwork, it will support your case that you did not knowingly intend to defraud the Government.
6. Ask Certification Requirement Questions During Solicitation and After Award
If you are required to certify the suitability, durability, compliance, or any other attribute of your product or service, make sure you fully understand what you are certifying. Many qui tamaccusations have resulted from products that were deemed to meet a specific certification but failed to meet some arbitrary or inapplicable portion of that standard. A qui tam claim can still be filed even if the contracting officer (CO) is satisfied with the contractor’s performance if the deliverable doesn’t meet a specific requirement in the contract. It is therefore critical that you know exactly which industry standard the Government wants you to certify your deliverable to and have it in writing.
7. Communicate Early and Often
Deliver any material news to the CO as soon as you have something to go on. The best time might be after an investigation shows that a claim is baseless, but you need to be confident in the investigation’s findings if you are going to offer it to the Government to preempt a frivolous filing. Hiding the accusation will only raise suspicions. The first time the CO hears about the allegation, should not be from the Investigator General or the Department of Justice.
8. Checks and Balances – Develop Internal Controls, and Oversight for Invoices and Claims
Businesses should require multiple levels of review for claims and invoices submitted to the Government. You should subject claims and invoices to the Government with at least the same rigorous standards that you do for internal accounting actions. Your accounting and legal teams can make sure that you are complying with standard accounting principles, Defense Contract Audit Agency (DCAA) requirements, and are conducting regular audits to expose errors and omissions before someone else spots a discrepancy.
9. Don’t Gamble with Tenuous Claims
In a dispute or in response to a unilateral modification it is often the temptation to submit a large claim amount hoping that the Government will settle somewhere in the middle. This is unlawful and a violation of the False Claims Act; a mistake that is compounded by submitting a certified claim. You must be able to verify every penny of a certified claim. A claim can be rejected solely for lack of substantiating evidence, and even worse an inaccurate claim can cause the Department of Justice to file a False Claims Act claim in the Court of Federal Claims. Therefore, if your claim offers two theories of damages, ask yourself if by arguing two independent theories you are actually showing that your arguments are too tenuous to maintain. The Court of Federal Claims has awarded fines and penalties on claims that are disingenuous, reckless, or otherwise clearly fraudulent. One Court of Federal Claims Judge is fond of the adage, “does [your claim] pass the blush test?”
10. Training and Corrective Training Focused on Integrity and Regulatory Compliance
Ignorance of the law is not an excuse. The same goes for contractors that are unaware of regulatory requirements. Some businesses choose to have their government contracts’ attorneys provide annual ethics and regulatory briefings for their employees. Businesses should require new employees to be certified and regularly retrained on job-specific regulatory concerns. When a company self-identifies an act of fraud, self-reports the violation, offers repayment to the Government, and creates a retraining program focused on ethics and compliance, the Department of Justice and the debarment agencies take those positive factors into consideration and may find that the company has already taken corrective action.
This is meant to be a non-exhaustive list of ways to decrease your odds of being accused of violating the False Claims Act and develop a plan to deal with any claims that are made. Often your best weapon is a legal team that can help prevent compliance issues from becoming violations and be there to respond quickly if an allegation is made.
