False Claims ActJan. 3, 2013
The federal False Claims Act (FCA) "prohibits false or fraudulent claims for payment to the United States," and authorizes civil lawsuits by the Attorney General or by private individuals on behalf of the government. The penalties can include treble damages, and an individual who brings a successful claim is entitled to a portion of the damages collected.
The law applies to colleges and universities that take federal financial assistance, which can be in the form of contracts or grants. At first glance, the FCA appears to be fairly limited, as if the claim for payment itself must be false or fraudulent (like asking for reimbursement for expenses that were not in fact incurred). However, a deeper dive demonstrates just how broadly the FCA may be applied, creating substantial risk of exposure to costly investigations and penalties.
The FCA is sometimes referred to as the "Lincoln Law" as its origins relate back to the times of Civil War when contractors sold the government sick horses and mules and faulty munitions. The law has recently been amended during the financial crisis that led to the major injection of federal funds into the economy. Congress strengthened the law to increase the tools the government could use to help ensure the proper expenditure of federal money.
For example, there need not be any actual, specific intent to defraud. Liability can be imposed on any entity that "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." Materiality would typically require the fact to be of consequence to the actual outcome. However, this standard has been lowered as well, such that under the FCA all that is required is for the false record or statement to have "a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." Consequently, it may be possible to violate FCA if the false record or statement could have affected the outcome even if in actuality it did not cause the payment.
The amendments also create a new "reverse false claim" liability. Even if a payment is not fraudulently induced, a recipient violates the FCA by retaining innocently received, but unearned, payments. Consequently, institutions must be vigilant not only about submissions to the government, but about what is actually received as well. The FCA amendments also expanded the ability of the government to initiate civil investigations. Retaliation prohibitions that only protected employees have been extended to prohibit retaliatory actions against contractors and agents.
One line of defense for institutions is an effective compliance program designed to prevent, detect, and correct violations of law and regulation. Key areas of concern include Title IV compliance, American Recovery and Reinvestment Act reporting requirements, conflicts of interest, research compliance, effort reporting, and privacy. Compliance programs should include monitoring and auditing components focused on the high risk areas.
Effective compliance programs do not necessarily avoid every problem, but any avoidance can be valuable. Losses under the FCA are likely uninsured and uninsurable. Actual damages can be tripled. Individual employees can initiate the litigation and, because of the stakes, reasonable settlement may not be achievable. The underlying policy scheme incentivizes disputes as part of a policy of prevention. It could be a target rich environment if an institution does not provide an effective compliance program that can avoid or minimize the potential harm.