Under the False Claims Act (FCA), individuals who knowingly submit false claims for payment of government funds are liable for three times the government's damages, plus civil penalties. The FCA also allows an individual to bring a lawsuit on behalf of the United States when he or she has information that another party submitted claims to the government that were false or fraudulent - AKA whistleblower or qui tam lawsuits.
While the Act has been in effect since the Civil War, the government has recently ramped up its focus. The law itself has been amended three times in the past year, says Robert Blume, partner with Gibson, Dunn & Crutcher LLP. For instance, the recently-passed Patient Protection and Affordable Care Act included changes to the FCA that affect industries outside healthcare. Case in point: previously, a whistleblower couldn't pursue publicly disclosed claims on behalf of the US unless he or she was a direct, independent source of the information. Now, the individual needs only independent knowledge that materially adds to previously disclosed allegations, the law firm of Ropes & Gray reports.
Last year, Congress passed the Fraud Enforcement and Recovery Act (FERA), which made it a violation for a recipient of Federal funds to knowingly keep an overpayment.
The changes are likely to continue. Gibson Dunn reports that modifications to the Program Fraud Civil Remedies Act, or what is sometimes known as the "mini-FCA," are likely. The mini-FCA allows government agencies to pursue false claims of up to $150,000 through an administrative process, rather than the courts. This allows them to follow up on actions that the DOJ typically would decline due to their relatively small sizes. Soon, the cap for these suits may increase.
The focus on the FCA is being driven by the government's increased reliance on government contractors, as well as the billions pumped into the economy through stimulus spending. In 2009, the Justice Department recovered $2.4 billion from false claims cases - the second highest amount in its history. What's more, this doesn't include criminal recoveries, monies disbursed to the states in settlements, nor funds that weren't collected in the current fiscal year, reports Taxpayers Against Fraud. If these payments were included, the total recovered would hit $5.6 billion, up from $900 million in 2004.
Given the number of changes to the law and heightened enforcement, any CFO whose company does business with the Federal government - even indirectly - needs at least a basic understanding of the FCA. For starters, it pays to know where you might be vulnerable, Blume says. So, if your firm sells to a school that receives Federal funding, the payments you receive could fall under the FCA umbrella, Blume says.
You also want to be as transparent as possible when working with Uncle Sam. Say your firm receives an overpayment. Make sure your contact on the other side knows about your efforts to return the money, Blume says. The more you communicate, the harder it becomes for the government to later say that you knowingly violated the Act.
"This is the fastest-growing area of Federal litigation," Blume says. "Be aware of your exposure and risks."