A. Lee Bentley III and Jason Mehta | Defense One | October 3, 2018 | 0 Comments

How Contractor Fraud Is Reported Shouldn’t Affect How It Gets Investigated

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As former federal prosecutors, we understand first-hand the need to address fraud in the federal procurement/government contracting space. While the vast majority of federal contractors are dedicated to their craft and their country, a very few wrongdoers occasionally cast a shadow on the industry as a whole. Unfortunately, the way that the government resolves fraud allegations is often dictated not by the egregiousness of the fraud but rather by how the government learns of suspected wrongdoing. Given this inconsistency, we suggest a more uniform approach to addressing whistleblower allegations.

As many defense contractors have painfully learned over the years, the world of federal procurement regulations is complicated, evolving, and perilous. Even technical violations of procurement regulations can bring stiff consequences. And, more and more, employees at federal contractors are speaking up when they see wrongdoing. We applaud these employees for taking their job responsibilities seriously. And, when an employee sees wrongdoing, he or she should report it.

The traditional way to blow the whistle is to report internally up the chain and—if that does not work—the whistleblower could report suspected wrongdoing to federal contracting officers or to Defense Department hotline numbers. When the allegations are raised up the chain, a series of investigative procedures are initiated and DOD scrutinizes the allegations with appropriate vigor. DOD has contractual rights under the Federal Acquisition Regulations to investigate these allegations, inspect the premises, review documents, and root out fraud. These administrative remedies have been a resounding success when DOD learns of instances of fraud.

In recent years, however, the world of whistleblowing has received more prominence. In particular, as whistleblowers have learned more about their rights, the whistleblowers have turned to the False Claims Act—a statute designed specifically to report fraud to the U.S. government. The stakes are significant. In the False Claims Act context, the government can recover up to treble damages when government contractors are found to have engaged in fraud.

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According to the most recent statistics, the Justice Department is maintaining a fast clip with respect to False Claims Act prosecutions. In fiscal 2017, the federal government recovered more than $3.7 billion from federal contractors found guilty of fraud. While the majority of those recoveries came in the healthcare space, DOJ also recovered millions of dollars from defense contractors.

Of particular note is that more than 90 percent of the recoveries reached by DOJ—$3.4 billion out of $3.7 billion—were the result of qui tam lawsuits. Qui tam lawsuits, otherwise known as whistleblower lawsuits, are one of the fastest-growing segments of litigation in federal courts, with entire cottage industries of lawyers devoted to these cases. In these lawsuits, a whistleblower comes forward and presents allegation of suspected fraud. Once a suit is filed, DOJ is statutorily obligated to investigate.

Interestingly, the way that the government learns about fraud often dictates the investigation process—and, in many instances, helps determine the final outcome. This produces odd and asymmetric results.

For example, when the government learns about the suspected fraud via the DOD hotline or through a procurement official, the government often invokes its contractual and administrative rights to investigate. The relevant contracting agency will use the panoply of tools to scrutinize the allegations. Often, the contracting agency will interview employees, request documents, request access to the location, and similar investigative steps. Where the allegations are corroborated, the government will appropriately recoup improperly obtained government moneys.

In contrast, when the government learns about the suspected fraud through a qui tam suit, the DOJ will initiate the investigation. The investigation is given the imprimatur of a “federal case” and the stakes are automatically elevated as the default remedy for a False Claims Act case is not recoupment, but rather civil penalties (recoupment plus extra money as a penalty). In addition to the investigative steps described above, the mere fact that a whistleblower files a False Claims Act suit often results in official DOJ interviews, subpoenas and meetings.

To be sure, there is no doubt that some cases merit penalties in addition to recoupment. Yet, the driving principle for the right outcome should not be driven solely by how a whistleblower choses to report suspected wrongdoing. Rather, a more thoughtful and uniform approach would be more even-handed and consistent.

Our suggestion to this problem is simple: all whistleblower allegations should be investigated seriously, diligently, and uniformly. When a whistleblower reports suspected fraud via a DOD hotline tip, the contracting agency should be doing all it can to confirm or refute the allegations. And, likewise, where the tip comes via a qui tam suit, the contracting agency should apply all diligence to verifying the accuracy of the allegations.

But, the right remedy should not be driven by the forum chosen by the whistleblower. Rather, in each instance of possible fraud, the right investigation and the right outcome should be driven by the level of the fraud, not the channel of communicating the allegations. We call on government agencies to be particularly mindful of this need for even-handedness. By all government agencies being mindful of these possible differences, and by government treating all contractors and whistleblowers uniformly, we may truly reach consistency, fairness, and justice.

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