Fear This, Federal Grantee: A Qui Tam Lawsuit
When any organization applies for a federal grant, someone has to sign a certification that appears on the Standard Form 424, Application for Federal Assistance. He or she promises that the information contained in the document is true, complete and correct. The individual also agrees that any false, fictitious or fraudulent information submitted could subject them to civil, criminal or administrative penalties. Appearing close by the certification is a legal citation: 18 U.S.C. 1001. This refers to the False Claims Act.
Enacted in 1863 at the height of the Civil War, the False Claims Act made it a federal crime to purposely make a false monetary or other claim against the U.S. Government. For close to 125 years, the statute played a barely visible role in preventing or detecting fraud against the government. But, in 1986, Congress amended the law to allow for something called a qui tam lawsuit.
Here’s how that kind of a suit works. An individual, called a relator, who has knowledge of a false claim that the government does not have, brings a lawsuit in federal court against the party that he or she alleges has made the false claim. The case goes under seal, so the defendant does not even know that it’s been sued.
The U.S. Attorney for the district in which the case arose reviews the merits of the case and determines whether the government will join the suit and prosecute it or will let the relator go forward on their own. Following that decision, the case comes out from under the seal and proceeds. If the federal government recovers funds from the party alleged to have made the false claim, the relator receives a percentage of the recovery. For some relators, the result has been better than hitting the lottery.
Often, because of the expense of litigating the case and the difficulty of documenting the accuracy of every transaction involved with the suit, the defendant organization chooses to settle the case for an amount that is less than the suit alleged was misclaimed. However, the financial impact on the organization often is still substantial. According to the U.S. Department of Justice, there have been thousands of cases filed — and settled — and the government recovered a record $5 billion under the procedure in the most recently completed federal fiscal year. The list of organizations that have been sued is long and distinguished.
There is no magic wand to wave to avoid such litigation. But one strategy that could help reduce the likelihood of a disgruntled employee or program beneficiary filing a qui tam action is to create an in-house whistleblowing procedure. It has been observed that where this feature has been either lacking or demonstrably ineffective, those with a willingness to identify a false claim are only left with the qui tam route.
When time allows, search the Department of Justice website and you’ll see enough authoritative data about these suits to give any grantee organization some pause. So far, the defendants in these cases have been confined to nonprofit and commercial entities, many of which received federal grants and contracts. But if you run a simple search on the Internet with the words “qui tam,” you’ll see that law firms involved in such cases constitute more than a cottage industry and there’s bound to be one that will bring a test case to see if the court will apply the statute to a governmental entity, too.