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Complimentary Administrative Remedies The Program Fraud Civil Remedies Act Suspension and Debarment Federal Audit Executive Council Annual Conference,

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Presentation on theme: "Complimentary Administrative Remedies The Program Fraud Civil Remedies Act Suspension and Debarment Federal Audit Executive Council Annual Conference,"— Presentation transcript:

1 Complimentary Administrative Remedies The Program Fraud Civil Remedies Act Suspension and Debarment Federal Audit Executive Council Annual Conference, September 26, 2013 Glenn P. Harris, Counsel to the SBA IG Travis J. Farris, Assistant Counsel to the SBA IG 1

2 Goals of this Training Familiarize Participants with the Program Fraud Civil Remedies Act (PFCRA), Suspension and Debarment Familiarize Participants with the Program Fraud Civil Remedies Act (PFCRA), Suspension and Debarment Discuss Recent CIGIE Efforts Discuss Recent CIGIE Efforts Provide structure for Provide structure for incorporating these remedies into audit planning 2

3 What We Will Cover The Program Fraud Civil Remedies Act The Program Fraud Civil Remedies Act Suspension & Debarment Suspension & Debarment CIGIE Activity Supporting These Remedies CIGIE Activity Supporting These Remedies 3

4 The Program Fraud Civil Remedies Act of 1986 “PFCRA” 31 U.S.C. § 3801 et seq Or, the Baby False Claims Act. 4

5 What You Need to Know PFCRA is an administrative remedy designed to reach frauds not selected for False Claims Act cases. PFCRA is an administrative remedy designed to reach frauds not selected for False Claims Act cases. Agencies litigate PFCRA cases in front of Administrative Law Judges (ALJs). Agencies litigate PFCRA cases in front of Administrative Law Judges (ALJs). PFCRA provides liability for both false claims and false statements. PFCRA provides liability for both false claims and false statements. 5

6 History and Intent of PFCRA PFCRA was enacted in 1986 to deal with lower dollar value cases DOJ was not litigating. PFCRA was enacted in 1986 to deal with lower dollar value cases DOJ was not litigating. PFCRA ensures Federal agencies have redress for false statements and smaller false claims not selected for enforcement litigation by the Department of Justice. PFCRA ensures Federal agencies have redress for false statements and smaller false claims not selected for enforcement litigation by the Department of Justice. 6

7 Statutory Elements Impose civil penalties and assessments for: Impose civil penalties and assessments for: Persons who Persons who Make, Submit or Present or, Make, Submit or Present or, Cause to Be Made, Submitted or Presented Cause to Be Made, Submitted or Presented False Fictitious or Fraudulent False Fictitious or Fraudulent Claims or, Claims or, Statements Statements They Knew or Had Reason to Know were False They Knew or Had Reason to Know were False To Federal Authorities or their agents. To Federal Authorities or their agents. 6 Year Statute of Limitations (stops running when ALJ sends the scheduling order). 6 Year Statute of Limitations (stops running when ALJ sends the scheduling order). PFCRA actions may be prosecuted in concert with, or in lieu of, debarment. PFCRA actions may be prosecuted in concert with, or in lieu of, debarment. 7

8 Knowledge Unlike criminal cases, the Act provides that “no proof of specific intent to defraud” is required. Unlike criminal cases, the Act provides that “no proof of specific intent to defraud” is required. Liability can be based on: Liability can be based on:  Actual knowledge of the information  Acting in deliberate ignorance of the truth or falsity of the information  Acting in reckless disregard of the truth or falsity of the matter. 8SBA Office of Inspector General Key Slide

9 Knowledge - continued What is “Reckless Disregard”? Legislative history -- persons making claims for payment to the Government must make “at least some inquiry,” to be reasonably certain they are entitled to be paid. Legislative history -- persons making claims for payment to the Government must make “at least some inquiry,” to be reasonably certain they are entitled to be paid. Inquiry can be limited, but should be “reasonable and prudent under the circumstances.” Inquiry can be limited, but should be “reasonable and prudent under the circumstances.” 9SBA Office of Inspector General Congress was addressing “the ‘ostrich’ type of situation where an individual has ‘buried his head in the sand’ and failed to make simple inquiries.” Congress was addressing “the ‘ostrich’ type of situation where an individual has ‘buried his head in the sand’ and failed to make simple inquiries.” There must be at least a minimal review to avoid a finding of reckless disregard. There must be at least a minimal review to avoid a finding of reckless disregard.

10 Knowledge - continued What is “Reckless Disregard”? Mere negligence probably not enough. “Reckless disregard may be considered the equivalent of aggravated form of gross negligence, or gross negligence-plus.” [False Claims Act law is often applied to interpret the PFCRA.] “Reckless disregard may be considered the equivalent of aggravated form of gross negligence, or gross negligence-plus.” [False Claims Act law is often applied to interpret the PFCRA.] “A defendant's good faith interpretation of a regulation does not give rise to liability.” “A defendant's good faith interpretation of a regulation does not give rise to liability.” 10SBA Office of Inspector General

11 Knowledge - continued A key to showing that there was no reckless disregard is the level of due diligence that was exercised: A key to showing that there was no reckless disregard is the level of due diligence that was exercised:  Quality Controls in place  Review of Underlying Documents/Internal Procedures  Employment Practices for Hiring, Assigning, Training and Retaining Personnel involved in claim creation or submission Keep in mind – This does not require a “no stone unturned” review. A limited review that is reasonable and prudent under the circumstances is needed. Keep in mind – This does not require a “no stone unturned” review. A limited review that is reasonable and prudent under the circumstances is needed. 11SBA Office of Inspector General

12 PFCRA Cases are Based Upon Claims or Statements Claims Request or other submission Made to an Agency or a third party handling Federal funds For Property or services. Could also be a reduction in amount owed to the Federal Government. Statements A writing Made with respect to a claim or program eligibility False because it asserts or omits a material fact 12

13 Remedies for False Claims Civil Penalty of up to $5,000 for each false claim (unless adjusted) Civil Penalty of up to $5,000 for each false claim (unless adjusted) Assessment of double the amount of paid claim Assessment of double the amount of paid claim Recovery limited to claims of $150,000 or less Recovery limited to claims of $150,000 or less 13

14 Remedies for False Statements Civil Penalty of $5,000 for each false statement (unless adjusted) Civil Penalty of $5,000 for each false statement (unless adjusted) 14

15 Vicarious Liability When is an employer liable for the false claims submitted by an employee? Courts have employed several tests:  Majority – If the employee was acting within the scope of his or her authority, the employer is vicariously liable.  Minority – Employee’s actions must also have benefitted the employer.  Minority – Alternate approach – did employer have constructive knowledge (i.e., should the employer have known). 15SBA Office of Inspector General

16 Procedure There must be an investigative report referred by the Office of Inspector General. There must be an investigative report referred by the Office of Inspector General. OIG report is submitted to the Reviewing Official (usually the General Counsel or designee). OIG report is submitted to the Reviewing Official (usually the General Counsel or designee). Department of Justice must approve all PFCRA actions. Department of Justice must approve all PFCRA actions. Cases are adjudicated in front of Administrative Law Judges. Cases are adjudicated in front of Administrative Law Judges. 16

17 OIG Report Presents findings and conclusions of investigation to Reviewing Official Presents findings and conclusions of investigation to Reviewing Official Should contain all evidence necessary to assess the proposed action Should contain all evidence necessary to assess the proposed action Should contain contact information for an investigating agent Should contain contact information for an investigating agent 17

18 Reviewing Official Assesses whether the evidence and Report of Investigation support a finding of liability under the PFCRA Assesses whether the evidence and Report of Investigation support a finding of liability under the PFCRA If appropriate, drafts a request for authorization from DOJ so the Agency might proceed with a PFCRA If appropriate, drafts a request for authorization from DOJ so the Agency might proceed with a PFCRA Determines whether there is a reasonable prospect of collecting an appropriate amount of penalties and assessments Determines whether there is a reasonable prospect of collecting an appropriate amount of penalties and assessments 18

19 Suspension and Debarment 19

20 What You Need to Know Suspension and Debarment is The Government’s Way of Making a Business Decision. Suspension and Debarment is The Government’s Way of Making a Business Decision. Suspension and Debarment may not be used for punishment. Suspension and Debarment may not be used for punishment. These remedies are prospective only. These remedies are prospective only. 20

21 Two Federal Suspension and Debarment Systems Exist: Nonprocurement and Procurement 21

22 Nonprocurement and Procurement Suspension and Debarment Rules: Essentially the same effect – no participation in procurement or nonprocurement transactions irrespective of which system caused the suspension or debarment. Essentially the same effect – no participation in procurement or nonprocurement transactions irrespective of which system caused the suspension or debarment. Similar terminology and procedure. Similar terminology and procedure. 22

23 Key Differences Key Differences Nonprocurement (NCR) No automatic exclusion for proposed debarment. No automatic exclusion for proposed debarment. Focus is on Grants, guarantees, insurance etc. Focus is on Grants, guarantees, insurance etc. Found in Title 2 of the Code of Federal Regulations, Part 180, and in agency pieces. Found in Title 2 of the Code of Federal Regulations, Part 180, and in agency pieces. No debarment for delinquent tax debt (yet). No debarment for delinquent tax debt (yet). Procurement (FAR) Automatic exclusion upon proposed debarment. Focus is on goods and services the Government purchases. Found in Title 48 of the C.F.R., Subpart 9.4, and in some agency pieces. May debar for delinquent tax debt in excess of $3,

24 Suspension Used when you have adequate evidence of a violation that may merit debarment and immediate action is necessary to protect the Government’s interest. Used when you have adequate evidence of a violation that may merit debarment and immediate action is necessary to protect the Government’s interest. Lasts for up to one year (with a possible six month extension) or until legal proceedings, such as a criminal case or debarment action, have concluded. Lasts for up to one year (with a possible six month extension) or until legal proceedings, such as a criminal case or debarment action, have concluded. Effective Immediately. Effective Immediately. 24

25 Debarment Used when cause for debarment exists by a preponderance of the evidence and the debarment is in the public interest. Used when cause for debarment exists by a preponderance of the evidence and the debarment is in the public interest. Debarment is intended to protect the Government, not punish the respondent. Debarment is intended to protect the Government, not punish the respondent. 25

26 Cause for Debarment Four General Categories: Conviction of, or civil judgment for, certain offenses; Conviction of, or civil judgment for, certain offenses; Violation of the terms of a public agreement so serious as to affect the integrity of an agency program; Violation of the terms of a public agreement so serious as to affect the integrity of an agency program; Certain eligibility issues; and, Certain eligibility issues; and, Anything else so serious or compelling it affects the respondent’s present responsibility. Anything else so serious or compelling it affects the respondent’s present responsibility. 26

27 Conviction or Civil Judgment Fraud or criminal offense in connection with public or private agreement Fraud or criminal offense in connection with public or private agreement Antitrust violations Antitrust violations Financial crimes (e.g., embezzlement, theft forgery, bribery, falsification of records, destruction of records, tax evasion false claims or obstruction of justice) Financial crimes (e.g., embezzlement, theft forgery, bribery, falsification of records, destruction of records, tax evasion false claims or obstruction of justice) Any other offense indicating a lack of business integrity (e.g. criminal contempt) Any other offense indicating a lack of business integrity (e.g. criminal contempt) 27

28 Violation of Terms of a Public Agreement Affecting Integrity Willful failure to perform in accordance with terms of one or more agreements Willful failure to perform in accordance with terms of one or more agreements History of performance failure in public agreements History of performance failure in public agreements Willful violation of statute, regulation or other requirement pertaining to a public agreement Willful violation of statute, regulation or other requirement pertaining to a public agreement 28

29 Eligibility Issues Knowingly doing business with an ineligible person Knowingly doing business with an ineligible person Substantial Federal Debt either uncontested or with appeals exhausted (tax debt actionable under the FAR, but not the NCR – this should change soon) Substantial Federal Debt either uncontested or with appeals exhausted (tax debt actionable under the FAR, but not the NCR – this should change soon) Violation of a Voluntary Exclusion Agreement Violation of a Voluntary Exclusion Agreement Drug-Free Workplace Act of 1988 Violations Drug-Free Workplace Act of 1988 Violations 29

30 Other Issues Affecting Present Responsibility Failure to cooperate with the IG’s office, without an Obstruction of Justice conviction Failure to cooperate with the IG’s office, without an Obstruction of Justice conviction Failure to file tax returns without a criminal conviction Failure to file tax returns without a criminal conviction Misrepresentations Misrepresentations 30

31 Suspension and/or debarment protects the Government more than program termination alone. Only suspension and/or debarment stop future violations in other programs. 31

32 Effect of Suspension or Debarment Prospective Remedy Only. Prospective Remedy Only. May Not Be a Participant in a Covered Transaction. May Not Be a Participant in a Covered Transaction. May Not Be a Principal in a Covered Transaction. May Not Be a Principal in a Covered Transaction. May Not Be an Agent or Representative in a Covered Transaction. May Not Be an Agent or Representative in a Covered Transaction. Reciprocity Between Procurement and Nonprocurement Systems. Reciprocity Between Procurement and Nonprocurement Systems. 32

33 Participants MAY, however: Continue covered transactions in existence at the time the Agency excluded the participant. Continue covered transactions in existence at the time the Agency excluded the participant. Continue to use the services of an excluded principal when the principal was on a transaction in existence at the time the principal was excluded. Continue to use the services of an excluded principal when the principal was on a transaction in existence at the time the principal was excluded. Bid on a contract if award will happen after the exclusion expires. Bid on a contract if award will happen after the exclusion expires. 33

34 Unless an Exception has been granted, Agency Officials MAY NOT: Enter into a covered transaction with a suspended or debarred party Enter into a covered transaction with a suspended or debarred party Renew or extend covered transactions with a suspended or debarred party. (No-cost time extensions are acceptable) Renew or extend covered transactions with a suspended or debarred party. (No-cost time extensions are acceptable) Enter into a covered transaction with a participant using a suspended or debarred principal Enter into a covered transaction with a participant using a suspended or debarred principal Approve the use of an excluded party in a covered transaction Approve the use of an excluded party in a covered transaction 34

35 Issue Spotting 35

36 Issue Spotting Be aware of systemic implications Be aware of systemic implications Individual abusing Federal programs rarely limit themselves to one transaction. Individual abusing Federal programs rarely limit themselves to one transaction. Failure of the Government to respond or to meaningfully address fraud may embolden contractors Failure of the Government to respond or to meaningfully address fraud may embolden contractors Your knowledge of how programs work is crucial to program integrity attorneys. Your knowledge of how programs work is crucial to program integrity attorneys. Materiality Materiality Likelihood of Error Likelihood of Error Reasonability Reasonability 36

37 CIGIE Activities 37

38 Program Fraud Civil Remedies Act Working Group Commissioned in November 2012 Commissioned in November 2012 First Met in January 2013 First Met in January 2013 Projects include: Projects include: Practitioner’s Guide Practitioner’s Guide Contemplated Usage Survey (to compliment GAO survey work) Contemplated Usage Survey (to compliment GAO survey work) Legislative Recommendations Legislative Recommendations 38

39 Suspension and Debarment Working Group Tasked with raising awareness of suspension and debarment Tasked with raising awareness of suspension and debarment Several Annual Conferences Several Annual Conferences Surveyed use of Suspension and Debarment in 2010 and 2012 Surveyed use of Suspension and Debarment in 2010 and 2012 Don’t Let the Toolbox Rust Paper: Don’t Let the Toolbox Rust Paper: 39

40 CIGIE Training Institute Audit, Inspection and Evaluation Academy Course on Suspension and Debarment emphasizing team approach between Auditors, Inspectors, Evaluators and Counsel. Course on Suspension and Debarment emphasizing team approach between Auditors, Inspectors, Evaluators and Counsel. 40

41 Incorporating PFCRA, Suspension and Debarment into IG Processes and Procedures 41

42 PFCRA Convert Reports of Investigation into PFCRA IG Report Convert Reports of Investigation into PFCRA IG Report Declinations Declinations Convictions Convictions Audit Recommendations may be recast as PFCRA IG Reports Audit Recommendations may be recast as PFCRA IG Reports Audits can mention assessment of contemporaneous IG PFCRA referral. Audits can mention assessment of contemporaneous IG PFCRA referral. 42

43 Suspension and Debarment Assess internal controls and risks Assess internal controls and risks Actions indicating a lack of present responsibility should go to the Suspending and Debarring Official Actions indicating a lack of present responsibility should go to the Suspending and Debarring Official Work on referral structure Work on referral structure Audit Recommendations Audit Recommendations Declined Cases Declined Cases Judicial actions such as warrants, indictments, information and convictions. Judicial actions such as warrants, indictments, information and convictions. 43

44 Questions? 44


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