False Claims Act and Other Enforcement Tools Presented by Leigh Manasevit, Esq. lmanasevit@bruman.com Brustein & Manasevit, PLLC www.bruman.com Spring Forum 2013 Brustein & Manasevit, PLLC

The False Claims Act, 31 U.S.C. §§ 3729-3733 (as amended) Liability of person, entity, or local or state government who: (1) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval, or (2) who knowingly makes, uses or causes to be made or used, a false or fraudulent claim. 31 U.S.C. §§ 3729 (a) (1) (A)-(B) Under the FCA, “knowingly” means: Actual knowledge of the information, or Deliberate ignorance of the truth or falsity of the information, or Reckless disregard of the truth or falsity of the information, and No proof of specific intent to defraud is required. Brustein & Manasevit, PLLC

The False Claims Act, 31 U.S.C.§§ 3729-3733 (as amended) A “claim” is “any request or demand, whether under and contract or otherwise, for money or property…that is presented to an officer, employee, or agent of the United States, or is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest…” Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Types of Claims Draw downs on a grant Draws on a letter of credit Submission of vouchers Submission of counts of eligible recipients Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Types of Claims Unlike an audit where auditee must prove allowability – U.S. must prove Preponderance of the evidence Means more than 51% Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Penalties Treble Damages x Actual Harm AND Penalty $5,500 to $11,000 Per Claim Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 1 Grantee receives a $1,000,000 competitive grant Program has a match requirement Match information is falsified by the person responsible for the grant Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Penalty: To Agency Irrelevant that agency unaware of the falsehood 3 times amount of grant 3 x $1,000,000 = $3,000,000 Grantee drew down funds in 10 equal installments of $100,000 Each draw = 1 claim at $5,500 to $11,000 Range $55,000 to $110,000 Total Penalty: $3,000,000 $3,000,000 55,000 to 110,000 $3,055,000 $3,110,000 Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 2 Grantee runs a migrant program Employees of grantee falsify eligibility statements Head of migrant program aware of irregularities 0 students eligible Higher level officials not aware of 0 eligibility but have ignored irregularities Penalty – Total Grant x 3 plus Total Draws x $5,500 to $11,000 Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 3 District has unemployment and workers comp insurance Charges are allowable to federal programs in proportion to salary/employees in the fed programs (allocability) District receives discount on policies District internally continues to use higher percentage rates to charge federal programs, giving discount benefit to local programs cost to non-federal Damages overcharges x 3 Plus penalty for each draw Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 3 (cont…) Self discovery and self reporting No defense, although better settlement possibility Self discovery and self reporting within 30 days of discovery can lower penalty from 3x to 2x Brustein & Manasevit, PLLC

GEPA EDGAR NCLB enforcement provisions Administrative Enforcement Tools: GEPA EDGAR NCLB enforcement provisions Brustein & Manasevit, PLLC

GEPA: General Education Provisions Act Part D – Enforcement (Sections 451-460) Establishes: Office of Administrative Law Judges (OALJ) Rules for Recovery of Funds, Measure of Recovery, Remedies, Withholding, Compliance Agreements, Judicial Review, and Use of Recovered Funds Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Recovery of Funds: to return funds that were not allowable, not accounted for properly PDD/PDL: may be based on audit report, investigative report, monitoring report, or other evidence Once PDD/PDL issues, statute of limitations is tolled. 60 days to submit application for review. Establishes appeal and procedural rules Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Measure of Recovery: Harm to the Federal Interest (proportionate recovery) Critical protection Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 1 Grantee begins obligating funds one day before approval Obligations violate EDGAR rules on timing only Obligations would have been allowable one day later No harm to the federal interest Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 2 Migrant Program Funds spent on ineligible students – i.e., not meeting definition of migrant Automatic harm to the federal interest Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Example 3 Expenditure requires prior approval of grantor agency Grantee did not get prior approval Critical – prior approval would have been granted, i.e. allowable expenditure No harm to the federal interest Brustein & Manasevit, PLLC

Mitigating Circumstances Erroneous written guidance from ED Specific written request Guidance from authorized ED official Actual reliance Reliance reasonable Brustein & Manasevit, PLLC

Mitigating Circumstances Failure to provide timely guidance Written request Address provided by ED Request describes practice Includes necessary facts Certification: Chief Legal Officer State: Legal Under Federal and State Law No response within 90 days Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Remedies for Existing Violations: Withhold payments Cease and desist order Compliance Agreement “Any other action” authorized by law Can always seek to recover funds for misexpenditures in addition to above Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Withholding: Secretary may withhold from a recipient, in whole or in part, further payments (including payments for administrative costs) under an applicable programs Before withholding, ED must notify in writing: Intent to withhold Factual and legal basis for belief of failure to substantially comply Opportunity for a hearing Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Cease and desist orders Written notification Opportunity for hearing Can enforce final order by withholding Can certify facts to AG Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC GEPA - continued Compliance Agreements Purpose: To bring recipient into compliance with requirements as soon as feasible (not longer than 3 years) Public hearing before entering into agreement Publish findings of hearings and substance of compliance agreement in Federal Register Failure to comply with terms of compliance agreement  can determine agreement is no longer in effect – can take any other action Brustein & Manasevit, PLLC

Compliance Agreements USDE has been using as enforcement tool Scope can vary greatly (discrete issues vs. multiple ED programs) Program, Administrative or Both Brustein & Manasevit, PLLC

Compliance Agreements Several states currently in compliance agreements Brustein & Manasevit, PLLC

Compliance Agreements Can be used with other remedies Jan 19 letter: if system not approved use compliance agreement, in addition to withholding or mandatory oversight status Will generally lead to more favorable treatment by ED Brustein & Manasevit, PLLC

EDGAR: Education Department General Administrative Regulations Contains state administered program rules Uniform administrative requirements – pre- and post-award requirements, state plans, financial management standards, etc. Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC EDGAR Authority for designating grantee as “high-risk” 34 CFR 80.12 Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC High-Risk Grantees History of unsatisfactory performance Not financially stable Management system does not meet standards Has not conformed to terms of previous awards Is otherwise not responsible  can place special conditions or restrictions Brustein & Manasevit, PLLC

High-Risk Grantees: Special Conditions Special conditions may include: Payment on reimbursement basis Withholding authority to proceed until acceptable performance Requiring more detailed financial reports Additional project monitoring Requiring additional TA or managerial assistance Establishing additional prior approvals Require an external third party to Approve expenditures or Actually mange the funds Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Special Conditions If special conditions, ED must notify in writing: Nature of the special conditions Reasons for imposing them Corrective actions that must be taken before removed and the time allowed for corrective actions Method of requesting reconsideration Brustein & Manasevit, PLLC

NCLB enforcement provisions Throughout statute – most reference GEPA USDE interprets some enforcement provisions, such as withholding of administrative funds, as outside of GEPA protections Brustein & Manasevit, PLLC

How is non-compliance discovered? Single Audits OIG Audits Program Monitoring Disclosure/Reporting Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Single Audits Required if expend more than $500K Pressure on ED to ensure high-quality single audits – See OIG Priorities for 2010-2011 Pressure on ED to monitor single audit findings more carefully Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Single Audits State to review and resolve if no resolution PDL from ED possible Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Office of Inspector General – 2011 Workplan Priorities – Partial List http://www2.ed.gov/about/offices/list/oig/misc/wp2011.pdf Subrecipient use of Recovery Act Funds SEA award and monitoring of SIG grants RTT Investing in Innovation (i3) SFSF IDEA MOE Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Office of Inspector General – 2011 Workplan Priorities – Partial List http://www2.ed.gov/about/offices/list/oig/misc/wp2011.pdf Competitive ESEA grants Charter School Program 21st CCLC High Risk Grantees Oversight of Single Auditors ED’s audit resolution process Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC OIG Audits - Structure Entrance conference Audit work Exit conference Scope of audit can change Document requests quite detailed Brustein & Manasevit, PLLC

OIG Audits - Enforcement Recommendations to ED Disallow expenditures Require supporting documentation Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC OIG - Investigations Initiated where there is wrong doing suspected. Can be based on: Tip (including hotline) News article Concern from ED program Concern from other law enforcement Serious audit findings Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC OIG - Investigations More formal than audit Far more serious May involve FBI and Grand Jury as well Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC OIG - Investigations May result in False Claims Act charges In most serious cases – may result in criminal prosecution Brustein & Manasevit, PLLC

Department of Education Program Monitoring Streamlined Increasingly focused on accountability Less emphasis on technical assistance Uncertain how monitoring relates to single audits – appears to be of different importance in different states/entities Student Achievement and School Accountability Office (SASA) Focus only on SIG this year Brustein & Manasevit, PLLC

Program Monitoring: Reengineered System Focus: Accountability Instructional support Fiduciary responsibility Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Monitoring Schedule Three year cycle 17-18 states per year Cycle: 10/1 – 9/30 Will go out of cycle if compliance problems Draft monitoring plan developed by ED Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Program Monitoring Team: 5-6 SASA members On-site 4-5 days Interview SEA/LEA staff, principals, teachers, parents, other stakeholders 2-3 follow-up conference calls Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Monitoring Feedback Report for internal use Monitoring report within 30 business days SEA response Brustein & Manasevit, PLLC

US ED SASA Monitoring – Top Ten Findings in Frequency Parental Involvement 95% of reservation to schools equitable participation Choice/SES notifications teacher qualifications Private Schools consultation failure to evaluate failure to maintain control contracting student selection (not based on poverty!!!) Brustein & Manasevit, PLLC

Top Ten Findings (cont…) District Report Cards missing elements Choice options not on website State Report Cards Fiscal comparability supplanting time and effort Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC State Monitoring “Overarching requirement” – SEA subrecipient monitoring Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC State Monitoring Process varies Should: Risk based resolution process Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Questions Brustein & Manasevit, PLLC

Brustein & Manasevit, PLLC Disclaimer This presentation is intended solely to provide general information and does not constitute legal advice. Attendance at the presentation or later review of these printed materials does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting legal counsel familiar with your particular circumstances. Brustein & Manasevit, PLLC