Federal Audit Executive Council Annual Conference, September 26, 2013

1. Complimentary Administrative RemediesThe Program Fraud Civil Remedies ActSuspension 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

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

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

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

5. What You Need to Know 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). PFCRA provides liability for both false claims and false statements.

6. History and Intent of PFCRA • 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.

7. Statutory Elements • Impose civil penalties and assessments for: • Persons who • Make, Submit or Present or, • Cause to Be Made, Submitted or Presented • False Fictitious or Fraudulent • Claims or, • Statements • They Knew or Had Reason to Know were False • To Federal Authorities or their agents. • 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.

8. Knowledge Key Slide • Unlike criminal cases, the Act provides that “no proof of specific intent to defraud” is required. • 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. SBA Office of Inspector General

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. • Inquiry can be limited, but should be “reasonable and prudent under the circumstances.” • 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. SBA Office of Inspector General

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.] • “A defendant's good faith interpretation of a regulation does not give rise to liability.” SBA 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: • 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. SBA Office of Inspector General

12. PFCRA Cases are Based Upon Claims or Statements Claims Statements A writing Made with respect to a claim or program eligibility False because it asserts or omits a material fact • 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.

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

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

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). SBA Office of Inspector General

16. Procedure • 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). • Department of Justice must approve all PFCRA actions. • Cases are adjudicated in front of Administrative Law Judges.

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

18. Reviewing Official • 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 • Determines whether there is a reasonable prospect of collecting an appropriate amount of penalties and assessments

19. Suspension and Debarment

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

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

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. • Similar terminology and procedure.

23. Nonprocurement (NCR) No automatic exclusion for proposed debarment. Focus is on Grants, guarantees, insurance etc. Found in Title 2 of the Code of Federal Regulations, Part 180, and in agency pieces. 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 $3,000. Key Differences

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. • 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.

25. Debarment • 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.

26. Cause for Debarment Four General Categories: • 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; • Certain eligibility issues; and, • Anything else so serious or compelling it affects the respondent’s present responsibility.

27. Conviction or Civil Judgment • Fraud or criminal offense in connection with public or private agreement • Antitrust violations • 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)

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

29. Eligibility Issues • 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) • Violation of a Voluntary Exclusion Agreement • Drug-Free Workplace Act of 1988 Violations

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

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

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

33. Participants MAY, however: • 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. • Bid on a contract if award will happen after the exclusion expires.

34. Unless an Exception has been granted, Agency Officials MAY NOT: • 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) • 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

35. Issue Spotting

36. Issue Spotting • Be aware of systemic implications • Individual abusing Federal programs rarely limit themselves to one transaction. • 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. • Materiality • Likelihood of Error • Reasonability

37. CIGIE Activities

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

39. Suspension and Debarment Working Group • Tasked with raising awareness of suspension and debarment • Several Annual Conferences • Surveyed use of Suspension and Debarment in 2010 and 2012 • Don’t Let the Toolbox Rust Paper: http://www.ignet.gov/randp/sandwgrpt092011.pdf

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

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

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

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

44. Questions?