False Claims Act and Other Enforcement Tools

1. 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

2. 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

3. 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

4. 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

5. 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

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

7. 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

8. 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

9. 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

10. Example 3 • District has unemployment and workers comp insurance • Charges are allowable to federal programs in proportion tosalary/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

11. 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

12. GEPAEDGARNCLB enforcement provisions Administrative Enforcement Tools: Brustein & Manasevit, PLLC

13. 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

14. 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

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

16. 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

17. 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

18. 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

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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

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

27. 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

28. 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

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

30. 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

31. 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

32. 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 Special Conditions Brustein & Manasevit, PLLC

33. 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

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

35. 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

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

37. Office of Inspector General – 2011 Workplan Priorities – Partial Listhttp://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

38. Office of Inspector General – 2011 Workplan Priorities – Partial Listhttp://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

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

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

41. 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

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

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

44. 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

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

46. 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

47. 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

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

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

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