Identification, Prevention, and Remedies for False Claims in Highway Improvement Contracting (2011)

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18 • Created nine working committees to address com- mon issues; • Increased training significantly for OIG agents and auditors; • Established a Web site at http://www.usdoj. gov/criminal/npftf, which identified over 400 pro- curement fraud cases involving criminal or civil ac- tions o r settlements; • Recovered $362 million arising from procurement fraud matters with the assistance of IGs; • Proposed modifications to FARs to require, among other things, that contractors notify the Gov- ernment whenever they became aware of material overpayments or fraud relating to the award or per- formance of a contract or subcontract, which later became part of the final FAR rule; and • Formed regional working groups chaired by U.S. Attorneys to bring about timely and effective prosecu- tion of fraud cases. 2) Guide to Grant Oversight and Best Practices for Combating Grant Fraud, NPFTF Grant Fraud Commit- tee, February 2009.—In February 2009, shortly after the inception of the Obama Administration, the task force published a Guide to Grant Oversight and Best Practices for Combating Grant Fraud.98 This guide offers recommendations for agencies to consider in preventing waste, fraud, and abuse. These recommen- dations include enhanced certifications, increased training, improved communications with grant re- cipients, increased information sharing concerning potential fraud, and rigorous oversight of how grant funds are expended after the grants are awarded. d. Recent DOJ Antitrust Enforcement Actions.—The Civil Division of the DOJ also plays a significant role in redressing fraud through the enforcement of the FCA, 31 U.S.C. §§ 3729–3733. The division has recov- ered an average of $2 billion over the last 6 years, and since 1986, when the FCA was amended, has recov- ered more than $24 billion on behalf of federal agen- cies that have been the victim of fraud. The Civil Di- vision also receives 300 to 4,000 qui tam lawsuits per year, and since 1986 has documented over 6,400 qui tam suits that have produced $14 billion in recov- ered funds.99 e. GAO Initiatives and Role.—The U.S. Government Accountability Office (GAO) is an independent, non- partisan agency that works for Congress. It investi- gates how the federal government spends taxpayer funds. Its mission is to provide Congress with timely information that is objective, fact-based, and fair and balanced. It supports congressional oversight by 98 National Procurement Fraud Task Force, Grant Fraud Committee, A Guide to Grant Oversight and Best Practices for Combating Grant Fraud, Feb. 2009, available online at http://www.justice.gov/criminal/npftf/pr/speeches- testimony/2009/02-09grant-fraud.pdf (last accessed June 11, 201 0). 99 See testimony by Scott Hammond, Section 1, Note 1, supra note 91. auditing agency operations to determine whether fed- eral funds are being spent efficiently and effec- tively.100 The ARRA requires the GAO to review the use of re- covery funds by states and localities every 2 months and issue reports. Those reports address the use of Recovery funds by selected states and localities, and the approach taken by selected states and localities to ensure accountability for such funds.101 1) GAO Fraud Net Web Site for Reporting Allega- tions of Waste, F r a u d , Abuse, or Mismanagement of Federal Funds.—GAO's Web site page maintains a link to the Web site of www.recovery. gov to report fraud claim and abuse or mismanagement of federal funds. Beginning in April 2009, the GAO issued its first report on Recovery Act Accountability. As of De- cember 10, 2009, the GAO reported that one-quarter of all Recovery Act funds administered by states and localities had already been paid out.102 On March 3, 2010, the GAO issued a report on the Recovery Act: One Year Later, States' and Localities' Uses of Funds and Opportunities to Strengthen Accountability.103 The report also provided recommendations for future congressional consideration. SECTION IV. RELATED DEVELOPMENTS IN FEDERAL ACQUISITION REGULATIONS Background and Scope The FARs104 set forth the policy that government contractors must conduct themselves with the high- est degree of integrity and honesty. In determining bid responsibility, a prospective contractor must have a satisfactory record of integrity and business ethics.105 The FARs provide that the contractor's re- cord of integrity and business ethics is relevant in 100 See http://www.gao.gov/about/index.html (last accessed on June 11, 201 0). 101 See www.recovery.gov/Accountability/Pages/GAO Findings.aspx (last accessed on June 11, 2010). 102 See U.S. GOV’T ACCOUNTABILITY OFFICE, STATUS OF STATES' AND LOCALIT IES' USE OF FUNDS AND EFFORTS TO ENSURE ACCOUNTABILITY, (2009), available online at http://www.recovery.gov/Accountability/Documents/d10231. pdf (last accessed June 11, 2010). 103 See U.S. GOV’T ACCOUNTABILITY OFFICE, RECOVERY ACT: ONE YEAR LATER, STATES' AND LOCALITIES' USE OF FUNDS AND OPPORTUNITIES TO STRENGTHEN ACCOUNTABILITY, (2010), available online at http://www.gao.gov/new.items/d10437.pdf (last accessed June 11, 2010). 104 Note that the Federal Acquisition Regulations, known as the FARs, are not to be confused with Federal Aviation Administration or FAA regulations governing aviation, which are also commonly referred to as "FARs" by those in- volved in aviation; see 73 Fed. Reg. 67064, Nov. 12, 2008. 105 48 C.F.R. § 9.104-l.

19 reviewing past performance for future source selec- tion purposes.106 New FAR provisions that went into effect in De- cembe r 2008 now require federal government contrac- tors to disclose to appropriate agency OIGs all "credible evidence" related to a government contract of 1) violation of criminal law involving fraud, con- flict of interest, and bribery, 2) violation of the civil FCA, or 3) significant overpayments. In addition, the new FAR regulations require the contractor to estab- lish an internal control system that would provide evi- dence of such conduct to be passed on to the OIG. The new FAR regulations provide three tools to en- force the mandatory disclosure requirements. First, the new contract clause required in FAR 52- 203-13 is required in all prime contracts over $5 mil- lion and 120 days in duration. This clause requires the disclosure of criminal violations and civil FCA and also applies to all significant subcontractors. Second, the FAR requires all primes and significant subcontractors to establish an internal control system unless the contract is a small business or the contract is for the acquisition of commercial items as defined in FAR Section 2.101. Third, a separate FAR provision makes the failure to disclose any false claim violation or overpayment on a federal contract or subcontract a ground for suspension and debarment. These new FAR provisions do not apply to grant re- cipients. Thus, they do not apply to federally-funded state highway contracts on federal-aid projects.107 These provisions provide excellent tools and guidance that state agencies might want to consider in reacting to and administering false claim situations, and they are worth reviewing for these reasons. New Mandatory Disclosure Requirements The rule rejected the voluntary disclosure require- ment in favor of mandatory disclosure. According to the DOJ, contractors had largely ignored voluntary dis- closure provisions for the last 10 years.108 The DOJ shifted to a mandatory disclosure program in order to emphasize the critical importance of integrity in contracting: "The public demands honesty and integ- rity in corporations with which the Government does business."109 The FAR now mandates timely disclosure to the agency OIG, in connection with the award, per- formance, or closeout of a government contract by the contractor or subcontractor, whenever the contractor has credible evidence that a principal, employee, agent, or subcontractor has committed a violation of federal criminal law involving fraud, conflict of in- terest, bribery, or gratuity or violation of the FCA. Note that a conviction, indictment, investigation, or conclusive proof is not required to trigger the disclo- 106 48 C.F.R. § 42.1501. 107 73 Fed. Reg. 67084 (Nov. 12, 2008). 108 73 Fed. Reg. 67069. 109 ld., 67071. sure requirement. The firm merely has to have "credi- ble evidence" indicating that an associated person or firm has committed such conduct.110 Internal Control System Requirements of 48 C.F.R. § 52.203-13-14 Background The FARs were amended to make the code of busi- ness ethics and conduct provisions, set forth in 48 C.F.R. § 3.1003, mandatory effective December 12, 2008.111 These amendments to the FAR came in re- sponse to requests from the DOJ, as well as to conform to the Close the Contractor Fraud Loophole Act, Public Law 110-252, Title VI, Chapter 1. They were intended to require contractors to establish and maintain specific internal controls in connection with the award or per- formance of any government contract or subcontract. Under the new regulations, contractors must es- tablish an internal control system including the fol- lowing:112 • Standards and procedures to facilitate the timely discovery of improper conduct in connection with a Government contract. • Assurance that corrective measures will be insti- tuted and carried out promptly. • Resources and assignment of high level responsibil- ity for implementation. • Reasonable efforts to exclude individuals whom due diligence would have exposed as having engaged in conduct in conflict with code of business ethics. • Periodic reviews of business practices, including monitoring and auditing, to detect criminal conduct. • Periodic evaluation of the effectiveness of the pro- gram. • Periodic risk assessments of criminal conduct with steps to design and modify the program. • A hotline or other internal reporting mechanism that allows for anonymity or confidentiality and pro- vides instructions for employees to make such re- ports. • Procedures for disciplinary action for improper conduct. Code of Business Ethics and Conduct The new final rule requires the contractor have such a written code of business ethics and conduct within 30 days after contract award.113 The new FAR provisions now mandate:114 • All contractors must have a written code of busi- ness ethics and compliance; 110 73 Fed. Reg. 67090. 111 48 C.F.R. § 52.203-13. 112 Id. 113 48 C.F.R. § 52.203-13(b). 114 48 C.F.R. § 52.203-13(b)(l)-(3).