Federal Fraud Recoveries Drop More than 38 Percent

Earlier this month, the Department of Justice (DOJ) announced that it obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in fiscal year 2015.

This is a sharp decrease from last year’s total of $5.7 billion, although, as the DOJ pointed out, it is the fourth consecutive year that recoveries exceeded $3.5 billion. Whether fraud was less prevalent or governmental enforcement was less vigorous during FY 2015, the DOJ provided no explanation for this decrease.

The False Claims Act (FCA) is the government’s primary tool for recovering funds stolen from federal programs: Medicare and Medicaid, contracts and grants, housing programs, disaster relief loans, and agricultural subsidies. Since 1986, when Congress strengthened the FCA, the DOJ has reclaimed $48.4 billion from companies and individuals accused of fraud.

Of the $3.5 billion recovered in FY 2015, $1.9 billion came from cases involving health care fraud. The second largest amount—$1.1 billion—was recovered in contract fraud cases, including these notable instances:

• Boeing: $23 million to resolve allegations that it submitted false claims for labor charges on contracts with the Air Force.
• DRS Technologies: $13.7 million for allegedly overbilling the Army and Coast Guard for employees who lacked the contractually required job qualifications.
• L-3 Communications: $4.6 million to settle allegations that it had inflated the number of hours spent by its workers at Continental U.S. (CONUS) Replacement Centers.
• Lockheed Martin: $27.5 million to settle claims of overcharging the Army for work performed by employees who lacked the required qualifications.
• Supreme Foodservice: $101 million for allegedly overbilling the Department of Defense on a contract to supply U.S. troops in Afghanistan.
• UPS: $25 million for fraudulently denying its government customers refunds for late delivery of packages.

According to the DOJ’s press release, the government recovered $2.8 billion in FY 2015 thanks to lawsuits filed by whistleblowers under the qui tam provisions of the FCA, which entitles them to a 15 to 25 percent share of the recovery. These whistleblowers—who took great personal and professional risks in filing suit—were awarded $597 million, or about 21 percent of the total.

According to the press release, whistleblowers filed 638 qui tam lawsuits in FY 2015. Unfortunately, the DOJ was mum on the number of FCA and qui tam lawsuits that are currently pending. Lawsuits can sometimes languish for years while the DOJ decides whether or not to intervene in them.

On the same day the DOJ heralded its annual fraud recoveries, it also announced that it had collected $23.1 billion in civil and criminal actions in FY 2015. This amount includes recoveries in civil and criminal enforcement cases (including those involving the FCA), fines imposed on individuals and corporations for violations of federal financial, health, safety, civil rights, and environmental laws, and collected debts owed to the federal government. This number also declined over the last year, although not as dramatically as the fraud recovery total.

Not everyone likes the FCA. For years, business groups have been trying to weaken the law. We were reminded of the precarious state of the FCA last month when the influential D.C. think tank the Center for Strategic and International Studies hosted a panel discussion on the law. The contracting industry-dominated panel disparaged the FCA in favor of alternative anti-fraud remedies less damaging to corporate earnings, such as self-policing.

The FCA should be strengthened, not eviscerated. The law incentivizes companies to adopt stronger corporate ethics practices and more rigorous oversight of their dealings with the government. Improving corporate behavior while helping the government recover billions of dollars every year is a win-win for taxpayers.