False Claims Settlement Stats: Yellow Light For Contractors

On November 19 the Justice Department released statistics on False Claims Act recoveries for Fiscal Year 2009 reported as the second highest total ever, $2.4 billion.  But if you look behind them, as the nonprofit watchdog Taxpayers Against Fraud does, you can see there is a record high tide in recovers, roughly twice as much.

So what? While you have to find “procurement fraud” at the very bottom of the DOJ press release cited above, and recognize it is small compared to the false claims dollars generated by Big Pharma and other healthcare firms, government services contractors need to be alert to likelihood, if not a certainty, or more and larger cases on their turf.

Why?  It is not as simple as former deputy attorney Paul McNulty and others in law enforcement claim, that is, more contract spending = more fraud.  He has no stats to document a relationship, even an indirect one.  No body has such statistics.

Other, less tangible factors combine to make more FCA suits and settlements (or trials) a near-certainty.

1. The success of FCA cases is likely to breed more cases, promoting latent or hesitant whistleblowers to come out and make their case (which takes years and takes a personal toll in most case one can read about).

2. The government will begin to find more cases without the help of whistleblowers. There is simply more scrutiny of contractors.  While the media still only rarely originates a story on contract misbehavior, the government is coming up on two years since the “rebirth” of oversight when Congressman Henry Waxman took over the Government Oversight and Reform Committee.  That was enough impetus to motivate agencies to scrutinize contracts more carefully and for Congress and others to take a step up in rebuilding and enlarging the government’s acquisiton workforce.

3.  Contractors, regardless of good intentions, have not kept up with internal surveillance and compliance of operations. Years of double-digit growth, turnover in managers, use of more junior staff in management, and shortfalls in management information all create a blindspot for some of our most successful firms.  If one talks with executives of large and mid-size companies about the risks, most, in our experience, say they are worrying more about enforcement of policies on pricing, contract administration, and daily work supervision.  This  area of risk factors is the flip-side of what worries the government–inexperienced COTRs, too few experienced auditors, inadequate contractor surveillance systems, and