Whistleblowers May Sue Their Employer Under False Claim Statutes When the Employer Commits Government Fraud

Whistleblowers May Sue Their Employer Under False Claim Statutes When the Employer Commits Government Fraud

Government contracting is a huge business that spans numerous industries and trades. Contracts between private contractors and State and Federal government agencies account for hundreds of billions of dollars in government spending. Many reports have noted that oversight by government auditors can be lax at times. (See, e.g., Nick Cahil, Audit Finds California Agencies Didn’t Follow Bid Rules, Courthouse News Service, (June 20, 2017).) Government agencies simply do not have the resources to supervise the performance of every contract, and this lack of oversight opens the door to waste, mismanagement, and outright fraud. (See Patrick McGreevy, Caltrans investigations find waste and wrongdoing in state transportation programs, Los Angeles Times, (Dec. 6, 2019).)

Unfortunately, the temptation to treat government contracts as a source of free money proves too much for some contractors. In an effort to curtail fraudulent government contracting, State and Federal governments have placed the power to root out and prosecute fraud in the hands of the people most likely to discover that fraud: employees working on the front lines. State and Federal False Claims Acts create a mechanism called a “qui tam lawsuit,” by which employees of government contractors can blow the whistle on their employers’ frauds by filing a civil lawsuit on behalf of the government.

What Counts as a False Claim?

In some sectors, such as defense, the government cares so deeply about proper contract management that whistleblower laws can apply in cases of “gross mismanagement” or “gross waste” of a government contract. For a normal qui tam case, however, the contractor must usually know it is somehow defrauding the government.

The classic example of a false claim is billing the government for services not actually performed or goods not actually delivered. For example, if a company has a contract to excavate an embankment on government property, and the company falsely bills the government for ten laborers, when in reality the job only required five laborers. Or perhaps a company has a contract to sell medical supplies to a Medicare provider, and it ultimately charges the government for double the supplies that it actually delivers. Either of these situations would be a “false claim.”

More likely the contractor’s fraud will be more sophisticated. A company might take advantage of complicated billing and accounting cycles to falsify records to the government in a way that benefits the contractor. A company might also structure transactions in a way that falsely amplifies overhead costs in order to justify a higher bill that appears normal on its face. Right from the beginning, a company might falsely certify to the government that its costs will be $X, when in fact the company knows the costs will be much higher than $X, in order to win a bid on a contract.

These cases can be very tenuous because government contractors should be held to the highest degree of transparency, considering they are ultimately paid with money that comes from taxpayers. Even something as seemingly minor as an undisclosed conflict of interest during the bidding process can create a false claim. These contracts need to be squeaky clean, and, as they say, if there is a question, there is no question. Anyone who thinks there might be a false claim situation should ask one question: does something about this situation not quite add up? If the answer is “yes,” the situation may warrant investigation.

What About Fraud by the Employees of Government Contractors?

In some cases, employees may submit false claims through their employers. The employer may be totally unaware the government is being defrauded by a “bad apple” within the organization, but that can still count as a false claim for which the employer may be liable to the government. For example, if an office manager for a healthcare provider has found a way to embezzle from his employer by creating fake invoices, the employer may still be held accountable if the embezzled money is ultimately paid out under a government contract for Medicare or Medicaid services.

What Counts as the “Government”?

False claims can be those submitted to any part of a State or Federal government. Usually, a contract will be negotiated with a government agency, or a subdivision of that agency. The scope of the “government” for qui tam purposes is, therefore, fairly broad. In California, for example, the arms of the government that can receive false claims include cities, counties, and the University of California system.

Who Can Be a Whistleblower?

Anyone privy to a fraud could be a potential whistleblower, but the most common qui tam plaintiffs are employees of the contractor where the false claim originated. Employees are right there in the thick of things every day, so they see what’s going on. More importantly, many frauds can be complicated, and employees often have enough expertise in their industry to spot when something isn’t right.

What’s In It for the Whistleblower?

Although many whistleblowers are motivated first and foremost from the desire to thwart corruption, the fear of retaliation, and the inconvenience of being involved in a large lawsuit, gives otherwise motivated whistleblowers a strong incentive to stay silent. In order to balance that incentive, State and Federal laws permit successful whistleblowers to share in any recovery, which can be substantial.

What Happens if the Employer Finds Out About the Whistleblower?

Many employees justifiably fear retaliation by their employers if they reveal fraudulent conduct. Fortunately, qui tam laws also include strong whistleblower protections. If an employer decides to double down on its unlawful conduct by retaliating against the employee who blew the whistle, the employee can recover money damages independent of any recovery in the underlying qui tam case.

What Should I Do if I Think My Employer Defrauded the Government or Otherwise Submitted a False Claim?

Qui tam laws are extremely complex. If you think your employer has committed fraud or falsity in connection with a government contract, you should contact an experienced attorney to advise you on how you should proceed with filing a qui tam case, or if you have any other options.

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