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A contract with the government can be a lucrative and secure source of funding for your company for, potentially, dozens of years. Engaging in business with the government, however, is no straightforward task and may deal loops and turns that the private sector is rarely burdened by. Boiled down to its simplest terms, a government contractor must provide accurate claims for payment for the goods and/or services it provides to the government or government agency. Although this sounds simple enough, it only takes one or two managers of your business who believe they can flirt the edge of honest billing to end up in a world of issues.

In an attempt to stem off these fraudulent claims against it, the Federal government passed the original False Claims Act in 1863 in attempt to stop suppliers of goods to the Union army from defrauding the army out of well needed resources. The Act was used sparingly for quite some time following its enactment, but regained public attention in the 1980’s when government contractors were running amok. It was at this point in our nation’s history that government contractors were charging tens of thousands of dollars for rudimentary items, such the legend of the infamous $600 hammer. In response, Congress took action and made major changes to the Act which gave the government a sharper set of teeth to gnaw away at wasteful and fraudulent spending. Since 1986 the government has recovered over $50 billion in false and fraudulent spending, thanks in large part to “whistleblowers” or relator under the qui tam provisions of the Act. These provisions incentivize individuals to bring actions under the False Claims Act on behalf of the federal government. In return for successful claims, whistleblowers are entitled to statutory rewards of 15-30% of the amount recovered for assisting in the fight against fraud.

Whistleblowers are all too happy to share the misgivings of their company not only for the monetary benefit, but also for the morally guided argument that it’s the right thing to do. Government contractors who are found to have violated the False Claims Act can be severely penalized and risk debarment from ever securing future government contracts. That leads to the question, “How do I ensure that I’m following the necessary rules and regulations to avoid a False Claims proceeding?” The answer is a thorough compliance and internal review program. Ideally all contractors hire only the most competent and morally upstanding individuals to work for them, but while this is ideal, reality often falls short. Therefore, government contractors should first: abide by all rules and regulations of claims submissions. To ensure compliance, refer to the policies and procedures established by the DoD’s Inspector General’s office.

It may sound too simple at first, but the first step to solving a False Claims proceeding is never having one at all. The temptation to show revenue versus expenses is ever existent, but overbilling product costs or time spent will not result in a positive outcome in the long run. Establish a culture of honest and fair dealing within your company. State and reiterate the stance that fraudulent action will not be tolerated at your company. At the end of the day a lax managerial atmosphere on minor over-billing will lead to a culture of this action which will in-turn catch the eye of an employee or government procurement agent. Is the quick dollar now be worth the hundreds of thousands in legal fees and fines in the future? Likely not.

Establish and enforce internal audit procedures to routinely check for discrepancies in billing. Include individuals from outside departments on the audit team so a fresh set of eyes can review the books and make sure small errors are quickly corrected. If a routine, internal audit does uncover violations of your procedures, correct the error and sanction the violator appropriately. Whether this sanction is mandatory training or termination, ensure that all employees are aware of the no-nonsense stance your managers take toward fraudulent claims.

No one wants a staff of tattle-tales, but when millions of dollars of contracts are on the line it is important to promote employees reporting issues they believe should be addressed. A substantial number of qui tam cases were brought against former employees of private contractors who were ignored or sanctioned for exposing a potential issue. Don’t let your company be another who’s internal reporting procedures hindered a timely response to an issue before it spiraled out of control. Set and abide a policy of reporting for employees to express their concerns to your internal auditing group. Address each cognizable complaint to get out in front of any issues which arise.

An employee who prevails keeps government administrators in the loop. A quick and cooperative attitude towards correcting false claims will nearly always result in a more favorable outcome for your company. It’s when problems are hidden or a scheme of fraudulent conduct is operated for an extensive period where the most damaging sanctions are leveed.

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Posted in: False Claims, Government Contracts