Column: DOJ Recovered Over $5.6B From
Fraud and False Claims Act Matters in FY2021
By Matthew E. Feinberg, partner, and Jacqueline K. Unger, partner
PilieroMazza PLLC
On Feb. 1, the Justice Dept. announced it had recovered more than $5.6 billion in fiscal year 2021 settlements and judgments from civil cases involving fraud and the False Claims Act (FCA). This total represents the second-largest government haul for such matters ever and the largest recovery since fiscal 2014. The total also far outpaced DOJ’s approximately $2.25 billion in fiscal 2020 recoveries. The announcement showcases DOJ’s heightened focus on fraud in government contracting and reinforces the FCA’s status as the government’s strongest weapon for combatting fraud.
Here, along with our assessments and predictions for 2022, are key takeaways from DOJ’s announcement:
Healthcare Fraud Tops the List
Year after year, the largest contributor to the government’s fraud and FCA recoveries is the healthcare industry, and FY 2021 was no different. Healthcare fraud recoveries made up more than $5 billion (almost 90%) of the more than $5.6 billion in total recoveries during fiscal 2021. We expect healthcare fraud to continue to have the greatest impact on the government’s fraud and FCA recoveries moving forward.
The Government Has Increased Its Attention On Procurement Fraud
Although the government does not specifically announce the amount of recoveries obtained in matters involving procurement fraud, DOJ’s annual report put particular focus on government contractors, identifying a number of settlements and judgments in fiscal 2021.
These matters included allegations of falsified pricing data; misrepresentations about sales practices; higher pricing for the government than for private clients; lack of compliance with contract requirements; unqualified labor or substandard products; misrepresentations about certifications, kickbacks, bribes and other issues.
DOJ also has taken a particular interest in contractors’ compliance with the Small Business Administration’s mentor-protégé joint venture requirements and the performance of work requirements, such as the work distribution between small business prime contractors and their subcontractors.
With this in mind, we anticipate an increase in audits, investigations, and litigation against government contractors under the FCA in fiscal 2022, particularly against companies operating in the SBA’s set-aside programs and competing for set-aside contracts.
The Government’s Civil Cyber-Fraud Initiative Is a New Path for FCA Claims
Over the last few years, the first cybersecurity FCA litigation matters have started to make news, particularly as new cybersecurity standards have been issued for companies doing business with the federal government.
In October 2021, DOJ announced the creation of the agency’s Civil Cyber-Fraud Initiative, which will use the FCA to combat new and emerging cyber threats. DOJ has further explained that it will pursue misrepresentations regarding the government’s acquisition of IT and related services designed to protect highly-sensitive government information from cybersecurity threats and compromises. We expect that the Civil Cyber-Fraud Initiative will result in a marked increase in audits and investigations against government contractors over the next several years, including 2022.
COVID-19 Relief Fraud Claims Are Just Getting Started
Another primary focus of the government’s attention during FY 2021 was fraud specific to the COVID-19 pandemic. The SBA Inspector General reported to Congress that $89 billion in possible fraud was identified in fiscal 2020 loans through the Paycheck Protection Program (PPP) and Economic
Injury Disaster Loan (EIDL) program.
The claims include companies improperly receiving multiple PPP loans, using PPP loans for ineligible expenses and obtaining EIDL loans based on misrepresentations.
We expect government audits and investigations of PPP and EIDL loan recipients to increase significantly this year, including against companies that received $2 million or less in PPP funds. The SBA has recently increased its focus on auditing PPP and EIDL loan recipients, and it is almost inevitable that COVID-19 fraud investigations will play a large role in fiscal 2022.
New Matters and Whistleblowers’ Share of Recoveries Dropped
The government also tracks the number of new matters each year initiated both by DOJ itself and those initiated by whistleblowers (also known as “relators”) through qui tam litigation. The whistleblowers receive a percentage of recoveries if the cases are successful.
In fiscal 2021, the government initiated 203 of its own new matters, down from 259 the year before. Nevertheless, it was the second highest number since 1995. Whistleblower-initiated matters dropped to 598, from 675 in fiscal 2020. That was the lowest number since 2010.
Whistleblowers’ share of recoveries dropped to $238 million in fiscal 2021, down from $324 million the year before. That was the lowest level since 2008.
The data appear to be evidence of a continuing trend where the government relies increasingly on its internal audit procedures and inspector general investigations, and less on whistleblowers, to identify potential fraud against the government.
Conclusion
Nearly all the indications from the government are that the number of investigations and new matters will increase in the future. We expect to see an increase in investigations and new matters overall in fiscal 2022 and beyond.
The government is keenly focused on rooting out fraud, no matter the industry or size of the company involved. Government contractors in particular must be cognizant of the risks and potential liabilities the FCA presents when doing business with the federal government.
This column was reprinted with permission. For further information, please contact Matthew Feinberg or Jacqueline Unger at PilieroMazza.com www.PilieroMazza.com.
