The federal False Claims Act (FCA) has long been a powerful tool for the U.S. Department of Justice (DOJ) — or private whistleblowers bringing suit on the DOJ’s behalf — to investigate and police activity financed with federal dollars. The FCA broadly imposes liability on anyone who knowingly submits or “causes” the submission of a materially false claim or false statement in connection with the receipt of federal funds.
Higher education institutions have increasingly been a target of FCA investigations. Recent years have seen high-profile enforcement actions against colleges and universities receiving federal funds for a variety of purposes, including research grants and financial aid programs. The risk of FCA scrutiny — and potential liability — is further heightened for colleges and universities receiving Coronavirus Aid, Relief and Economic Security (CARES) Act funds in the wake of COVID-19. While these funds may help institutions weather the financial difficulties wrought by the pandemic, recipients should also be mindful that heightened government scrutiny is likely to follow.
Below, we discuss recent FCA enforcement trends in higher education — and steps that institutions can take to mitigate FCA risk going forward.
THE FEDERAL FALSE CLAIMS ACT: A POWERFUL TOOL OF GOVERNMENT ENFORCEMENT
The FCA requires companies and individuals seeking federal money to be truthful in the certifications they make to receive those funds. To that end, the FCA prohibits knowingly submitting materially false claims for payment or approval, making false statements or false records that are material to false claims, or causing another to do so. Liability can arise based on an express or affirmative false statement, and also an “implied” false certification, such as affirming compliance with all applicable regulations despite some underlying violation.
FCA claims may be brought by the government directly, or by whistleblowers (called “relators” in the FCA context) who are authorized to bring cases on the DOJ’s behalf, and who stand to receive as much as 30% of the money recovered. And FCA liability carries steep penalties: the statute authorizes treble damages — meaning the government can recover three times the total amount of money it improperly paid — plus additional per-claim penalties. Over the past decade, the government has recovered nearly $38 billion under the FCA (more than double the amount recovered in the decade prior). In 2019 alone, the DOJ obtained more than $3 billion in settlements and judgments across an array of industries that do business with the government, with more than 70% from cases originally filed by whistleblowers.
RECENT TRENDS: THE FEDERAL FALSE CLAIMS ACT IN HIGHER EDUCATION
Because the FCA broadly applies to any person or entity that receives federal funds, higher education institutions that receive such funding — for financial aid programs or research grants, for instance — fall squarely within the statute’s reach. To that end, colleges and universities have often found themselves the targets of FCA enforcement actions under a number of different theories.
For example, higher education institutions have agreed to pay substantial FCA settlements to resolve allegations that, in applying for Title IV funds, they falsely certified compliance with the Higher Education Act’s (HEA) ban on paying incentive compensation to recruiters. In 2009 and 2015, the two largest for-profit education companies in the country paid $67.5 million and $95.5 million, respectively, to settle FCA allegations that they compensated recruiters based on their success in enrolling financial aid-eligible students, in violation of the HEA. Both lawsuits were filed by whistleblowers who reaped multi-million dollar rewards for their efforts. More recently, the DOJ has pursued recruiting violation-based FCA settlements outside the for-profit setting, securing recoveries against two private institutions in the back half of 2019 alone.
Recent years have also seen the DOJ use the FCA to target research grant-related fraud. In March 2019, the DOJ announced a $112.5 million settlement against a private university — reportedly the largest-ever settlement in connection with federal grants — to resolve allegations that it submitted falsified research results to the National Institutes of Health (NIH) to procure tens of millions of federal dollars. The case was brought by a former research analyst who alleged that university higher-ups learned a research coordinator was including false data in grant applications, but failed to stop her — making the university liable for the resulting false claims.
More recently, the DOJ has also focused on recouping money based on undisclosed foreign influence in federal research grant applications. In October 2019, the NIH revealed its focus on these disclosures, announcing it had investigated at least 180 scientists at more than 65 institutions for violating requirements that grantees report their foreign ties, reported 20+ cases to the HHS Office of Inspector General, and referred additional cases to the DOJ for potential prosecution. Two months later, in December 2019, the DOJ announced a $5.5 million FCA settlement with an independent biomedical research institution based on allegations that it submitted grant applications to the NIH without disclosing that certain of its researchers had been simultaneously funded by Chinese government grants.
HEIGHTENED ENFORCEMENT RISKS UNDER THE CARES ACT
Higher education institutions should be especially mindful of FCA risks now, as many receive CARES Act funds to deal with the financial fallout of COVID-19, which forced colleges to close their campuses. While these funds bring welcome relief, they also carry with them an increased risk of scrutiny.
The CARES Act creates a $14 billion higher education emergency relief fund (HEERF) for the Department of Education to distribute to eligible institutions and their students according to an enrollment-based formula. HEERF funds fall broadly into two categories:
- Recipient institutions must “use no less than 50 percent” of funds to “provide emergency financial aid grants to students for expenses related to the disruption of campus operations due to coronavirus,” including “food, housing, course materials, technology, health care, and child-care expenses.”
- Recipient institutions may use remaining HEERF funds to “cover any costs associated with significant changes to the delivery of instruction due to the coronavirus,” with certain enumerated exceptions (e.g., endowments, outlays for athletic facilities, and payments to contractors for pre-enrollment recruitment activities).
To be eligible for HEERF funds, institutions must sign a Funding Certification and Agreement (HEERF Certification) attesting that they will comply with these use-of-funds requirements — and with stringent and ongoing recordkeeping and reporting requirements. These reporting obligations are extensive: within 30 days of signing the HEERF Certification, and every 45 days thereafter, recipient institutions must report to the Secretary of Education (i) how grants were distributed to students, (ii) grant amounts, (iii) how those amounts were calculated, and (iv) any instructions or directions that institutions gave to students about the grants. Institutions must also certify that they have continued to pay all employees and contractors “to the greatest extent practicable, explaining in detail all specific actions and decisions related thereto.”
Colleges and universities should expect the DOJ — and the relator bar — to scrutinize their adherence to these many requirements. For one thing, the HEERF Certification itself expressly warns that failure to comply with its terms and conditions may result in FCA liability. For another, the CARES Act creates oversight bodies empowered to coordinate investigations and refer matters to the DOJ for enforcement, including a new Office of the Special Inspector General for Pandemic Recovery (SIGPR) formed to audit and investigate use of relief funds. Moreover, Attorney General Barr announced in March that the DOJ will “prioritize the investigation and prosecution” of COVID-19-related fraud, directed U.S. Attorneys to appoint a Coronavirus Fraud Coordinator in each district, and set up a national whistleblower hotline to report potential wrongdoing.
As higher education institutions potentially find themselves in the FCA’s crosshairs, they may consider taking certain steps now to mitigate risk going forward:
- Maintain robust review procedures and documentation for federal aid applications and certifications, whether in connection with research grants, financial aid, HEERF funding, or otherwise. Institutions may wish to implement protocols to review such applications and accompanying certifications to better ensure their accuracy before submission to the government. In addition, careful recordkeeping takes on special importance in this context, where institutions may face FCA actions — and be forced to defend decision-making — years after the fact.
- Ensure adequate training and oversight of employees. In light of recent cases making clear that research institutions may be held liable for the misconduct of individual employees, institutions may wish to train (or re-train) personnel on their supervisory responsibilities; conduct regular internal audits; and otherwise put in place policies aimed at deterring and detecting potential employee misconduct. Institutions may also consider training key personnel on the scope and meaning of certifications made to obtain federal funds in different contexts, whether for financial aid, research grants, COVID-19-related relief, or otherwise.
- Enact (or review) internal reporting protocols to ensure employees have mechanisms to voice concerns — and that concerns are taken seriously. Higher education institutions should ensure that they have in place internal channels to report wrongdoing, and should encourage employees to use them if they have concerns. Employees who know there are meaningful internal avenues to report concerns may be more likely to voice complaints that way, at least initially, instead of blowing the whistle under the FCA. Any concerns employees do report should be taken seriously, investigated, and remediated to the extent necessary. All steps in the process should be thoroughly documented.