On January 9, 2020, the Department of Justice (DOJ) announced that it recovered more than $3 billion in settlements and judgments from civil cases involving fraud and the False Claims Act (FCA) in Fiscal Year (FY) 2019, which ended September 30, 2019. Along with the announcement, the government issued its annual fraud statistics report for the fiscal year. The government’s announcement and report confirmed trends in FCA litigation and other fraud cases that government contractors should look out for in 2020 and beyond.
New Matters Increased Overall
The government identified 782 new fraud matters in FY 2019, up slightly from 769 in FY 2018. Of the new matters identified in FY 2019, 636 were initiated by qui tam relators, or “whistleblowers,” who have the opportunity to share in any recovery. 146 were initiated directly by the government. On one hand, the government’s initiation of 146 matters represented an almost 19% increase over FY 2018 and was one of the higher annual totals since 1997. On the other hand, matters initiated by qui tam relators fell to their lowest levels since 2011.
FCA and Fraud Matters Continued to be a Primary Focus of the Government
The last decade saw a sharp increase in FCA and other fraud matters, reflecting the fact that the FCA remains the government’s primary weapon for combatting fraud in federal contracting. FY 2019 represented the tenth consecutive year where at least 700 new matters were initiated, either by the government or by relators. By contrast, the annual totals from 2000 to 2009 never reached that threshold. The government’s total monetary recovery of $3,054,425,050 represented the ninth time in the last ten years that recoveries eclipsed $3 billion. From 2000 to 2009, recoveries reached $3 billion only once.
Recoveries from government-initiated claims (i.e., non-qui tam matters), topped $840 million, an increase of over 10% from FY 2018 and of over 200% from FY 2017. The sizeable recovery in government-initiated claims was the fifth largest recovery since 1986.
Relators Received Approximately $271 Million From Qui Tam Matters in FY 2019
Whistleblowers are incentivized to initiate claims under the FCA because they can obtain a portion of the government’s recovery in a successful suit. FY 2019 saw a sharp drop in relator share awards, with relators receiving approximately $271 million over the course of the fiscal year, the lowest amount in a decade.
The Health Care Industry Was a Major Target for FCA and Fraud Enforcement in FY 2019
Matters arising out of the health care industry represented approximately 65% of the overall new matters initiated in FY 2019 and approximately 85% of the total recoveries. In total, the government recovered over $2.6 billion from the health care industry in FY 2019, the fourth largest total since 1986. It is the tenth consecutive year that settlements and judgments from the health care industry topped $2 billion annually.
The Defense Industry Saw a Sharp Increase in Government Recoveries in FY 2019
Matters arising out of the defense industry resulted in government recoveries of over $252 million in FY 2019, a more-than-134% increase over FY 2018, and the second highest amount since 2010.
- The increase in overall new matters initiated in FY 2019 indicates that the FCA will continue to be a primary focus of the government and a significant risk for government contractors across all industries moving forward.
- The substantial increase in monetary recoveries from government-initiated matters in FY 2019 forecasts that the government may rely more on internal audit procedures and office of inspector general investigations to identify potential fraud against the government.
- While the health care industry continues to be a hotbed of FCA activity, the increase in recoveries in FY 2019 in the defense industry indicates that other industries should expect to see an increase in both new matters and monetary recoveries moving forward. This is particularly the case given that the next few years will likely see a surge of cybersecurity-related FCA matters. Although not specifically outlined in the government’s annual report, the first-ever cybersecurity-related FCA settlement was announced near the end of FY 2019, and similar claims are expected to directly impact the defense industry as relators and government investigators gain a better understanding of federal cybersecurity requirements.
- Despite a decline in overall recoveries in FY 2019, qui tam actions continue to represent a lucrative incentive for whistleblowers to report potential fraud in government contracting.
The government’s annual announcement and report serve as an important reminder that government contractors should seek to avoid costly and damaging FCA and fraud litigation by developing a clear understanding of their obligations, representations, and certifications, with a robust audit procedure to ensure accurate claims for payment are made to the government.
To assist government contractors and related companies in understanding the FCA and how to avoid FCA liability, PilieroMazza has launched “Ex Rel. Radio,” a multi-part series of our GovCon Live! podcast, which will include commentary on potential pitfalls for your company, enforcement issues, and emerging trends. Ex Rel. Radio is available on Apple Podcasts, Spotify, Google Podcasts, TuneIn, and Stitcher, or you can visit our website at www.pilieromazza.com.