| Other types of fraud Most qui tam cases involve Medicaid and Medicare fraud and
defense contractor fraud. But fraud also occurs in other areas where the government spends
hundreds of billions of dollars annually on goods and services.
Some of the areas where fraud might occur and be the basis of a False Claims Act case
are:
Public works projects and federal government
construction
The federal government spends billions on public works projects and
construction of federal buildings. Fraudulent practices by contractors include
bid-rigging, overcharging for contracts and failing to follow project specifications. All
of those practices could be the basis of a False Claims Act lawsuit.
A construction company hired to build Army barracks recently settled a qui tam lawsuit
that charged it did not follow contract plans and specifications, failed to report
substantial construction defects and engaged in a cover-up to hide the problems.
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Research programs
The federal government provides grants for research on a wide variety of
topics. Sometimes grant recipients use the funds to pay for salaries or expenses for
another research project or other work then charge those costs off on the federal grant or
inflate their costs for conducting research projects.
At academic medical centers, federal payments for research overhead, called indirect
payments, total tens of millions of dollars a year. The government and the medical center
determine a reasonable overhead rate for the hospital, then the government agrees to mark
up each research grant by a fixed rate for the next year to cover incidental expenses.
This usually includes items like heat and electricity bills and housekeeping for the part
of the hospital used for the research, and sometimes even mortgage payments for lab
buildings.
One of the largest qui tam settlements involving a research grant was against New York
University Medical Center, which paid $15.5 million to the federal government. The
government said the medical center provided a "false, inaccurate and incomplete
picture" of its overhead costs for research projects. The center allegedly gave the
government waste disposal bills that were already paid by other sources, inflated
housekeeping bills and counted as overhead unrelated items, such as food for the medical
school commencement dinner.
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Customs
Most goods imported into the U.S. are subject to customs duties. Companies that
undervalue imports to lower the amount of customs duties they have to pay or who underpay
customs duties through other fraudulent schemes are liable under the False Claims Act.
Environmental programs
The federal government spends substantial sums on programs to clean up
hazardous and toxic waste. It also requires contractors to follow all environmental laws
and regulations, such as the Clean Water Act. Any contractor that deliberately overcharges
the government for hazardous and toxic waste clean-up, gets paid by the government for
work that it doesn’t perform or whose service doesn’t meet government
specifications would be liable under the False Claims Act.
In a recent case, an environmental testing firm settled a qui tam lawsuit that charged
the firm had failed to properly test the level of hazardous substances in soil and water
samples as required under contracts with the Army Corps of Engineers.
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Loan guarantees
The federal government has many loan guarantee programs, including loans for
education, housing and small businesses. If the loan is not repaid and fraudulent
misrepresentation was made to obtain these loan guarantees, then there might be a
sufficient basis for a False Claims Act lawsuit.
A cosmetology school and its owners paid $2 million to settle a qui tam case alleging
false statements and certifications that the vocational school met all statutory and
regulatory requirements to participate in the Guaranteed Student Loan and Pell Grant
programs. According to the lawsuit, the school falsified time cards, attendance records
and academic records to make it appear as though students were attending classes and
maintaining satisfactory progress to qualify for the federal financial assistance.
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Underpayment of royalties on government-leased
land
Oil and gas production on federal and Indian lands are governed by lease
agreements between the Interior Department and private companies. By law, the companies
must pay the federal government and Indian tribes a percentage of the value of the oil and
gas as a royalty. Companies also must pay royalties on any timber harvested or minerals
such as coal mined from federal and Indian lands.
A qui tam lawsuit is pending against 14 major oil companies for knowingly undervaluing
oil extracted from public and Indian lands to reduce the royalties they had to pay. The
oil was taken from the Gulf of Mexico and western states.
Agricultural subsidies and other agricultural
programs
The False Claims Act also applies to any fraudulent misrepresentation or scheme
to obtain agricultural subsidies or funds from other agricultural programs.
A major U.S. grain company paid $25 million to resolve a False Claims Act case that
involved sales of agricultural products to Iraq through a foreign company participating in
a Department of Agriculture program for exporters of agricultural products.
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Municipal bonds ("yield-burning")
In the municipal bond market, some investment banking firms engage in
fraudulent schemes known as "yield-burning," where they charge excessive prices
for U.S. Treasury securities sold to municipalities in connection with certain types of
tax-exempt bond refinancings.
These refinancing transactions -- known as "advance refundings"-- permit
municipalities to refinance their debt at lower interest rates when interest rates
decline, and therefore lower their borrowing costs.
Yield-burning occurs when a securities dealer purposely overcharges municipalities for
Treasury securities needed for the refinancing. The excessive prices artificially reduce
the overall yield on those securities. This practice is illegal because, by law,
investments purchased with the proceeds of tax-exempt advance refunding bonds may not have
higher aggregate yields than the yield earned on the tax-exempt bonds. Any excess yield
must be paid to the U.S. Treasury. Reducing yield by overcharging is not a legitimate
method of complying with the yield limitations.
In the first settlement of a False Claims Act case of this kind, CoreStates Financial
Corp. paid $3.4 million to the federal government to settle a qui tam case that said its
brokerage arm for municipal bonds had engaged in yield-burning.
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