False Claims Act

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The False Claims Act is a federal law that imposes liability on contractors who defraud governmental programs. The law includes a provision that allows people who are not affiliated with the government to file legal actions on behalf of the government.  These whistleblowers are eligible to receive a portion (15–25%) of any damages recovered. Claims made under the law often involve health care, military and other government spending programs.  The federal government  has recovered tens of billions of dollars under the False Claims Act since 1987.

Under the Act, a person is liable when he or she improperly receives payment from, or avoids payment to, the federal government. The Act prohibits:

• Knowingly presenting, or causing to be presented a false claim for payment or approval;
• Knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim;
• Conspiring to commit any violation of the False Claims Act;
• Falsely certifying the type or amount of property to be used by the government;
• Certifying receipt of property on a document without completely knowing that the information is true;
• Knowingly buying government property from an unauthorized officer of the government, and;
• Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the government.

The most frequent claims involve situations where someone overcharged the federal government for goods or services. Other typical claims involve failure to test a product as required by government specifications or selling defective products.

Certain claims are not actionable, including: (a) certain actions against armed forces members, members of Congress, members of the judiciary, or senior executive branch officials; and (b) claims, records, or statements made under the Internal Revenue Code including tax fraud.

There are rather unique procedural requirements in False Claims Act cases. For example: (i) complaints under the False Claims Act must be filed under seal; (ii) complaints must be served on the government but must not be served on the defendant; and (iii) complaints must be supported by a detailed memorandum, not be filed in court, but be served on the government detailing the factual support for the complaint.

If you are a contractor dealing with the federal government, you need to be very careful when delivering or billing for services or products to avoid inadvertently violating the Federal Claims Act.    If you would like to know more about the Federal Claims Act please call or email me at 937-223-1130 or Jsenney@pselaw.com.

AND ONE MORE THING. Under the federal income tax code, “S” corporations are not permitted to be owned by corporate shareholders. So “S” corporations cannot be part of a parent-subsidiary consolidated group of corporations. One way around this limitation is to use qualified “S” subsidiaries commonly referred to as “QSSS”. Call or email me if you have a question about QSSS. Jsenney@pselaw.com or 937-223-1130.