“Beware Greeks Bearing Gifts”: FCA Enforcement Turning to Federal Grants?

While we may be hard pressed to recall which ancient epic poem includes the tale of the Trojan Horse (it’s the Aeneid, in case you’re wondering, although it’s also referenced in the Iliad), we all know the lesson—if it seems too good to be true, it probably is. For recipients of Federal grants, there are lots of administrative hurdles but, once you get the money, it’s smooth sailing, right? Hold on a minute.

That would be too good to be true. In fact, there are always strings attached. And, while False Claims Act enforcement has not focused on grant recipients since the Act was amended in 1986, hostile forces may be coming out of hiding. Non-profits, universities, and other grant recipients should beware. Or, at least, be compliant.

Big Brothers Big Sisters of America (“BBBS”) learned this lesson the hard way—through an OIG audit, a long investigation, a new management team, and a $1.6 million settlement of FCA allegations. BBBS received three large grant awards from the Department of Justice from 2009 to 2011 to fund various programs and initiatives for at-risk children. Like most agreements with the U.S. Government, these awards came with conditions—specifically, requirements for sound accounting and financial management practices.

An audit by DOJ’s Office of Inspector General found that BBBS failed to account for its grant funds, thereby failing to ensure the funds would be used for their earmarked purposes. Rather than separating expenditures for its grant-funded programs from its other expenses, BBBS commingled its grant funds with its general operating funds. Based on these deficient financial controls, the U.S. Attorney for the Eastern District of Pennsylvania and DOJ alleged that BBBS’ certifications of compliance with the terms of the grant were false.

To settle these allegations, BBBS has agreed to pay a $1.6 million settlement and institute a strict compliance program that includes an employee code of conduct with disciplinary procedures for employees who fail to disclose abuses of federal grant funds, whistleblower policies, regular internal and independent audits, employee training, and employee risk assessment tools.

For the non-profit world, these allegations should be a wake-up call—a reminder that for-profit companies are not the only ones that need to worry about thorough compliance practices. After all, in FY 2015, the U.S. Government awarded over $614 billion in grants (according to USASpending.gov), as compared to approximately $437 billion in procurement spending. That’s a huge gap—with nearly 40% more money going to grants than to procurement contracts.

While FCA enforcement has largely focused on for-profit contractors and healthcare (with a recent foray into government-backed mortgages), a turn towards enforcement in the non-profit world may be in the works. In fact, given the tendency of so-called whistleblowers to follow the money, such a turn may be inevitable. Non-profits should ensure their accounting and compliance practices are in order.