Kansas City Whistleblower Lawyer Blog

On average, there is a $450 billion annual gap between the taxes that are owed to the federal government and the taxes that are actually paid. In theory, those who help the government find those who cheat on taxes and contribute to the shortfall should be the heroes that the federal government wants to reward. After all, the people who underreport income or hide assets can cost the government millions of dollars. At first glance it seems that Congress wanted to create incentives to report potential income tax fraud. Back in December 2006, Congress passed legislation that increased the reward for reporting tax fraud to the heights typically reserved for Qui Tam whistleblowers. During the last five years, potentially $500 million dollars in unreported or falsely deducted corporate and personal income tax could have been recovered thanks to this legislation.

Sadly, only one reward has been given under the new law since 2006. Four and a half million dollars was awarded to a corporate auditor who tried to convince his employer to pay the $20 million in taxes they rightfully owed.

The problem is not a shortage of claims nor is it the quality of the information. The problem appears to come from the IRS itself. In a 2010 interview, former IRS chief Donald Korb had this to say in Tax Notes:

The new whistle-blower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system. I believe that it is unseemly in this country to encourage people to turn in their neighbors and employers to the IRS, as contemplated by this particular program. The IRS didn't ask for these rules; they were forced on it by the Congress.

Such a statement speaks to a great institutional resistance to change, especially change that is, in the words of Korb, "forced on it by Congress."

However, due to decades of case law about "agency deference," the IRS has a great deal of leeway in interpreting just how to implement these new rules forced on it by Congress. Every opportunity that the IRS had to interpret these rules, it chose the path of most resistance. Some examples of problematic guidelines include:

• Narrowed the sources of recovery that are the basis of whistle-blower awards.


• Imposed unprecedented withholding requirements on whistle-blower awards.


• Created roadblocks to IRS interactions with whistle-blowers, such as the 2008 "one-bite" rule (now relaxed) that limited receipt of information to an initial meeting.


• Defined "planners and initiators" of the tax scheme - who by law receive only a reduced award (if any) - in a manner that could block employees whose involvement is far removed from the true architects of a scheme from receiving a reward.

Lawyers who work with such whistle-blower claims frequently complain of the "black hole" that seems to consume them before a resolution can be reached. Recently a whistleblower filed suit against the IRS to not only pay him, but also disclose how the information he provided contributed to finding and collecting from those he reported as committing tax fraud.

That a whistle-blower should have to sue an agency to learn how his information helped uncover fraud is the height of absurdity. It's not as if all federal agencies are as recalcitrant - the SEC has been quite amenable to whistleblower information. They understand that citizens who help uncover fraud are allies and not antagonists. There's no need for the IRS to get defensive about citizens "turning in their neighbors" or for attorneys representing whistle-blowers to become demoralized at the complete lack of progress due to some power struggle between Congress and the IRS.

Source:
IRS Keeps Ignoring Whistleblowers, by Richard Lavinthal, published at WashingtonExaminer.com, April 12, 2012.

See Our Related Blog Posts:
Federal Crack Down on Medicare Fraud Reaps Record Recovery of $4.1 Billion
$25 Billion Agreement Reached on Mortgage Fraud

Last summer, the Brady & Associates Whistleblower Blog published an article that described the new Medicare fraud detection system implemented by the government to detect potential health care fraud before it occurs. The statistical modeling system evaluates large amounts of data and recognizes patterns that lead to fraud. By applying this model to individual claims, the system can evaluate the risk associated with each claim. The claim may then be flagged as a potential fraud item prior to payment. Other agencies have improved on their pursuit of healthcare fraud, which has resulted, according to the proponents of the system, in about $4.1 billion in taxpayer money recovered in fiscal year 2011.

Ted Doolittle, Deputy Director of the Center for Program Integrity (CPI), a new department under the Center for Medicare & Medicaid Services (CMS), answered questions about the modeling system in a recent interview with Beckers's Hospital Review. During that interview, the questioner asked Doolittle about the $4.1 billion recovery and his agency's focus. Mr. Doolittle pointed out that a large percentage of this figure represents money recovered from qui tam lawsuits. Qui tam suits are commenced by individuals, private attorneys and the Justice Department on behalf of the U.S. Government. Thus, not all of the recovery can be associated with the Center's efforts.

Procedures have been expanded to detect fraud by providers and suppliers. The predictive model is applied to determine risk. One of the goals of the modeling system is to screen providers likely to commit fraud. Getting the high risk providers out first is essential. Automated public records allow the agency to evaluate providers in the system once they have been enrolled. Any changes, such as changes in business affiliations, are automatically detected. Additional information can then be gathered. Early fraud detection makes it more difficult for questionable providers to get in and to stay in. This is different from how the Medicare system worked in earlier years. Previously, once a provider was enrolled, they had good standing until revalidation, which rarely, if ever, resulted in disenrollment. In addition, new procedures have been implemented to make it easier for good providers to enroll.

Medicare claims processing is another area with enhanced investigation. During this phase, fraudulent claims and providers making them identified. When a fraudulent claim is identified, it is essential that the provider of the claim be eliminated from the Medicare program. The modeling capability allows the agency to detect details about the claims and compare those claims against the algorithms in the model. Mr. Doolittle commented that no one in the health care arena is doing such a large-scale analysis and that CMS continues to add complexity to the system to generate more alerts. This should result in continuous improvement in the probability of identifying undesirable providers and eliminating them from the program for good.

Not everyone, however, is convinced that the new modeling program is a success. According to a recent article in the Huffington Post, the million dollar computer program has not given taxpayers a good return on their investment. Since its inception, the program has saved taxpayers just under $8,000 in claims. Proponents of the program, however, say that it is unfair to judge the soundness of the new modeling software off the small amount it has recovered. Doolittle said, "Suspending payments is only one way of stopping the money. . . There's lots of ways of stopping the money, and we are using them all. Looking at payment suspensions only - that's an unsophisticated view that doesn't give you a full picture of our activities." Other features of the new predictive modeling system must be considered to fully understand the benefit it is providing to the health care industry. Proponents claim that when those other benefits are factored into the analysis, the potential savings in the first six months could reach $20 million.

Others who find the program troubling highlight that the purpose of the predictive modeling program was to stop Medicare's previous "pay-and-chase" method of addressing fraud. Under pay-and-chase, claims were paid, and afterwards the government would attempt to track down and recoup the claims that were paid out erroneously. This was never an effective strategy. The new system allows Medicare to flag suspicious claims and investigate before the claim is paid to the provider. Some, however, do not believe that the new system has been successful in ending pay-and-chase. "The whole idea for creating this technology was they were going to be able to end pay-and-chase," said Hank Walther, formerly the head of the Justice Department's health care fraud division. "But we haven't yet seen evidence of its success."

Though the predictive program has only prevented $7,591 in fraudulent payments so far, it is important to remember that the system is new and contractors are still training those responsible for enforcement, proponents say. Increased familiarity with the system should improve the numbers. However, the ultimate goal of the system is to get rid of providers that are likely to commit fraud.

The proponents of the new system hope to expand it to impact hospital Part A and Part B claims processing. As new mathematical algorithms are developed, operators will be able to target specific types of claims or provider types, such as orthopaedic surgery or other health care sub-groups.

Sources:
Where Does Predictive Modeling Stand? Q&A With CMS Center for Program Integrity Deputy Director Ted Doolittle, by Bob Herman, published at BeckersHospitalReview.com, March 21, 2012.

Anti-fraud effort disappoints, by Kelli Kennedy and Ricardo Alonso-Zaldivar, published at HuffingtonPost.com, February 23, 2012.

See Our Related Blog Posts:
Federal Crack Down on Medicare Fraud Reaps Record Recovery of $4.1 Billion
$25 Billion Agreement Reached on Mortgage Fraud

High-level cooperation and coordination among several government enforcement agencies paved the way toward an unprecedented joint federal-state settlement related to abusive practices by mortgage servicers. A $25 billion agreement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. was reached by the federal government and 49 state attorneys general to address mortgage loan servicing and foreclosure abuses. Not only does this agreement provide relief to America's homeowners, it also provides for future protections for new homeowners.

Attorney General Eric Holder stated, "It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated."

Colorado Attorney General Suthers also commented, "This settlement has broad bipartisan support from the states because the attorneys general realize that the partnership with the federal agencies made it possible to achieve favorable terms and conditions that would have been difficult for the states or the federal government to achieve on their own."

New standards for mortgage loan servicing requirements and a $25 billion commitment to cover federal and state law violations are the basis of the joint federal-state agreement. The types of violations by mortgage loan servicers include "servicers' use of 'robo-signed' affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court."

It is important to note that, while this agreement resolves violations by mortgage loan servicers, it does not limit the pursuit of criminal action, such as illegal securitization activities, by federal and state agencies. Additionally, the agreement does not limit the United State's authority to go after losses incurred due to a bank's faulty due diligence on government-sponsored loans. Finally, individual borrowers are still free to pursue lawsuits on their own behalf.

As part of the global settlement, Loretta E. Lynch, US Attorney for the Eastern District of New York, announced that government claims against the Bank of America, Countrywide Financial Corporation and subsidiaries will be resolved with a settlement of $1 billion to be paid to the United States for mortgage origination and underwriting fraud. The investigation resulted in findings that the FHA insurance fund was defrauded by the bank and Countrywide through a practice of originating mortgage loans for real estate with inflated appraisals and making loans to unqualified borrowers. This particular settlement was achieved largely with remedies available under the False Claims Act. Findings indicate that the underwriting and origination practices were systematic, resulting in hundreds of millions of dollars in damages to the Federal Housing Authority (FHA) insurance fund.

"It is fundamental that lending institutions that earn the authority to directly endorse FHA-insured mortgages apply our standards," said HUD Secretary Donovan. "This is the largest false claims act settlement related to mortgage fraud and will not only compensate FHA but will also ensure assistance for homeowners who have been harmed by Countrywide."

The interagency Financial Fraud Enforcement Task Force, established by President Barack Obama, was paramount in attaining this landmark joint federal-state agreement. His task force, which includes a cross section of federal agencies, regulators, and inspectors general, as well as state and local law enforcement officials, is a proactive initiative utilizing the best and most powerful range of enforcement resources.

On January 27, 2012, Attorney General Eric Holder announced the development and implementation of the new Residential Mortgage-Backed Securities Working Group, which will operate as part of Obama's Financial Fraud Enforcement Task Force. This new group will concentrate on efforts to pursue illegal activities related to residential mortgage-backed securities, including packaging, marketing and valuation.

Sources:

Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses, The U.S. Department of Justice, Office of Public Affairs, February 9, 2012

$1 Billion to be Paid by The Bank of America to The United States, Largest False Claims Act Settlement Relating to Mortage Fraud, United States Attorney's Office, Eastern District of New York, Robert Nardoza, Public Affairs Officer, February 9, 2012

Attorney General Holder Speaks at the Announcement of the Financial Fraud Enforcement Task Force's New Residential Mortgage-Backed Securities Working Group, The U.S. Department of Justice, January 27, 2012

New fraud monitoring tools implemented by federal authorities in order to crack down on healthcare fraud are paying off. Reports indicate that a record $4.1 billion was recovered and returned to Medicare Trust Funds, the Treasury and other departments during 2011. The Department of Justice and the Department of Health and Human Services conducted joint programs so that federal, state and local law enforcement agencies were coordinated to better combat healthcare fraud. Compared to 2009, this amount represents a 50 percent increase.

In addition to actually visiting healthcare providers' sites that are in a moderate risk category to assure that a legitimate office exists, the Department of Health and Human Services reports that they are also improving the screening process for providers prior to allowing their entry into the system, along with more stringent enrollment requirements. Those providers that are identified as higher risk are required to go through fingerprint and criminal background checks.

This more proactive approach is beginning to take hold. Authorities screen providers and categorize suspicious providers so that payments can be stopped prior to incurring the cost of fraudulent activities. This puts an end to the old system of paying claims, then going after the suspicious ones, a system by which the fraudsters are able to either flee the country or dump their provider ID to escape liability. Federal health officials report that the sharing of data with other agencies is also improving. It is estimated that Medicare fraud costs the nation in the range of $60 billion to $90 billion annually.

Kathleen Sebelius, Health and Human Services Secretary, said in a statement, "Fighting fraud is one of our top priorities and we have recovered an unprecedented number of taxpayer dollars. Our efforts strengthen the integrity of our health care programs, and meet the President's call for a return to American values that ensure everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules."

Much of the credit for the increase in recovered funds goes to strike force teams that have been established in cities around the country, including Miami, Detroit and Los Angeles. A total of 323 defendants were charged in 2011, representing more than $1 billion billed to the Medicare program by these criminals. One of the cases involved more than 100 doctors, nurses and physical therapists across nine states.

For those criminal matters related to the pharmaceutical and device manufacturing industry, $1.3 billion in criminal fines, forfeitures, restitution and disgorgement were recovered by the Justice Department by obtaining 21 criminal convictions and under the Food, Drug and Cosmetic Act. Civil healthcare fraud recoveries obtained under the False Claims Act were approximately $2.4 billion dollars.

Officials at the Department of Justice report that the message is now going out with longer sentences levied by judges. Compared to 2010, the average sentence in 2011 increased by 5 months, from 42 months to 47 months.

"These efforts reflect a strong, ongoing commitment to fiscal accountability and to helping the American people at a time when budgets are tight," Attorney General Eric Holder said in a statement.

"Fighting fraud is one of our top priorities and we have recovered an unprecedented number of taxpayer dollars," Health and Human Services Secretary Kathleen Sebelius said.

Sources:

Feds Recover Record $4.1B in Health Fraud, UPI.com, February 14, 2012

Feds Beef Up Screening for Medicare Providers; Agency Recovered $4.1 Billion Last Year, Washington Post, February 13, 2012

Related Blog Post:

Medicare Fraud Detection Goes on the Offense

For the fiscal year ending September 30, 2011, the US Department of Justice (DOJ) recovered more than $3 billion under the False Claims Act. Of this amount, recoveries for fraud against US health care programs amounted to $2.4 billion. This is the 2nd year in a row that justice has recovered greater than $3 billion and the grand total amount recovered for all claims since 2009 was $8.7 billion.

The provisions of the False Claims Act allow individuals to file claims on behalf of the government. These individuals are known as relators and/or whistleblowers who report fraud, oftentimes an act that is fraught with risk and personal sacrifice. Assistant Attorney General West thanked these citizens with the following statement. "We are tremendously grateful to whistleblowers who have brought fraud allegations to the government's attention and assisted us in this public-private partnership to fight fraud."

US healthcare programs that sustained fraud include Medicare and Medicaid programs, health programs for Federal employees and Veterans, as well as the TRICARE program, which is administered by the Department of Defense for the benefit of Uniformed Service members, retirees and their families. Use of the False Claims Act for the recovery of federal health care dollars has yielded in excess of $6.6 billion dollars just since January 2009, which is the most recovered under this act during any previous 3 year period.

This was a top priority for the Obama administration. In support of this goal, the Health Care Fraud Prevention and Enforcement Action Team (HEAT) was created in May of 2009 in order to improve coordination between agencies and to step up enforcement.

Of the amounts recovered for healthcare fraud, the feds report that claims against the pharmaceutical industry represent the largest source of recoveries. Allegations against drug companies include illegal pricing for the purpose of profit maximization as well as criminal and civil charges against GlaxoSmithKline for adulterated drugs paid for by federal healthcare programs. Unfortunately, industry executives define these payouts, off-the-record, as a cost of doing business. Patrick Burns of Taxpayers Against Fraud, writes, "We are not seeing a decline in pharmaceutical fraud cases. Instead we are seeing the addition of other fraud streams, such as medical devices and pension fraud."

Justice also continues to aggressively pursue fraud in government procurement and financial fraud in the housing and mortgage industries in the aftermath of the financial disaster. To this end, the Financial Fraud Enforcement Task Force was established by President Obama in 2009 and is tasked with the pursuit of individuals and corporations contributing to the crisis. Nearly $358 million of the $3 billion collected in fiscal year 2011 resulted from this effort.

Senator Charles Grassley (R-Iowa) and Representative Howard Berman (D-California) have been leading the way since 1986 when they successfully led Congress to amend the False Claims Act, which included enhanced qui tam provisions that incented individuals to blow the whistle on fraud when they saw it. These individuals, along with Senator Patrick J. Leahy, chairman of the Senate Judiciary Committee, also supported the Fraud enforcement and Recovery Act of 2009. This act made possible additional improvements to the False Claims Act and many other fraud statutes.

Assistant Attorney General West stated that, "Twenty-eight percent of the recoveries in the last 25 years were obtained since President Obama took office. These record-setting results reflect the extraordinary determination and effort that this administration, and Attorney General Eric Holder in particular, have put into rooting out fraud, recovering taxpayer money and protecting the integrity of government programs."

Sources:

Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011, Department of Justice, December 19, 2011.

Pharma Fraud Continues to Fill the US Treasury, by Ed Silverman, Pharmalot.com, December 19, 2011

A federal whistleblower, Bunnatine "Bunny" Greenhouse, has just won a major victory with the U.S. District Court in Washington. On Monday, July 25th, the court approved an award to Greenhouse in the amount of $970,000, which represents full restitution of wages, compensatory damages and attorney fees.

The case involves Kellogg Brown and Root (KBR), a subsidiary of Halliburton, and the settlement is with the Army Corps of Engineers. Greenhouse was an employee of the agency and took issue with KBR using its own cost projections for a "multi-year no-bid, no competition contract." After her initial objection with KBR, she took the contract issue to Congress. The result of her communication with Congress was that she was removed from the Senior Executive Service and her top secret clearance was revoked.

It all started in February of 2003, a short time prior to the U.S. invasion of Iraq. A Pentagon meeting agenda included the subject of an approximately $7 billion government contract award to Kellogg Brown and Root for the purpose of restoring Iraq's oil facilities. Greenhouse was in attendance in addition to officials from Defense Secretary Donald Rumsfeld's office and aides to retired Lieut. General Jay Garner. To her dismay, also present were several representatives from Halliburton. Her issue with the presence of the Halliburton representatives was with regard to the sensitive nature of the discussions and the obvious potential for conflict of interest with KBR, with Halliburton representatives in the meeting being privy to internal discussions about the terms of the contract. She requested, with a whisper to the presiding general, that the Halliburton employees be asked to leave the meeting.

Greenhouse then raised other concerns including the fact that the contract had never been put out for competitive bid and the five-year term was not justified, that the contract term should be opened to competition after only a one year term. When the contract came back for approval, the term was still five years. The war was looming and she had no choice but to approve the terms, but added a handwritten reservation voicing her objections and stating that a no-bid contract with greater than a one year term could imply, "there is not strong intent for a limited competition."

These objections did not become public until October of 2004. In January of 2004, the government had replaced the noncompetitive contract with two competitively bid awards. Interestingly, Halliburton was awarded the larger of the two, worth up to $1.2 billion. As early as 2004, she had received a lot of trouble for issuing concerns about the deal and was warned to stop interfering and then was threatened with a demotion. At the time, her lawyer sent a letter to the acting Secretary of the Army, charging that her superiors had tried to silence her. The letter states that over the seven years previous to the Halliburton contract, Greenhouse had voiced reservations about many procurement documents, but only after the Halliburton issue was she warned to stop. The letter also states that Robert Griffin, the major general who warned her, later gave a sworn statement in which he admitted her reservations on contracts had "caused trouble" for the army and that it was "intolerable" and "had to stop." The letter also states that he threatened to downgrade her.

Greenhouse said in a statement, "I hope that the plight I suffered prompts the administration and Congress to move dedicated civil servants from second-class citizenry and to finally give federal employees the legal rights that they need to protect the legal trust."

After suffering terrible working conditions, including a fall on a rigged trip cord in her office that resulted in a painful injury to her knee, Greenhouse retired with 29 years of service with the federal government. This retirement was earlier than she had planned and she retired without her SES credentials and top secret clearance.

Stephen Kohn, president of the National Whistleblowers Center, claimed that she was "an American hero." In a statement released by his office, he said, "She had the courage to stand alone and challenge powerful special interests. She exposed a corrupt contracting environment where casual and clubby contracting practices were the norm. Her courage led to sweeping legal reforms that will forever halt the gross abuse she had the courage to expose."

Her case illustrates the need to protect federal whistleblowers. Although legislation that would improve these protections has been in front of Congress for years, it has never gained any final approval.

Sources:
Beyond the Call of Duty, Time Magazine, October 24, 2004

A Bittersweet Win for a Federal Whistleblower, The Washington Post, July 26, 2011

A civil lawsuit filed Tuesday in Manhattan federal court seeks to recover alleged damages from Deutsche Bank AG related to mortgages that were insured by the Department of Housing and Urban Development. The lawsuit was filed under the False Claims Act and as such, the government may seek three times the damages in addition to possible punitive and other damages. The damages could amount to more than $1 billion. The justice department alleges that Deutsche Bank AG "recklessly" lied about the quality of loans made by a mortgage unit of the German bank.

U.S. Attorney Preet Bharara describes a long history of unreliable underwriting standards and quality control at the mortgage lender, MortgageIT Inc., which was acquired by Deutsche Bank in 2007. This lawsuit against Deutsche Bank is so far the highest-profile case filed by U.S. Attorney, Mr. Bharara's unit that was established last year to uncover complex financial-fraud cases. Mr. Bharara stated at a news conference that it wouldn't be a "fantastical stretch to think we are looking at other financial institutions as well."

A spokeswoman for Deutsche Bank said the "claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously." Additionally, the spokeswoman claimed that as much as 90% of the activity alleged in the lawsuit occurred prior to Deutsche's acquisition of MortgageIT.

The purchase of lending companies for the purpose of increasing mortgage operations was common among some of the Wall Street firms including Deutsche Bank. Mortgage bonds, made up of pooled loans, were sold to investors, which proved to be profitable at the time, but ultimately added to the financial crisis faced by the nation. Loans that are backed by the FHA insurance program are sold to investors and representated as very safe Ginnie Mae securities. Purchasers of these loans typically include pension funds, insurance companies and central banks. The guarantee on these bonds is "akin to the full faith and backing of the U.S. government."

Of the 39,000 mortgages worth more than $5 billion, for which MortgageIT approved FHA insurance, more than 12,500 of the loans have proven to be uncollectible. Some of these loans went sour as soon as two months after the loan was closed. Consequently, the Department of Housing and Development has sustained $386 million in insurance claims as of February of this year for loans that were underwritten by MortgageIT. The government agency is facing an additional $888 million for defaulted loans for which claims have yet to be paid.

The lawsuit alleges, "While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims." Additional allegations include breakdowns in required procedures, citing outside consultants' letters regarding underwriting violations that were ignored by MortgageIT. The suit accuses MortgageIT of not reading the letters at the time and that the letters were placed "unopened and unread" in a "closet" in the company's Manhattan offices.

The potential damages faced by the FHA due to this type of activity are enormous and the agency's projected reserves have fallen to $4.7 billion as of last September, 2010, "down from $21 billion three years earlier." The FHA could ultimately be forced to seek taxpayer support for the first time in its history, should the reserves be completely depleted.

Source:
U.S.Says Deutsche Bank Lied, The Wall Street Journal, May 4, 2011

At the beginning of February, the Department of Justice, in conjunction with the Department of Health and Human Services, released a number of statistics regarding qui tam cases filed under the false claims act. As of January 4, 2011 there were 1,341 qui tam actions under investigation in the United States; each of them awaiting a decision as to whether or not the government will intervene.

Qui Tam cases are filed "under seal" meaning that the case is filed in secret so that the public and even the defendant are unaware that the case has been filed. This allows the government to investigate the case prior to any allegations being made public.

Just of 66% of all qui tam actions currently on file allege some form of health care fraud. The whistleblowers who have brought these actions come from a wide variety of backgrounds and professions, from hospital administrators to pharmaceutical sales representatives. 98% of all sealed health care cases allege fraud against Medicare or Medicaid.

From October 1, 2006 to January 4, 2011, the government made intervention decisions in 1,644 cases and actually intervened in approximately 1 out of every 5 cases. Of the cases that have had intervention decisions in the past 5 years, the average time under seal is 13 months.

Health Care and Government contractor fraud can potentially bankrupt America's health care benefit programs and defense funds. These actions only enrich those commiting the fraud. The damages can be staggering and the ongoing actions of many perpetrators suggest that these damages are simply a cost of doing business in these industries. The major types of fraud include:

• Medicare and Medicaid Fraud
• Pharmaceutical Fraud
• Defense Contractor Fraud
• Federal Government Contractor Fraud

All of these types of fraud are violations of the False Claims Act. Businesses that provide services for which reimbursement may be sought from Medicare and Medicaid funds are subject to the False Claims Act. Likewise, businesses that enter into contracts with the Government for the procurement of equipment and services are also subject to the False Claims Act. Normally, these businesses are considered to be Government Contractors.

American taxpayers and consumers of medical and pharmaceutical services should pay particular attention to the associated billing for these services. Actions such as billing for services that are not provided, incorrect data on health care provider cost reports, the provision of substandard care, and fully charging for partially filled prescriptions could be violations of the False Claims Act. Other violations can include:

1. Kickbacks to a Medical provider in exchange for prescribing particular drugs.
2. Medicare or Medicaid patients that are charged a higher rate for the same prescription.
3. Substandard products and services that are intentionally provided.
4. Prescribing unnecessary drugs and treatments.
5. Marketing drugs for uses not approved by the FDA.

Equipment and services provided by defense contractors can include everything from computers and vehicle parts to multi-billion dollar weapons systems. Defense contractors provide these products and services via contract with the Government. These contractors can run afoul of the False Claims Act by supplying substandard parts and equipment and by participating in bidding schemes that involve price rigging, to name a few. Additionally, failing to adhere to the terms of the contract can also trigger violations. Contract terms can include billing and labor rates as well as contract performance requirements and provision of equipment and labor that meet federal statutes and regulations.

Today (February 3, 2011) The Wall Street Journal reports that the attorneys general in California and Virginia are investigating whether banks overcharged public pension funds by tens of millions of dollars for foreign-exchange transactions. Other states, including Florida and Tennessee, are also conducting investigations.

The states are looking into whether certain banks charged state pension funds the most expensive foreign-exchange price possible during the day when a trade took place, instead of the rate available at the time the trade took place. This also occurred when currencies were sold. Banks paid the state the lowest price possible for the day and not the rate available at the time of the trade.

The international foreign-exchange market is a $4 trillion-a-day exchange market.

U.S. investors trading in global stock markets must convert dollars into the currencies of the foreign countries in which they invest. For example, if an investor (pension fund) buys stock in a South Korean auto maker, it converts U.S. dollars to won, and reverses that exchange when selling the stock. Custodial banks facilitate this foreign exchange function.

The suits claim the banks didn't charge the pension funds the currency rates prevailing at the time of the trades, but consistently charged them the highest currency-conversion prices of the day, and kept the difference for their own account. The suits also say the banks similarly overcharged when the investors exited the trades.

Preliminary studies by university professors indicate custodial banks generally know the price they charge their clients and the bid-ask spread within a few hours of any transaction. Customers only learn later about the price they paid and never the bid-ask spread between what sellers are offering and buyers are willing to pay.

The California case was unsealed in 2009 and estimates the fraud at $56 million. The Virginia suit was unsealed last week and seeks $150 million in damages. Details of the matters indicate that some of the whistleblowers currently or previously worked at the defendant institutions.

About 30 states have statutes that allow whistleblowers to collect as much as 15% to 30% of any government recovery in cases in which they assist.

Source:
US States Widen Currency-Trade Probes, The Wall Street Journal, February 2, 2011

It's really very simple! When you order ten pounds of ground pepper to be delivered in a container from a supplier, the total combined weight of the container and pepper should be greater than ten pounds. The container weighs something. The total weight should not be ten pounds.

The False Claims Act was passed to stop this kind of activity perpetrated against the Union Army during the Civil War and to provide a way for the government to recover money from those suppliers that had profited from similar schemes to shortchange the government. The False Claims Act is often referred to as the "Lincoln Law" because President Abraham Lincoln strongly supported its passage.

The law contained a "qui tam" provision that allowed private citizens to sue, on the government's behalf, companies and individuals that were defrauding the government. "Qui tam" is short for a Latin phrase, "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which roughly means "he who brings an action for the king as well as for himself." The statute was passed on March 2, 1863.

This "qui tam" provision allows knowledgeable insiders that work for suppliers that are engaged in providing inferior or shorted products to the government and then billing the government falsely, to participate in the financial recovery on a percentage basis.

There are also protections built into the statute so those brave individuals that step forward and identify these situations will not be fired for their reporting activities. These are commonly referred to as "whistleblower protections".

Some government sectors that have been victimized by fraud include Public works projects and federal government construction; Research programs; Customs; Environmental programs; Loan guarantees; Underpayment of royalties on government-leased land; Agricultural subsidies and other agricultural programs; Municipal bonds ("yield-burning").

The reward for a whistleblower can be substantial. Fifteen to thirty percent of the recovery is called for if the whistleblower's suit is successful. Whistleblowers awards since 1986 have reached almost $1 Billion.

Recent lawsuit filings naming for-profit colleges as defendants would indicate there is a disconnect between the value of course credits and the cost of the course credits.

Time and time again students are too late discovering that course credits they were assured would transfer to public and private universities and contribute to a useful education, in fact, will not. In many cases students have taken on debt of many thousands of dollars to pay the for-profit college for these course credits.

About 9% of all college students now attend for-profit colleges. Most attend schools owned by one of 15 large, publicly traded companies. In the last year federal student loans and grants made up an average 77% of revenue at the five largest for-profit colleges.

There is a proposal by the Education Department to penalize for-profits whose students graduate with more debt than they can afford. Congress has been holding hearings on whether federal aid to for-profit colleges - over $24 Billion in 2008 and 2009 - is being put to good use.

In their defense, the for-profit colleges say their programs serve a key role in educating students who juggle work and family demands. The U.S. government has stepped up its scrutiny amid growing concern that for-profits are reeling in billions of dollars in federal aid by using aggressive, deceptive practices to lure students to programs that may not contribute to a useful education.

For a lot of students the problems with for-profits begins with accreditation. Accreditation is an assurance of educational quality, and is a third-party seal of approval, if you will, designed to protect consumers and taxpayers from diploma mills. It is important to colleges because the Education Department relies on it to determine which schools may get federal student aid or not. Accreditation is important to students because it can help them transfer credits from one college to another and can signal that a candidate's academic training has met certain standards.

For-profit colleges historically have been accredited mostly by national groups that have focused on short-term college programs in fields such as the culinary arts, medical billing or business administration.

On the other hand, most non-profit, degree-granting public and private institutions are accredited by one of six regional bodies.

These two distinctions are important because regional accreditation, which takes at least two years for a college to earn and must be renewed every 10 years, is considered the most rigorous and most prestigious of the two.

To further confuse things it is up to institutions to decide whether to accept or deny transfer credits. Many use accreditation status as a guideline. Even when a school does become regionally accredited, other non-profit schools will often take a discriminatory attitude simply because the other school is for-profit.

Regional and national accreditors were questioned by lawmakers this summer about whether colleges found to engage in questionable practices - such as encouraging students to lie on financial aid forms or pressuring students to sign binding contracts - should be allowed to keep their accreditation.

Until accreditation is sorted out and penalties established for violations of student trust, misleading guidance and answers to student questions will continue to plague the for-profit education industry. Students will continue to take on more debt while being misled by guidance counselors and not receiving correct information in response to their questions about course transferability.

Our firm, Brady & Associates, has spoken with for-profit college counselors that are working off the clock in the performance of their duties. Many are working through a lunch or returning a student call after business hours and not being paid for that time.

Source:
For-profit colleges under fire over value, accreditation, USA Today, September 29, 2010