The Civil War era is my favorite part of American history. Every summer, my father would take my sister and me on “educational” vacations and when I was nine we went to Gettysburg. I’m not altogether sure if it’s the historical significance of the war that draws me to it, as much as the stories I heard when I was there, but either way that time seems etched in my mind. I stood on the battlefield beneath Little Round Top with my Polaroid camera and tried without success to take a picture of the scene. I couldn’t get the picture though, my camera kept jamming just like I’d been told it would. A ghost of a doomed confederate soldier (our tour guide) told me, “no one can ever take a picture here.” I was sooo hooked. I didn’t realize at the time that this intriguing era would also give way to the existence of the modern whistleblower and whistleblower hotline providers. Let me explain…
Do you remember the film Gone with the Wind? Of course you do. As the movie unfolds you see economic stability crumble and opportunistic individuals cheat the system – identified by their carpet bags, they were aptly labeled carpet baggers. Today the term is still used to refer to individuals guilty of manipulation or fraud. In an effort to stymie the trend, Congress passed the False Claims Act in 1863 to deter army suppliers from defrauding the government. Initially the FCA required that any individual knowingly submitting a false claim would be liable for double the damages to the government, as well as a $2,000 penalty. In 1986 the FCA was amended, making fraudsters liable for threefold the damages to the government, plus fines of $5,000 to $10,000. Yet, the increased financial penalties don’t seem to be doing the trick. Our latest fraud index, reporting 2013 fourth quarter findings showed that fraud is a huge risk in the workplace and is growing as a percentage of all compliance issues. Now, just over 150 years after it was initially passed, corporations are questioning the continued effectiveness of the act – but not because fraud is on the rise, but because they believe whistleblowers are abusing the FCA.
Let’s review: Since it was originally penned in 1863 the FCA has been amended three times. Fraud is still on the rise. In the 27 years following the last ‘strengthening’ of the FCA the federal government has brought in payouts of $42 billion. This year alone they are on track to recover another $5 billion. So why do companies think the FCA isn’t working? From my perspective the only reason corporations should be concerned about the FCA, is if they are knowingly committing fraud. However, one thing is for sure, corporate America and the government are in the midst of an FCA tug-o-war. Can we come to terms that will satisfy everyone?
David Ogden, a former DOJ official and defender of companies facing FCA suits may have found the solution. Last month Ogden, speaking on behalf of the Chamber’s Institute for Legal Reform, went before the House Subcommittee to urge for amendments to the FCA. The amendments would require whistleblowers to go through internal corporate compliance reporting channels before bringing suspected fraud to the government. Ogden also suggested that companies facing FCA suits that have strict compliance programs in place be eligible for reduced penalties.
Ogden’s proposals haven’t gone without opposition. Republican Senator Charles Grassley is skeptical of the amendments, commenting “I’m always wary when I hear the biggest violators of the law hire people to talk about ‘strengthening’ it”. Grassley then shuts down Ogden’s suggestion to offer reduced penalties to corporations with compliance programs, stating that “the Chamber makes multiple proposals to limit government recoveries… these limitations would apply whether the corporation involved participated in any compliance-certification program. That just makes no sense.” Whether Ogden’s proposed changes go through or not, corporations should still promote internal reporting first – you can do this by making your internal hotline easily accessible to employees and having leaders communicate a “see something, say something” culture.
Encouraging employees to report internally first does have its challenges. Employees may feel more comfortable reporting directly to the government because there is less fear of retaliation. But, if you implement a third-party whistleblower hotline you can provide your employees the same assurances. Look into whistleblower hotline providers to decide who has the services that best fit your needs. For example, if you have a global workforce, you’ll want to know if the whistleblower hotline providers you consider can take calls in multiple languages and understand the confidential reporting and data privacy statutes in all of the countries in which you operate.
While Ogden may believe that the FCA encourages frivolous claims, I think his proposed amendments are spot-on because they reward companies for taking proactive steps to prevent fraud. Despite the recoveries the government has claimed since the inception of the FCA, the U.S. Treasury still loses $72 billion a year to fraud. It makes recovering $42 billion over 27 years seem paltry, doesn’t it? So if we approach the FCA differently – namely promoting internal reporting and reduced penalties for compliance programs that have implemented an exhaustive fraud prevention component – maybe we’ll see a reduction in annual losses due to fraud.