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Published: February 16, 2009
written by Patrick J. Farley
This article was reprinted in The Municipality's April 2009 issue legal notes, published by the League of Wisconsin Municipalities.
Local units of government need to be aware of many issues when accepting any Federal moneys. One very serious and seldom recognized risk is the fact that the False Claims Act (FCA), 31 U.S.C. §3729, applies to local units of government.
The FCA prohibits any “person” from submitting, or causing someone else to submit, to the government a false or fraudulent claim for payment. A violation of the FCA could result in paying penalties of $5,500 to $11,000 per violation plus three times (or treble) the damages to the federal government. Moreover, the FCA provides that private individuals with knowledge of the fraud may bring an action on behalf of the United States government and receive a percentage, from 15 percent to 30 percent, of the damages resulting from the FCA action or settlement agreement.
Prior to 2003, many federal courts held that the FCA did not apply to State and local units of government.
For example, in 2000, the United States Supreme Court in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S. Ct. 1858 (2000), ruled that a State is not subject to triple damages under the FCA because these damages would be punitive in nature, and this runs counter to the presumption against punitive damages on government entities.
However, in 2003 the United States Supreme Court ruled in Cook County v. United States ex rel. Chandler, 538 U.S. 119, 123 S. Ct. 1239 (2003) that local governments are “persons” subject to the FCA and the penalties that come with it, including triple damages.
We now have a situation where State governments are not subject to the FCA and its severe penalties, but local units of governments are subject to the FCA.
It is important that local units of government are aware of these risks and put in place the appropriate controls to mitigate the risks against these types of claims. For example, local governments should have in place an excellent record keeping system in order to rebut an allegation in a claim filed by a disgruntled current or former employee. Without these measures, a local unit of government will be an easy target for a disgruntled current or former employee, and lose a FSA claim, pay triple damages and possibly be debarred from receiving future federal grants.
As you prepare to receive federal money as part of the federal stimulus package, or if you currently receive federal money in existing programs, you should be aware of this and many other issues facing you as a local unit of government.
For more information contact Axley Brynelson Attorney Gregory Collins at 608.283.6749 or gcollins@axley.com.
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