False Claims Act Penalties To Increase Significantly in August 2016

Posted on February 11, 2021

Despite common misconceptions, the False Claims Act does not exist to penalize companies for minor, unintentional billing errors. The purpose of the FCA is to root out deliberate, institutionalized fraud from industries that rely on federal funding to thrive.

On August 1st, 2016, the penalties for committing FCA violations will increase significantly. Not only does this adjustment make economic sense; it’s a necessary deterrent for the companies and individuals that conspire to steal taxpayer dollars.

The Railroad Retirement Board takes the first step

Of all the sectors that come into contact with the FCA, the railroad industry may seem one of the least prominent. While it’s true that the Railroad Retirement Board doesn’t encounter nearly as many FCA concerns as the healthcare sector, the RRB was the first to implement a requirement set by the Bipartisan Budget Act of 2015.

A section of the Act requires federal agencies to adjust their civil penalties for inflation. The most dramatic change is the “catch-up adjustment”, which will compensate for the years in which no such adjustments occurred. Agencies will then have to make inflation adjustments to their penalties on an annual basis.

False Claims Act penalties, before now, started at a minimum of $5,500 per false claim, and capped at a maximum of $11,000. FCA penalties hadn’t been adjusted for inflation since 1999.

The RRB’s adjustments brought the minimum penalty per FCA to $10,781, and the maximum to $21,563, or nearly double the original values.

Though it is up to each federal agency to submit adjustments according to the appropriate calculations, the RRB submission sets a high precedent. All adjustments go into effect on August 1st, 2016.

A Ripple effect across industries

The RRB may have been the first to enact the new requirements, but all government contractors may be impacted by the penalty adjustments.

This has caused concern in some industries, but the increase in FCA penalties should serve as an opportunity for federal contractors to improve their internal accountability systems.

Whistleblowers face immense pressure and consequences by reporting fraud; when qui tam relators turn to the government for help, it’s often because their employers have failed to address the allegations internally. In cases where whistleblowers do not report internally first, they generally have legitimate fears of facing relation or being fired.

As Senator Chuck Grassley explained in April 2016, the idea that whistleblowers report fraud to the government as a financial scheme is deeply misguided. Qui tam cases take years, and whistleblowers risk their financial security and sometimes their entire careers by speaking up. The FCA uses the penalties as a deterrent to potential fraudsters, and also as a means to reward whistleblowers for taking considerable risks.

However the numbers fall when federal agencies update their penalties, these adjustments are a positive reinforcement of nationwide efforts to combat fraud and save taxpayer dollars.