Small Businesses Must Follow FCA Rules

Posted on February 11, 2021

(This post was written by whistleblower attorneys James Young and Sarah Foster.)

The heart of the American economy is the small business. An overwhelming majority of the businesses in the United States are small businesses, and most of the new jobs over the last 20 years have originated from small businesses.

Indeed, many experts have opined that the single most distinguishing element in America’s history, which propelled it to be the world’s greatest superpower and economy, is the entrepreneurial spirit which begins with small businesses.

This summer, the Department of Justice (DOJ) announced its False Claims Act (FCA) enforcement focus would turn to suspected fraudulent misrepresentation related to eligibility for small business contracts. In brief, the Small Business Administration was established in part to assist small businesses in financial and federal contract procurement.

There is a significant need for this assistance because the Small Business Act requires that 23 percent of all federal contracts include participation by small businesses, with some federal contracts being set aside specifically for small businesses.

Historically, FCA cases related to Small Business Act grant fraud have been miniscule.  So this news comes as a welcome surprise.

Small businesses must report the average number of employees for each pay period of the last 12 calendar months.

In order for a small business to qualify for one of the “set aside” contracts, it must satisfy a number of requirements set forth by the Small Business Administration, including size standards and rules regarding affiliation with larger corporations and calculation of annual receipts. Size standards require that a small business report the average number of employees for each pay period of the last 12 calendar months, regardless of hours worked or temporary status.

The significance of the DOJ’s attention to these contracts is this: Should the small business fail to include seasonal workers in its reported average number of employees, resulting in a smaller or lower reported workforce size, the small business may be found to have violated the FCA.

As another example, should a small business fall out of compliance with the size standards by affiliating with a larger corporation and failing to include that corporation’s employees in its reported size, the small business may be found to have violated the FCA.

As is made apparent by these examples, there are a number of ways that compliance with the Small Business Act may become an issue. It is incumbent upon the small business to maintain and truthfully report compliance with these regulations.

Though there are many protections and opportunities afforded to small businesses, they still must follow the law. As in so many large programs, unscrupulous people will always seek to take advantage of these programs. According to the new focus, abuse of these protections and opportunities will not be tolerated by the DOJ.

Fraudulent reporting (or failing to correct a fraudulent report) by a small business places other qualified and law-abiding small businesses at a disadvantage. The companies that are awarded grants, contracts, or awards are literally stealing those opportunities away from legitimate small businesses.

We are committed to recovering the maximum amount for our clients.

As experienced fraud lawyers and investigators, we understand how this law applies in any industry. If you know of a small business that has been awarded a government contract or operates under a government contract under the false pretense that the small business complies with the Small Business Administration’s size standards or other requirements, please speak with one of our experienced team members about how you can blow the whistle and help right this injustice.

We encourage whistleblowers of all types to contact us with their concerns of suspected illegal conduct that defrauds the government. We maintain a firm commitment to recovering the maximum allowable amount for our clients.

When it comes time to blow the whistle, choose a firm that is devoted in getting you—the brave individual coming forward with information—the reward you deserve for your role in the government’s recovery.