Editor's note: This article is an excerpt from the Association's Fraud Examiners Manual, Third Edition. The excerpt is not meant to be a substitute for the study of the entire manual. In this issue, the article covers the discussion on "Qui tam Suits and the False Claims Act," pages 2.273 to 2.277. 

When a private individual finds evidence of fraud in a federal program or contract, he has the option of filing a "qui tam" civil suit on behalf of the government to recover damages for the criminal or fraudulent actions.

Sometimes referred to as "whistleblower lawsuits," most qui tam actions are brought under the False Claims Act, 31 USC §3729 et seq. This statute provides, in part, that anyone who commits the following acts is liable to the government for three times the amount of damages it sustains plus a civil penalty of $5,000 to $10,000 per false claim:

• Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval [§3729 (a) (1)];
• Knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved [§3729 (a) (2)];
• Conspires to defraud the government by getting a false or fraudulent claim allowed or paid [§3729 (a) (3)];
• Making or delivering a document certifying receipt of property to be used by the government without completely knowing that the information on the receipt is true [' 3729 (a) (5)]; or
• Knowingly makes or uses (or causes to be made or used) a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government [§3729 (a) (7)].

Most qui tam actions seek to recover damages and statutory penalties for false claims made to the government by government contractors such as defense contractors and healthcare providers.

Since the qui tam provisions were added to the Act in 1986 (see sidebar article below), the U.S. Department of Justice calculates that the government has recovered more than $1.09 billion in qui tam cases, with whistleblowers receiving nearly 18 percent (or $184 million) of the government's recovery.

Filing an Action

If an individual has knowledge that a false claim was submitted to the government, that person can elect to become a whistleblower and retain an attorney who will draft a complaint and a disclosure statement. The whistleblower will file these two documents under seal in U.S. district court and send copies to the Department of Justice.

After the filing of the complaint, the Justice Department has 60 days to investigate the allegations and determine whether it will join the lawsuit. If the Justice Department does join the lawsuit, it has the primary responsibility for prosecuting the case and can limit the whistleblower's participation in the action. If the qui tam action is successful, the whistleblower's share of the recovery will range from 15 to 30 percent depending on the extent of the individual's investigation. The judge normally determines the percentage.

If the department decides not to participate, the whistleblower has the right to continue to pursue the claim on behalf of the United States and will receive a higher portion of any recovery received.

Who Can Bring a Qui Tam Action 

The False Claims Act states that any person can file a qui tam action as long as they have direct and independent knowledge of the fraud and this knowledge wasn't obtained from a "public disclosure." The definition of "person" includes not only individuals, but also businesses and state or local government entities. The most common plaintiffs in qui tam actions are employees of government contractors, healthcare organizations, and local, state, or federal government.

However, at the present time, there is some controversy about whether federal employees can file qui tam actions under the False Claims Act when searching for fraud is part of their official duties. At least two federal circuit courts have concluded that employees who are required and paid by the government to disclose fraud cannot bring qui tam actions because their knowledge of fraud wasn't obtained independently.

Protections for Whistleblowers

Many whistleblowers are employees of government contractors and, obviously, are reluctant to report their employer for fear of retaliation. Congress has provided substantial protection for whistleblowers. Title 31 USC Section 3730(h) prohibits an employer from taking any adverse action (including discharge, demotion, or harassment) against an employee "because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including the investigation or initiation of, testimony for, or assistance in an action filed or to be filed under this section."

If it can be proved that an employer has taken any adverse action against the employee, the employee may seek compensation including reinstatement at the same seniority status, an award of two times the employee's back pay plus interest, and any other special damages. The employee also may receive reimbursement for all litigation costs including attorneys' fees.

Although these provisions provide necessary and justifiable protection for employees, in some cases they have the unintended effect of preventing an employer from firing or disciplining a whistleblower even if there is adequate cause. Employers often are unwilling to implement any negative employment decision against a whistleblower (no matter how justifiable) for fear that the employee will add a claim of retaliation to the suit.

Federal Whistleblower Statutes 

Besides the False Claims Act, there are a number of other statutes that offer protection for whistleblowers. Such statutes include the following:

Civil Service Reform Act (5 USC 2302) This comprehensive act prohibits retaliation against federal whistleblowers. An employee filing a complaint under Section 2302 must be covered by the act or the form of retaliation used by the employer must be described in the act. If an employee is unable to meet one of these criteria, the employee may be able to maintain a tort claim under the First Amendment. The act prevents a federal agency from taking any adverse "personnel action" against a civil servant who has reported wrongdoing by the agency.

Fair Labor Standards Act (FLSA), (29 USC 215-16) This act sets minimum wage, overtime pay, equal pay, recordkeeping and child labor standards for employees who are covered by the act and not exempt from specific provisions. The FLSA contains provisions that prohibit employers from retaliating against employees who report violations.

Occupational Safety and Health Act (OSHA), (29 USC 660(c)) OSHA regulations protect employees who raise complaints about the health and safety of their workplace. An employee must file a complaint with the local OSHA office within 30 days an alleged violation occurs. The Secretary of Labor, which investigates OSHA complaints, may sue on behalf of the injured employee.

Employee Retirement Income Security Act (ERISA), (29 USC 1132, 1140) It is unlawful for an employer to retaliate against an employee who participates in an ERISA retirement benefit plan or who gives information or testifies regarding any inquiry or proceeding relating to this act or the Welfare & Pension Plans Disclosure Act. Employee complaints under ERISA should be filed in a federal district court. A copy of the complaint should be sent to both the secretary of Department of Labor and the secretary of the Department of the Treasury.

Title VII, Equal Employment Opportunities (42 USC 2000e-3) Title VII prevents employment discrimination based on race, color, religion, sex, or national origin and protects both public- and private-sector employees. There is a whistleblower provision that bars retaliation against employees who oppose any unlawful employment practice under the act or who charge, testify, assist, or participate in any manner in the investigation, proceeding, or hearing of complaints made under the act.

Age Discrimination in Employment Act (ADEA) (29 USC 623(d)) The ADEA protects public and private-sector employees from age discrimination. It is unlawful for an employer to discharge or discriminate against an employee who has reported a violation of the act by the employer.

Civil Rights Claims (42 USC 1983) Where state action is involved, a whistleblower may be able to make a claim under section 1983, which prohibits any person from violating the civil rights of another person.

National Labor Relations Act (NLRA) (29 USC 158) Employees who report violations of the NLRA by their employers are given protection from discharge or discrimination. A complaint should be filed with the regional director of the National Labor Relations Board for the region in which the violation occurred.

Federal Whistleblower Statute for Employees of Defense Contractors (10 USC 2409) An employee of a contractor may not be discharged, demoted, or discriminated against for reporting violations of law related to a contract awarded by the head of certain federal agencies (i.e., Department of Defense, Department of the Army, etc.). A person may submit a complaint to the inspector general of the agency.

Federal Deposit Insurance Act; Financial Institution Reform, Recovery, and Enforcement Act of 1989 (12 USC 1831j) Employees of depository institutions and banking agencies are protected from discharge or discriminatory actions concerning compensation, terms, conditions, or privileges of employment if the employee reports: (1) a possible violation of any law or regulation; (2) gross mismanagement; (3) gross waste of funds; (4) abuse of authority; or (5) a substantial or specific danger to public health.

There are also a number of statutes that provide protections to employees who expose violations of environmental laws. The provisions of these acts are substantially similar. They include the Solid Waste Disposal Act, the Water Pollution Control Act, the Toxic Substances Control Act, the Safe Drinking Water Act, and the Clean Air Act.

Also, every state has some form of legislation protecting whistleblowers. Many specifically describe how a report must be filed and provide the names of the agencies that must receive the report. Some states also may require that the employee's first report be directed to the employer so the employer has an opportunity to correct the circumstances that may have caused a potential violation.

Employees' Recourse 

Since the revitalization of the federal False Claims Act in 1986, individuals may use the qui tam privileges to file civil suits on behalf of the government against employers suspected of fraud. The results? Over $1 billion in reclaimed funds and the satisfaction of hundreds of whistleblowers. 

Qui tam History Dates Back to 1800s 

"Qui tam" is an abbreviation of the Latin phrase "qui tam pro domino rege quam pro si ipso in hac parte sequitur" meaning "Who sues on behalf of the King as well as for himself."

The False Claims Act, also known as the "Lincoln Law," dates back to the Civil War. President Lincoln signed the act into law in 1863 because war profiteers were selling the Union Army shoddy supplies at inflated prices. The original law included qui tam provisions that allowed a private person (plaintiff) to sue those who defrauded the federal government. If the suit was successful the plaintiff would receive 50 percent of any recovery from the defendant.

The qui tam provisions were weakened greatly as a result of congressional amendments in 1943, and qui tam legislation became virtually nonexistent. However, in 1986, Sen. Charles Grassley, R - Iowa, and Rep. Howard Berman, D “ Calif., joined forces to amend the law and strengthen the incentives for citizens to uncover and fight fraud as qui tam relators. (Relators are the private plaintiffs under the False Claims Act).

The 1986 False Claims Act amendments received widespread bi-partisan support, and were signed into law by President Reagan. Since the revitalization, the qui tam provisions have been used increasingly.

There are a number of pronunciations of the Latin abbreviation qui tam. The simplest is key tam (rhymes with "ham"). Black's Law Dictionary suggests kweye (rhymes with "eye") tam. Others insist upon kweye tom (like the common name, but often said with an upper-crust accent), And some say kwee (rhymes with "key") tam or kwee tom.

Sources: Website of Taxpayers Against Fraud “ The False Claims Legal Center (www.taf.org/), and Black's Law Dictionary.