Receiving federal funds now comes with a different kind of risk calculus for grantees

Guest:	Michael Anderson
Title:	Counsel at Smith Anderson
Summary:	A tougher federal anti‑fraud posture is changing how grants and contracts are scrutinized, especially when routine compliance decisions come under review after problems emerge.

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Terry Gerton We have heard a lot of talk lately about tougher federal anti-fraud postures. Strip away the rhetoric for me, though. What is meaningfully different now from the way that agencies have historically policed fraud in federal funding?

Michael Anderson I think the first thing that’s meaningfully different is the focus of the federal enforcement. The federal task force largely derives from fraud in state-administered programs that involve federal dollars, but maybe didn’t otherwise involve a lot of close federal oversight. Think Medicaid, think food stamp programs. Other programs where the federal government is putting in a significant amount of money, but maybe doesn’t have direct oversight on exactly how the program is being run or administered. That was really the catalyst for the task force. There were incidents in Minnesota, there were others in California. The president’s executive order mentioned still others in different states. So I think that focus on state administered programs is one piece that is different from how the government has historically focused its efforts on fraud and government programs. So I would note that piece right off the bat. I would note a second point, which is that historically federal programs are pay and chase systems. Medicare, Medicaid work that way. PPP worked that way as well. The basis for that is the public policy of getting the money to those who need it, getting payments to providers to provide medical services for those who needed them, getting PPP loans out to businesses that were struggling. And then all of that is premised on the understanding or maybe the assumption that those who are dealing with the government are doing so honestly and that they’re cutting square corners. If that turns out to not be the case, then the government has an enforcement mechanism to chase the money that was unlawfully requested or obtained. This task force is focusing, is inverting that focus a little bit and focusing more on the front end of enforcement efforts, ensuring eligibility requirements, ensuring that certifications are accurate, ensuring that there are minimum standards for fraud prevention that Apply before money goes out the door. So it’s taking what is historically a pay-and-chase system and making it more of a threshold review. I think that’s another important distinction between this program and how the government has typically enforced.

Terry Gerton That is a really helpful framing, that inversion of pay and chase to more of a process-driven prevention model. DOJ is also getting much more active these days. Walk us through what’s changing in their approach.

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Michael Anderson So I think there are a couple changes to DOJ’s approach here. I think one change is focusing more on self-initiated efforts, setting up the fraud task force is one of them. DOJ, I believe in January, set up an entire division that deals with fraud prevention and fraud enforcement. Those are efforts by the department to build up its own self-initiated investigations. Typically, these investigations, fraud investigations are often driven by some sort of whistleblower. I think the task force is the government’s effort to supplement, not moving away from, but augmenting the whistleblower litigation with the government’s data analytics and self-initiated investigations. Collaborating between agencies to share information to ensure that the government can identify fraud trends, identify areas where fraud enforcement may be necessary so that the government could develop that piece. I think that’s one change. I think a second change is the pace of government investigations. They tend to be very slow. They tend be very detail-oriented as they should be, but those take a lot of time. And the task force seems to be pushing the department to move a lot faster on false claims act cases and maybe also on criminal enforcement.

Terry Gerton I’m speaking with Michael Anderson. He’s counsel at Smith Anderson. With that set up, Mr. Anderson, let’s turn our attention to the folks who actually provide grant-funded services. We often think about Medicaid and food support grant programs as the big players here, but there are universities, there are non-governmental organizations, there are for-profit firms who engage in grant-provided services like workforce development or medical research or something like that. As you think about this change in the fraud prevention environment, what is the top of your priority list of guidance for those who receive federal grant funds to actually deliver beneficiary services?

Michael Anderson I think what I would emphasize to those entities is obviously be honest in what is being requested of the government, be knowledgeable about the rules that apply. Doing things the right way initially is the best way to avoid government problems or government enforcement. I would say secondarily, be prepared. Right have written compliance policies. Follow them. That means implementing audit processes if those are appropriate. It means implementing your own data analytics to ensure that money is spent appropriately. It means having internal controls to ensure expenses are proper. And then use those tools to identify and take seriously any potential issues that arise. If those issues do arise and they’re investigated, make sure everything is documented along the way, thinking always about how the recipient of federal dollars or provider of services to federal beneficiaries is going to be able to explain what has happened or what is being done to those in government that are scrutinizing very carefully.

Terry Gerton Does this change the role of these recipient organizations, leaders or boards? Do they need to get more involved or is this really a program manager, finance officer problem?

Michael Anderson That’s really up to how the company wants to run its operations. I think from an enforcement perspective, anyone who is involved in these programs would be subject potentially to government enforcement efforts. They always have been. The real question is how the company wants to run its operation. Does the CEO really have the time and the bandwidth to monitor these programs in compliance with the requirements or is that better delegated to someone with some expertise in that area who might have a designated role and therefore the time to deal with it? So I would defer to how the companies prefer to run those operations.

Terry Gerton You talked a minute ago about what I might call good grant management hygiene. But folks maybe have been grant recipients for a long time. They’ve always done it this way. Are there things that look like they’re compliant that maybe ought to raise red flags in this new environment?

Michael Anderson I don’t think there’s one or two things that would look compliant that may raise red flags. Again, I think the key is to ensure, given the heightened government scrutiny, the key is to insure that compliance policies and plans are in place, things are documented appropriately, and any money that is received from the government or claimed from the government or spent on behalf of the government, that it can be explained to a government investigator sitting across the table asking tough questions. If those boxes are checked, odds are the recipient is going to find themselves on the right side of any kind of inquiry or enforcement action. If those boxes are not checked, it’s going to be much more difficult.

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Terry Gerton Are there behaviors or trends that you’d be telling these organizations to be watching over the next three to six months to see which direction this enforcement is actually going to take?

Michael Anderson I think looking for public press releases from the government about the enforcement actions that it’s taking is a great way to understand where this is headed. Again, I think the focus is going to be primarily on state or third party administered federal programs where the government historically has not had a lot of oversight. But time will tell. And the government’s public press release is about indictments, about False Claims Act complaints, about resolutions — that’s a great way for companies to monitor where things are heading and how things are progressing.

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