False Claims Act Goes To College Higher Education And Blowing The Whistle On Government Fraud At Universities
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False Claim Act Impacts Higher Education And Blows Whistle On Government Fraud At Universities

Nearly 50 years ago Congress passed the Higher Education Act of 1965, which bans colleges, universities and other higher-education institutions from using incentive-based systems for paying recruiters and admissions personnel. According to the Government Accountability Office, this Act is intended to “eliminate abusive recruiting practices” – in other words, recruiting students to the institution whether they are qualified or not so that the institution can receive student-aid money.

In the last decade more than a dozen False Claims Act lawsuits have been brought against for-profit universities, like the 2007 lawsuit against Education Management Corp., which operates more than 100 campuses throughout the United States. That lawsuit alleged the institution defrauded the government of approximately $11 billion since 2003. The Education Management case was one of the first where government lawyers chose to prosecute the case themselves. In prior cases, such as the University of Phoenix which settled with an agreement involving more than $67 million to be repaid to the government, the government had declined to intervene. In both of these cases it was university employees that blew the whistle on the federal student loan fraud and received millions of dollars in finder’s fees for bringing the case on behalf of the government.

The wave of recent False Claims Act lawsuits against higher-education institutions have mostly involved recruiting practices and mostly focused on for-profit institutions. The lawsuits against Education Management and Phoenix claimed the institutions violated the Higher Education Act by illegally using incentive-based pay for its admissions staff. However, the federal laws protecting against government fraud are not limited to recruitment practices or just to for-profit institutions.

Higher-Education Whistleblower Claims

Incentivizing recruiting is only one of several types of higher education false claims actions that may be brought by whistleblowers; in fact, any falsification in a program involving federal funding potentially can invite a False Claims Act lawsuit. For example, Title IV of the Higher Education Act ensures that students have access to higher-education institutions through grants and financial programs such as Pell Grants and the Federal Family Educational Loan (FFEL) program. To be eligible to receive federal student funding under Title IV, higher-education institutions must fulfill certain requirements like entering into a Program Participation Agreement (PPA) and either be accredited or pre-accredited by an agency approved by the Secretary of Education.

Further, grant monies from federal agencies also play a big role in the research being conducted in colleges and universities. Agencies often award research grants to institutions that will conduct research into areas or topics that interest the agency. To ensure the institution begins or continues to receive federal grants or student funding, there is an incentive to lie; whether that be about accreditation or the subject of the research to be conducted – both of which are fraudulent acts. If an institution knows that it does not comply and yet still promises compliance, each of these areas can potentially give rise to a whistleblower false claim action against the university.

Research institutions in particular depend heavily on university research grants from agencies like the National Institutes of Health, the Department of Energy, the Department of Transportation or the Department of Defense, just to name a few. When university grant recipients knowingly lie about the research they are conducting or the results they are getting, the grant money becomes tainted. For those that are pursuing an education and a career dependent on these programs, the risk of coming forward can be very high. That is why the qui tam provisions of the False Claims Act were designed to reward and protect whistleblowers who would take such high risks. Whistleblowers who come forward to expose higher education fraud on the government may be entitled to recover a finder’s fee as a portion of the amount the government recovers.

Title IV of the Higher Education Act (HEA) was enacted to benefit students by providing them with access to education through grants and financial aid programs. See 20 USC § 1070. The Secretary of Education is charged with creating programs to carry out the purposes of the HEA. Id. § 1070(b). These programs include the federal Pell Grants, the Family Educational Loan (FFEL) program, the William D. Ford Federal Direct Loan Program and the federal Perkins Loan Program. 20 USC §§ 1070a, 1071-1087, 1087a-j, 1087aa-ii respectively. For an institution of higher education to be eligible to receive federal student funding, the institution must enter into a Program Participation Agreement (PPA) with the Secretary of Education. 34 CFR § 668.14(a)(1). The PPA “conditions the initial and continued participation of an eligible institution in any Title IV, HEA program upon compliance with the provisions of this part, the individual program regulations, and any additional conditions specified in the [PPA] that the Secretary requires the institution to meet.” Id.

In addition to PPAs, an institution of higher education must also be accredited or pre-accredited in order to qualify for federal student assistance funding. 34 CFR § 600.4(a)(5). While the federal government does not accredit institutions of higher education, the Secretary of Education is responsible for establishing the criteria under which accrediting agencies operate. 20 USC § 1099B. In addition, the Secretary must publish a list of nationally recognized accrediting agencies that the Secretary has deemed to be reliable authorities.

Subpart F of Part 668 of the federal regulations regarding the general provisions of student assistance deal specifically with misrepresentation. An eligible institution is “deemed to have engaged in substantial misrepresentation when the institution itself, one of its representatives, or any ineligible institution, organization, or person with whom the eligible institution has an agreement to provide educational programs, marketing, advertising, recruiting or admissions services, makes a substantial misrepresentation regarding the eligible institution, including the nature of its educational program, its financial charges, or the employability of its graduates.” 34 CFR § 668.71(b); 20 USC § 1094(c)(H)(3)(a)-(b).

Regarding financial charges, the regulations state that a “[m]isrepresentation concerning the nature of an eligible institution’s financial charges includes, but is not limited to, false, erroneous, or misleading statements concerning . . . (b) whether a particular charge is the customary charge at the institution for a course.” 34 CFR § 668.73; 20 USC § 1094. The regulations define a substantial misrepresentation as “[a]ny misrepresentation on which the person to whom it is made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.” 34 CFR § 668.71(c).

If the Secretary of Education determines that an eligible institution has engaged in substantial misrepresentation, as described above, the Secretary has the authority to “(1) revoke the eligible institution’s program participation agreement; (2) impose limitations on the institution’s participation in the title IV, HEA programs; (3) deny participation applications made on behalf of the institutions; or (4) initiate a proceeding against the eligible institution under subpart G of this part.” 34 CFR § 668.71(a).

How the Federal False Claims Act Works

The False Claims Act (FCA) is a civil statute that provides for damages and penalties for the knowing submission of false and/or fraudulent claims to the government for payment. The False Claims Act provides that any person who knowingly submits a false or fraudulent claim to the Federal Government for payment or approval is liable to the government for a civil penalty of not less than $5,500 and not more than $11,000 for each claim, plus three times the actual damages that the government sustained. 31 USC § 3729(a). A university or other recipient of taxpayer money acts knowingly when it has actual knowledge of the information, acts in deliberate ignorance of the truth or falsity of the information, or acts in reckless disregard of the truth or falsity of the information. The FCA also permits assessment of the civil penalty even without proof of specific damages. Id. § 3729(b)(1).

In the context of higher education university student loan funding, the act of applying, renewing, and/or certifying compliance with the statutes and regulations required for participation in an institution’s Program Participation Agreement, as well as the representations made to accrediting agencies as authorized by the Secretary of Education, are a precondition to a defendant’s receipt of federal funds under Title IV.

Rewarding Risk Taking and Protecting Whistleblowers

Federal government lawyers did not initiate the Education Management Corp. lawsuit; a former admissions worker at Education Management brought it on behalf of the government under the False Claims Act (the federal government and other governments like the state of Minnesota later intervened in the case). Because it is nearly impossible for the government to catch all instances of fraud, the False Claims Act encourages employees and other knowledgeable people to “blow the whistle” on schemes that defraud the government. To do so, people with knowledge of fraud file lawsuits, known as qui tam lawsuits, on behalf of the government against universities or companies allegedly committing fraud against the government.

If the lawsuit is successful, the whistleblower may be eligible to receive a percentage of the government’s monetary recovery. If the government intervenes in the case, the whistleblower may receive between 15 and 25 percent of the recovery; if the government declines to intervene, the whistleblower may receive between 25 and 30 percent.

Further, the False Claims Act protects employees from retaliation – such as demotion, harassment or firing – by their employers for bringing forth qui tam lawsuits. Employees that are retaliated against may receive their job back, compensation or other damages. The laws recognize that the stakes are high and that strong protections and personal rewards are the only way to get employee whistleblowers to come forward.

Incentive-based recruiting, misleading federal agencies about the research being conducted or eligibility to receive student funding are just a few examples of the many, many ways universities and government contractor companies are defrauding the taxpayers paying for our government. If you believe your employer is actively committing fraud against the government, speak with an attorney about blowing the whistle.