Hurricane Relief Contractors Can Expect More Fraud Scrutiny

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By Daniel Seiden

For all of the government’s missteps in the Hurricane Katrina recovery effort, it got one thing right — preparation for fraud that follows federal money.

Not a month had passed before the Justice Department established a task force, which relied, in part, on the False Claims Act to deter and punish recovery contract fraud.

As billions of Hurricane Harvey recovery dollars make their way to Houston, the government and whistle-blowers again will likely rely on the FCA to combat fraud by eventual contract awardees and others.

President Donald Trump on Sept. 8 signed into law a plan to spend $15 billion on the Hurricane Harvey recovery; the recovery from Hurricane Irma will likely require a similar financial commitment.

“It is certainly true that fraudsters follow the money, and fraudsters in the past have seen opportunities where government spending must happen quickly in order to help people in desperate need when resources are limited,” Anne Hartman of whistle-blower law firm Constantine Cannon in San Francisco told Bloomberg BNA.

Whistle-blowers can play a critical role here, and may pursue an FCA case even if they have already reported fraud to the Federal Emergency Management Agency or another federal body, she said.

“Any time there is a significant disbursement of federal funds following a natural disaster, there is the very real possibility of an uptick in civil actions alleging violations of the False Claims Act and criminal actions alleging various types of fraudulent activity,” Matt Curley, a member at Bass, Berry & Sims PLC in Nashville, Tenn., told Bloomberg BNA.

Exaggerated Certifications

Contractors that receive federal recovery contracts must be mindful of the requirements that are often attached to receipt of funds, including providing the government with ongoing certifications, Curley said.

They “should expect heightened scrutiny and should take proactive steps to ensure compliance with the obligations and requirements associated with the receipt of those funds, which may include ensuring accurate documentation of the work performed,” he said.

Contractors may run afoul of the FCA by “providing false and exaggerated certifications,” said Lisa Rivera, another member at Bass Berry, and a former assistant U.S. Attorney.

“Photographs and other forms of documentation are important to gather and maintain” if the government, perhaps years later, investigates whether a contractor followed through with its certifications, said Rivera, who has prosecuted fraud cases following hurricane relief efforts.

Claims and Crimes

Numerous false claims complaints were filed in Louisiana and elsewhere following Katrina — with various levels of success.

Fluor Enterprises Inc., Shaw Group Inc., and State Farm Fire and Casualty Co. have faced Katrina-related FCA cases. State Farm, which pursued an FCA dispute to the Supreme Court, is still defending claims, with trial scheduled for 2019.

The government recovered more than $5 million from a company that didn’t adequately perform its contract to construct and operate a base camp in New Orleans in U.S. v. Lighthouse Disaster Relief et al., a 2010 task force report said.

“Through the end of Fiscal Year 2011, 47 United States Attorney’s Offices across the country charged 1,439 people in 1,350 cases with various fraud-related crimes stemming just from Hurricanes Katrina and Rita,” a 2011 report said.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bna.com

To contact the editor responsible for this story: Daniel Ennis at dennis@bna.com

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