Jonathan C. Martin ( firstname.lastname@example.org) is a 2017 graduate of The George Washington University Law School and a member of the Public Contract Law Journal. He wishes to thank The Honorable Jeri K. Somers, Bryan M. Byrd, John P. Fletcher, and Viviana Lowe for their insight and encouragement throughout the creation of this Note.
The typical case of fraud against the federal government involves a relatively small dollar amount per false assertion or claim.1 Federal agencies often investigate and present these cases to the Department of Justice (DoJ), but the DoJ ultimately brings no formal proceedings against the wrongdoer.2 For example, a contractor once allegedly defrauded ten military bases by wrongfully inflating prices on each of the ten contracts: a total alleged fraud of $50,000.3 However, “no single base was defrauded for more than $6,000.”4 The Department of Defense (DoD) developed the case, and each military base presented its own allegation of fraud to a separate U.S. Attorney’s office, each of which declined to move forward because of the minimal dollar amount associated with each case.5 Around the same time period, a contractor intentionally overbilled the Naval Investigative Service on a “base maintenance contract” for a total amount the Navy suspected exceeded $600,000.6 Evidentiary issues forced the Navy to pursue criminal charges on only $25,000 of the false claims, and the DoJ again declined to prosecute the contractor because of the “low dollar amount involved.”7
Historically, many agency allegations of “small-dollar fraud” met similar fates — leaving the wrongdoer free of consequences and the agency without the means to recover its loss.8 By the early 1980s, however, Congress became well aware that instances of small-dollar fraud not only caused the government significant monetary losses9 but also “erod[ed] public confidence in the administration of [federal] programs.”10 In response, Congress enacted the Program Fraud Civil Remedies Act of 1986 (PFCRA)11 “to provide [de- frauded] agencies . . . with an administrative remedy to recompense . . . losses resulting from such [small-dollar false] claims and statements.”12 Congress believed PFCRA’s authorization for federal agencies to impose civil penalties would provide them with an effective and efficient tool by which to recover misappropriated government funds.13 Because widespread small-dollar fraud can result in substantial aggregate depletion of agency resources,14 Congress’s encouragement for agencies to use PFCRA’s mechanisms became critical.
Since its enactment in 1986, however, agencies only nominally use PFCRA’s mechanisms.15 Thus, the Act has almost entirely failed in its purpose of combating small-dollar fraud.16 PFCRA’s primary defect lies in its express requirement for all penalties recovered under PFCRA to be returned to the U.S. Treasury as “miscellaneous receipts.”17 In essence, this provision requires agencies to pay all legal costs associated with a PFCRA action without the opportunity to remedy losses incurred due to the fraud.18
Congress should amend the statute to allow federal agencies to apply penalties recovered under PFCRA to actual losses resulting from the fraud — with any surplus applied to investigation and litigation costs. Congress should further permit an agency to deposit any remaining penalties in excess of the actual loss and legal expenses into its respective “revolving PFCRA fund,” which would be used solely to fund future PFCRA investigations. These measures would provide agencies with an incentive to use PFCRA’s mechanisms to recover misappropriated government funds.
Furthermore, Congress should eliminate the procedural roadblocks associated with PFCRA actions. Each PFCRA action requires the DoJ’s approval19 and must be adjudicated by an administrative law judge (ALJ).20 These requirements serve as procedural roadblocks21 and work contrary to Congress’s intent for a PFCRA action to be more efficient than a traditional action in federal court.22 To resolve PFCRA’s inefficient procedural burdens, Congress should eliminate the DoJ approval requirement and place exclusive jurisdiction of all PFCRA claims in the boards of contract appeals (BCAs).23 These modifications would allow for quick and efficient adjudications of PFCRA actions.
Part I of this Note will detail the reasons why PFCRA has failed to serve as an effective tool for combating small-dollar fraud. It will next explain how providing agencies with a financial incentive to use PFCRA and reducing the procedural burdens of PFCRA actions can remedy this failure. Part II describes the PFCRA’s legislative history and purpose. Part III provides an overview of PFCRA’s statutory framework and explains its potential as an effective tool to combat small-dollar fraud. Part IV details federal agencies’ historical underutilization of the PFCRA and the reasons for its underuse. Finally, Part V shows how Congress can revive PFCRA as a formidable weapon against small-dollar fraud by amending the statute to permit agencies to retain penalties recovered under PFCRA and placing exclusive jurisdiction of PFCRA actions in the BCAs.
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