Academic journal article Texas Law Review

Fraud on the Classroom: Why State False Claims Acts Are Not the Solution to All Fraud on State and Local Governments*

Academic journal article Texas Law Review

Fraud on the Classroom: Why State False Claims Acts Are Not the Solution to All Fraud on State and Local Governments*

Article excerpt

Introduction

In his memoirs Benjamin Franklin wrote "there is no kind of dishonesty, into which otherwise good people more easily and frequently fall, than that of defrauding [the] government."1 Although Franklin penned this in the nineteenth century, if the billions of dollars recovered under false claims acts over the past five years are any indication, the statement still resonates today. In fact, in light of the modern prevalence of fraud in public-education data reporting-ranging from altered attendance rosters to erased answers- Franklin might have penned instead that "there is no kind of dishonesty into which otherwise good educators more easily and frequently fall than that of defrauding the government."

This Note explores the development and the effectiveness of state false claims acts as tools to combat fraud on state and local governments, concentrating on their usefulness in the context of fraud in public-education data reporting. Part I of this Note will examine the growth in the enactment of state false claims acts as a result of the success of the federal False Claims Act (FCA) and the Deficit Reduction Act of 2005. Part II focuses on how the qui tam structure of false claims acts encourages fraud reporting, scholarship about which regulatory mechanisms best promote whistleblowing, and other factors influencing the effectiveness of monetary rewards. Part III begins by surveying the prevalence of fraud in public-education data reporting and then evaluates the ability of state false claims acts to combat this type of fraud on state governments and their political subdivisions, concluding that this application demonstrates that state false claims acts are not equally effective at addressing all types of fraudulent behavior.

I. Growth of the State False Claims Acts

Since 2009, the federal government has recovered $17 billion in judgments and settlements under the civil False Claims Act.2 The success of the FCA, along with legislative incentives, has prompted over 50% of states to enact their own general- or limited-purpose false claims acts.3 In this Note, a general-purpose false claims act is defined as one that is coterminous with the FCA, while a limited-purpose false claims act is limited in scope to a particular type of fraud, such as healthcare or Medicaid funds only. This Part surveys the FCA and then catalogs the growth of state and local false claims acts.

A. Overview of the Federal False Claims Act

The FCA was originally enacted in 1863 to help fight defense-contractor fraud during the Civil War.4 Generally, the FCA creates civil liability for "persons" who knowingly present a false or fraudulent claim for payment to the government or knowingly make a false statement that is material to a false or fraudulent claim for payment to the government.5 Liability also exists for, inter alia, a reverse false claim: making a false or fraudulent statement to reduce an obligation to pay money to the government.6 The most common sectors for recoveries under the FCA are in connection to defense procurement and health-care fraud.7 However, cases are not uncommon in other areas of federal activity, including higher education and the financial2. services industry.8 Suits cannot be filed under the FCA against states because they are not considered "persons" under the statute,9 but suits can be filed against incorporated municipalities on behalf of the federal government.10 Some lower courts that have addressed whether school districts and charter schools can be subject to suit under the FCA have found that they are "persons," like municipal governments and are not protected by sovereign immunity.11

A suit under the FCA can be initiated by the Attorney General or by a private citizen on behalf of the government.12 When a suit is brought by a private citizen, the suit is known as a qui tam action and the private citizen who files the suit is known as a relator.13 Qui tam actions began in England in the thirteenth century to allow any individual to enforce any law by bringing suit against other private citizens. …

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