What Is Government Fraud and How Does It Affect Your Organization?

False Claims Act liability attaches to any claim for payment submitted to the federal government, including Medicare and Medicaid billings, defense contracts, grant applications, and loan guarantees. Criminal fraud statutes, such as 18 U.S.C. Section 1031 (fraud involving federal programs), reach conduct that causes direct loss to government agencies or programs. State-level fraud statutes often mirror federal definitions but may apply to state and local contracting, licensing, and benefit programs. From a practitioner's perspective, the distinction between civil and criminal exposure matters significantly because civil discovery and burden of proof differ, yet both can arise from the same underlying facts.

The False Claims Act requires proof that a claim was submitted knowingly, a standard that includes actual knowledge, deliberate ignorance, and reckless disregard for truth or falsity. Honest mistakes, even material ones, do not trigger liability if the submitter exercised reasonable care to verify information. Courts and agencies examine the organization's compliance procedures, training, and internal controls to assess whether misconduct was deliberate or negligent. In practice, organizations with documented compliance efforts and prompt correction mechanisms often face reduced exposure or settlement leverage compared to those lacking systematic oversight.

When a whistleblower initiates a qui tam action, the complaint is filed under seal, and the government has 60 days to investigate and decide whether to intervene and take control of the litigation. If the government declines to intervene, the whistleblower may proceed independently. If the government joins, it typically leads the case, though the relator (whistleblower) remains a party and entitled to a percentage recovery. Organizations often discover these claims only when the seal is lifted or when government investigators appear; early detection through internal audit or compliance review can allow for voluntary disclosure and negotiated resolution before formal litigation.

Yes. Criminal fraud statutes operate independently of the False Claims Act, and the same conduct may trigger both civil recovery and criminal prosecution. Criminal liability typically requires proof of intent to defraud and scienter (guilty knowledge), whereas civil False Claims Act liability uses the broader knowingly standard. A federal district court or state court may handle criminal charges while civil claims proceed in parallel, creating significant management and legal strategy challenges. Organizations should evaluate parallel proceedings carefully, as statements made in civil discovery may be used in criminal proceedings unless protective orders are negotiated.

Effective compliance programs include written policies defining accurate billing and reporting, training for employees and contractors on fraud prohibitions, internal audit procedures to test transactions and documentation, and mechanisms for reporting suspected misconduct without retaliation. The Office of Inspector General and Department of Justice have published compliance guidance for specific industries, such as healthcare (OIG Compliance Program Guidance) and federal contractors (FAR Part 48 Integrity and Compliance). Organizations that implement documented compliance efforts and promptly investigate and correct identified issues often negotiate lower penalties or civil settlements, and may qualify for reduced criminal exposure if voluntary disclosure occurs before external investigation.

New York State Medicaid Fraud Control Unit and the New York Attorney General's office coordinate with federal agencies on investigations involving state and federal programs. A case brought in New York State Supreme Court or federal court in the Southern District of New York may involve parallel state and federal claims; timing and notice requirements differ between jurisdictions, and delayed documentation of fraudulent transactions can complicate proof of damages if the statute of limitations for civil claims approaches. Organizations should maintain contemporaneous records of all government submissions and promptly notify counsel if discrepancies or potential compliance failures are discovered, as the timing of voluntary disclosure can significantly affect negotiation outcomes.

Prompt internal investigation, engagement of experienced counsel, and careful documentation of findings and corrective actions form the foundation of a defensible response. Organizations should preserve all relevant communications, transaction records, and compliance documentation before external investigation begins. Evaluate whether voluntary disclosure to the relevant inspector general or agency counsel is advisable based on the scope of exposure and likelihood of external detection. Establish a clear timeline for remediation, including policy revisions, employee retraining, and system improvements, and document each step in writing. These concrete measures create a record that supports negotiation of civil settlements or reduced criminal penalties, and demonstrate organizational commitment to compliance for future contract eligibility and regulatory standing.