B-239597 January 23, 1991

B-239597 January 23, 1991

DIGEST

Date: January 23, 1991 To: Evaluator-in-Charge, AFMD/FMS & AO - Johnny Bowen Thru: Assistant General Coup, OGC/AFMD - Jeffrey A. Jacobson From: Attorney Advisor, OGC/AFMD - Helen T. Desaulniers

Subject: Legal Issues Related to the Program Fraud Civil Remedies Act of 1986 (B-239597; Code 911654)

This responds to your request for our analysis of several issues identified during your review of the Program Fraud Civil Remedies Act of 1986. Senators Roth and Cohen requested that GAO review how the act has been implemented, the benefits that have been achieved, and whether additional remedies are needed to reduce small dollar program fraud.

BACKGROUND

The Program Fraud Civil Remedies Act of 1986 ("act"), Pub. L. No. 99-509, Title VI, 100 Stat. 1934 (1986) (31 U.S.C. Sec.(s) 3801-3812 (1988)), establishes an administrative process for agency resolution of small dollar fraud cases that the Department of Justice declines to litigate under criminal and civil statutes prohibiting false claims and statements. Following the proposal of bills similar to the act in previous Congresses, Senators Roth and Cohen, among others, introduced S. 1134, the Program Fraud Civil Remedies Act of 1986, in the 99th Congress. The Senate included and Congress passed a modification of S. 1134 as part of Title VI of the Omnibus Budget Reconciliation Act of 1986.

DISCUSSION

Jurisdictional Limit

You asked whether the act limits the total amount recoverable, the amount of false claims subject to the act's administrative remedies, or something else. For the reasons stated below, we conclude that the act's $150,000 limit is jurisdictional: agencies may not apply the act's administrative remedies to false claim cases involving amounts greater than $150,000.

The only reference to a $150,000 limit in the act is at 31 U.S.C. Sec. 3803. Under section 3803, an "investigating official" investigates allegations that a person is liable under the act and reports the findings and conclusions of such investigation to a "reviewing official." 31 U.S.C. Sec. 3803(a)(1). If the "reviewing official" determines that there is "adequate evidence" to believe that the person is liable, the official reports to the Attorney General the intention to refer the case to a "presiding officer" for an administrative adjudication of liability. 31 U.S.C. Sec. 3803(a)(2). The "reviewing official" may only refer a case to a "presiding officer" with the Attorney General's approval. 31 U.S.C. Sec. 3803(b).

The act specifically prohibits the "reviewing official" from referring to a "presiding officer" false claim cases involving money, property, or services with a value in excess of $150,000. 31 U.S.C. Sec. 3803(c)(1). Therefore, under section 3803, an agency cannot determine liability and impose penalties in false claim cases involving amounts greater than $150,000.

In contrast, the act does not limit an agency's recovery to $150,000. Section 3802(a)(1) prescribes the penalties for false claims adjudicated under section 3803. /1/ An individual liable for a false claim is subject to a penalty of not more than $5,000 for each claim and an assessment of not more than twice the amount of such claim, or portion of the claim determined to be in violation of the act. /2/ Therefore, an agency could recover up to $305,000 from an individual liable for a raise claim of $150,000: a penalty of up to $5,000 for the false claim plus an assessment of up to $300,000, or double the amount falsely claimed and paid.

The legislative history of the act supports our view that the $150,000 limit is only jurisdictional. The report on S. 1134 by the Senate Committee on Governmental Affairs refers to the monetary limit as a "jurisdictional cap" or "threshold." /3/ The Committee stated that

While the cap does not preclude the Justice Department from asserting jurisdiction over cases under the threshold, it does preclude the administrative adjudication of cases involving a claim or group of claims submitted together where the loss or false amount exceeds $100,000, which the Committee believes should be prosecuted in court.

S. Rep. No. 212, 99th Cong., 1st Sess. 24 (1985). Further, contrasting the monetary limit with the limits on the penalties and assessments available under the act, the Committee noted that

In determining whether or not the $100,000 cap is exceeded, the amount claimed in violation of the Act is controlling, e.g., the amount falsely claimed for work not performed or the amount by which the claim was fraudulently inflated. . . . [T]he ceiling is . . . calculated according to the amount that is alleged to have been sought in violation of the [a]ct. The 'additurs' (the possible assessment of up to $10,000 as a civil penalty and up to twice that amount falsely claimed) are excluded from the calculation of the ceiling.

Id. at 25.

Considering the Omnibus Budget Reconciliation Act of 1986, House and Senate conferees modified both the jurisdictional limit and the penalty provisions contained in S. 1134. However, like the Senate Committee on Governmental Affairs, the conferees indicated no correlation between the act's $150,000 limit and the total amount recoverable for a false claim. For example, the Conference Report states that the conferees agreed to "raise the jurisdictional cap from $100,000 to $150,000 under which an agency may initiate administrative action," and to lower the "maximum penalty" under the act from $10,000 to $5,000 (emphasis added). H.R. Conf. Rep. No. 1012, 99th Cong., 2d Sess. 259, reprinted in 1986 U.S. Code Cong. & Admin. News 3868, 3904.

Investigating and Reviewing Officials

You asked whether the Departments of the Air Force, Health and Human Services, and Housing and Urban Development have designated "investigating" and "reviewing officials" consistent with the act. We conclude that the arrangements at these agencies do not violate the act. Although the arrangements are not ideal, we cannot object to them on legal grounds merely because we would prefer different designations.

The act does not allow agencies unlimited discretion to designate "investigating" and "reviewing officials." In agencies in which an Office of Inspector General is established, the "investigating official" is the Inspector General or an officer or employee of the Office designated by the Inspector General. 31 U.S.C. Sec. 3801(a)(4). For each of the military departments, the "investigating official" is the Inspector General of the Department of Defense, or his designee. Id. Section 3801(a)(8) further limits agency discretion by prohibiting the "reviewing official" from being subject to supervision by, required to report to, or employed in the same unit as, the "investigating official."

The "investigating official" for the Department of the Air Force is located in the Office of Inspector General of the Department of Defense and the "reviewing official" in the Office of Inspector General of the Air Force, a discrete unit. At the Departments of Housing and Urban Development and Health and Human Services, the "investigating officials" are located in the Office of Inspector General and the "reviewing officials" in the Office of General Counsel. /4/ As the "investigating" and "reviewing officials" are not employed in the same units, the arrangements at the three agencies present the same issue: whether the "reviewing officials" are improperly subject to supervision by, or required to report to, the "investigating officials."

The act does not define "supervision" or offer uidance allowing a precise delineation of the permissible relationship between the "reviewing" and "investigating officials." However, the legislative history of the act establishes that the prohibition against the "reviewing official" being subject to supervision by the "investigating official" was designed to ensure that the "reviewing official" would exercise independent judgement. In its report on S. 2706, the Omnibus Budget Reconciliation Act of 1986, the Senate Committee on Governmental Affairs stated

[A] typical case would begin with an investigation conducted by the agency's investigating official, usually the Inspector General. The IG's findings would be transmitted to the agency's reviewing official, who would independently evaluate the allegations to determine whether there is adequate evidence to believe that a false claim or statement has been submitted.

S. Rep. No. 348, 99th Cong., 2d. Sess. 169 (1986). In its earlier report on S. 1134, the Senate Committee on Governmental Affairs also discussed the relative roles of the "investigating" and "reviewing officials," stating

To ensure independent prosecutorial review, the bill prohibits the reviewing official from (1) being supervised by, or required to report to, the investigating official, and (2) being employed in the investigating official's office. The Committee intends that the reviewing official will provide an objective assessment of the evidence, free from any possible 'prosecutorial bias,' to screen the meritorious civil fraud cases from those that lack merit.

S. Rep. No. 212, 99th Cong., 1st Sess. 12 1985).

Therefore, we believe the type of relationship the act prohibits is one where the "investigating official" controls the "reviewing official" or obstructs the official's ability to evaluate independently evidence of liability under the act. Although the act prohibits the "investigating official" from supervising the "reviewing official," we do not believe the act prohibits other types of close working relationships, i.e., those in which the "investigating official" would not interfere with the "reviewing official's" exercise of independent judgement.

Department of the Air Force

The "investigating official" for the Department of the Air Force (Air Force) is the Assistant Inspector General of the Department of Defense. The Deputy Inspector General of the Air Force serves as the "reviewing official" and the Office of General Counsel provides advice to the "reviewing official" as necessary. In addition, the Air Force's Office of Special Investigations reports information concerning fraud cases to the "investigating official" for consideration. /5/

We have no basis for objecting to the Air Force's designation of "investigating" and "reviewing officials." The Air Force's designation of the Assistant Inspector General of the Department of Defense as "investigating official" is consistent with the act. The designation of its Deputy Inspector General as the "reviewing official" is not inconsistent with the act. The Inspector General of the Department of Defense has general oversight authority but does not directly supervise the Inspector General of the Air Force under the Inspector General Act of 1978, as amended. See 5 U.S.C. App. (1988). Thus, the "reviewing official" for the Air Force is neither subject to supervision by, nor required to report to, the "investigating official."

Department of Health and Human Services

The "investigating official" for the Department of Health and Human Services (HHS) is the Assistant Inspector General for Civil and Administrative Remedies. The Associate General Counsel for the Inspector General Division serves as the "reviewing official." The Associate General Counsel advises HHS's Inspector General on legal issues arising in the context of the Inspector General's audits and investigations and may opt to use the title "Chief Counsel to the Inspector General." Therefore, HHS's "reviewing official" actually has two roles: counsellor to the Inspector General and "reviewing official" under the act.

A Memorandum of Understanding dated April 20, 1990, defined the relationship between the Associate General Counsel and the Inspector General. According to the memorandum, the Associate General Counsel works under the general supervision of the General Counsel. However, he may not be transferred, reassigned, provided additional duties, or terminated without the concurrence of the Inspector General. Further, the General Counsel must execute the Associate General Counsel's position description, performance plan, and goals with the concurrence of the Inspector General. Finally, the General Counsel must seek the views of the Inspector General in evaluating the Associate General Counsel's performance and consult the Inspector General annually with respect to whether to award the Associate General Counsel a bonus. On July 18, 1990, the General Counsel and the Inspector General executed an addendum to the Memorandum of Understanding. The addendum states that the Associate General Counsel is supervised solely by and reports solely to the General Counsel. It further provides that, with respect to his role as "reviewing official," the duties, performance, and tenure of the Associate General Counsel shall not be subject to concurrence, non-concurrence, consultation, or other expression of views by the Inspector General.

The arrangement at HHS does not violate the specific terms of the act. Under the July 18, 1990, addendum, the Inspector General exercises no supervisory authority over the Associate General Counsel to the extent that he functions as the "reviewing official." Further, by delegations of authority, the Inspector General is not the "investigating official." Rather, the "investigating official" is an Assistant Inspector General, a subordinate of the Inspector General who exercises no supervisory authority over the Associate General Counsel. /6/

Moreover, the relationship between the Associate General Counsel and the Inspector General does not violate the act in substance. As an attorney, the Associate General Counsel performs various duties for his clients, the Inspector General and his staff. Although the Associate General Counsel works for the Inspector General to the extent that he carries out his duties for the Inspector General's benefit, the Associate General Counsel is not the Inspector General's subordinate. The Inspector General does not control the Associate General Counsel or prescribe how the Associate General Counsel must carry out his duties.

Under the July 18, 1990, addendum to The earlier memorandum, the General Counsel shall not solicit and consider the views of the Inspector General in making decisions regarding the Associate General Counsel as "reviewing official." However, the addendum confirms that the General Counsel may not exercise several prerogatives with respect to the Associate General Counsel as "Chief Counsel to the Inspector General" without the Inspector General's concurrence. We have no legal objection to the Inspector General's role in the assignment, retention, and evaluation of the Associate General Counsel. Reserving such a role for the Inspector General promotes a constructive working relationship between the Inspector General and his chief attorney.

While HHS has complied with the law, the Associate General Counsel's relationship with the Inspector General could be perceived as impairing his ability to evaluate independently cases investigated by the Office of Inspector General. You may wish to argue that, due to the relationship between the Associate General Counsel for the Inspector General Division and the Inspector General, HHS's designation of that Associate General Counsel as "reviewing official" was inappropriate as a matter of policy.

Department of Housing and Urban Development

The "investigating official" for the Department of Housing and Urban Development (HUD) is the Inspector General. The Associate General Counsel specifically charged with responsibility for a wide range of program enforcement issues within the Office of General Counsel serves as HUD's "reviewing official." Like his counterpart at HHS, that Associate General Counsel also advises HUD's Inspector General.

The relationship between the "investigating" and "reviewing officials" at HUD, like that at HHS, does not violate the terms of the act. As an employee of the Office of General Counsel, the "reviewing official" is supervised by, and reports to, the General Counsel rather than to the Inspector General. /7/ Further, as our discussion of HHS suggests, the Associate General Counsel's position as counsellor to the Inspector General does not impair his ability to evaluate independently the findings and conclusions presented to him as "reviewing official." Like his counterpart at HHS, the Associate General Counsel at HUD functions as an attorney for the Inspector General rather than as the Inspector General's subordinate.

Moreover, as a practical matter, the Associate General Counsel is unlikely to advise the Inspector General on a matter and subsequently address the same matter as the "reviewing official." The Associate General Counsel does not have sole responsibility for advising the Inspector General on program enforcement issues. Rather, the Associate General Counsel's staff and the attorneys responsible for particular program areas also provide legal assistance to the Inspector General. In addition, the Associate General Counsel's role as "reviewing official" is narrow in scope. The "reviewing official" determines only whether the findings and conclusions of the "investigating official" present adequate evidence of liability under the act. As the act essentially provides an administrative action for fraud, the "reviewing official" is restricted to determining whether or not adequate evidence of a false claim or statement exists. 31 U.S.C. Sec. 3803(a)(2).

Other Questions

During our meeting of September 27, 1990, you asked whether the arrangements at HUD, HHS, or the Air Force pose any legal problem in light of a defendant's right to appeal the "presiding officer's" decision to the "authority head" under 31 U.S.C. Sec. 3803(i)(2).

Hearings under the act are to be conducted under the provisions of the Administrative Procedure Act (APA), 5 U.S.C. Secs. 551 et seq., and the heads of agencies not subject to the APA are to promulgate procedures similar to those found in the APA. 31 U.S.C. Sec. 3803(g)(1), (2). Under the APA and the analogous provisions of the act, officials engaged in investigating or prosecuting functions, i.e., the "investigating" and "reviewing officials," shall not participate or advise in the decision of the "presiding officer" or the "authority head's" review of that decision. 5 U.S.C. Sec. 554(d); 31 U.S.C. Sec. 3803(g)(2)(D). These provisions are designed to ensure fair proceedings by preventing one individual from effectively functioning both as prosecutor and judge. See S. Rep. No. 212, 99th Cong., 1st Sess. 33 (1985); Yang Sung v. McGrath, 339 U.S. 33, modified, 339 U.S. 908 (1950).

The arrangements at HUD, HES, and the Air Force are consistent with the provisions of the act requiring the separation of prosecutorial and judicial functions. The regulations promulgated by HUD and HAS reiterate the provisions of the act and specifically prohibit the "investigating" and "reviewing officials" from participating or advising in the initial decision or in the "authority head's" review of that decision. See 24 C.F.R Sec. 28.27 (1990); 45 C.F.R. Sec. 79.14 (1989). In the absence of any evidence to the contrary, we presume that the "investigating" and "reviewing officials" at both HUD and HHS will comply with these regulations. /8/

The Air Force's regulations to date contain no specific reference to the separation of functions under the act. However, they clearly delineate the responsibilities of various officials. /9/ Under these regulations, neither the "investigating" nor "reviewing officials" participates in the decision making process of the "presiding officer" or "authority head." Air Force Regulation 123-2, June 11, 1990. Moreover, officials in the Air Force's Office of General Counsel have informed us that the Air Force designated its Deputy Inspector General as the "reviewing official" in order to allow its Office of General Counsel to advise the "presiding officers" and "authority head" in the determinations required by the act and the Air Force's regulations reflect the critical role of the Office of General Counsel. See Id. There is no evidence that the Deputy Inspector General has abdicated his responsibility to evaluate the findings and conclusions of the "investigating official" to the Office of General Counsel such that the Office of General Counsel violates the separation of functions principle by advising the "authority head."

You also asked whether we would review several Department of Defense cases in which the "reviewing official" determined that there was not adequate evidence to pursue remedies under the act. As discussed in our meeting of September 27, 1990, we believe that such a review would be outside the scope of the work that GAO has been asked to perform.

Finally, you requested that we consider and express our opinion on articles arguing the constitutionality of the act. We do not believe that such an exercise would be useful for purposes of your response to Senators Roth and Cohen. Moreover, the issue of the act's constitutionality is for determination by the courts should an individual choose to challenge an agency's determinations under the act on constitutional grounds. See B-203903, Feb. 11, 1985; B-215863, July 26, 1984.

cc: Mr. Hinchman, OGC Mr. Kepplinger, OGC/AFMD Mr. Chapin, AFMD Mr. Crowley, AFMD Mr. Clark, AFMD Mr. Culkin, AFMD Ms. Bell, AFMD

1. Section 3802(a)(2) prescribes the penalties for false statements adjudicated under section 3803. Under section 3802(a)(2), an individual liable for a false statement is subject to a penalty of not more than $5,000 for each such statement.

2. Under section 3802(a)(3), an assessment shall not be made if the government has made no payment on the claim.

3. S. 1134 provided for a jurisdictional cap of $100,000 rather than $150,000 and penalties of up to $10,000 rather than $5,000.

4. Although the act does not require that the "reviewing official" be affiliated with any particular office, the Senate Committee on Governmental Affairs anticipated that the "reviewing official" would be employed in the agency's Office of General Counsel. S. Rep. No. 212, 99th Cong., 1st Sess. 12 (1985).

5. The Office of Special Investigations is affiliated with the Office of Inspector General of the Air Force and is subject to the oversight of the Office of Inspector General of the Department of Defense. The role of the Office of Special Investigations in program fraud cases provides us with no basis or legal objection.

6. This analysis reflects a highly Technical approach to the statute and governing memoranda. Although there is no direct supervisory relationship between the "investigating" and "reviewing officials" due to the delegations of authority, the Inspector General supervises the "investigating official" and is not wholly separated from the investigative process. Further, the Associate General Counsel and the "reviewing official" are the same person and the Inspector General's authority to affect the Associate General Counsel necessarily allows him to affect the "reviewing Official'' as well. Thus, our analysis cannot end here, but must address the substance of the Associate General Counsel's relationship with the Inspector General.

7. We understand that HUD's Inspector General may offer comments to the General Counsel for the Associate General Counsel's performance appraisal. The General Counsel may receive comments from a number of officials to whom the Associate General Counsel provides legal assistance and we have no legal objection to this practice.

8. "Presiding officers" at HUD and HAS have not heard any cases under the act. Therefore, we cannot review the officials' compliance with the act and regulations.

9. The Department of Defense has promulgated regulations binding on the Air Force that prohibit the "investigating" or "reviewing officials" from participating or advising in the decisions of the "presiding officer" or "authority head." 32 C.F.R. Sec. 277.