Kelly Sweetser
At a time when the United States is in a recession and individuals, business and governmental agencies alike are feeling the economic crunch, there is a pool of additional money available right at our fingertips. No; it is not to be found in the form of higher taxes, but rather in the elimination of fraud.
We hear about fraud continuously, almost to the point where we have become accustomed to its occurrence. Fraud is a political issue in virtually every election, including our current gubernatorial race. Fraud is more rampant during an economic downturn because the person committing the fraud often “rationalizes” his/her behavior and the need to commit the fraud is based on financial need and/or desperation.
In the current economic crisis, many of our citizens are finding themselves in an economic need. Unfortunately the government, both state and federal, are not doing enough to recoup funds that have been obtained fraudulently.
The laws
Congress amended a Civil War-era law and enacted the Federal False Claims Act of 1986. The purpose of this act was to create a partnership between government and private citizens by offering incentives for the citizens to uncover and report fraudulent activities of federal funds while protecting the honest citizens from retaliation by employers and others who are defrauding the government. States were encouraged to pass similar legislation to recover state funds lost due to fraud.
New Mexico passed its New Mexico act, titled the Fraud Against Taxpayers Act, effective July 1, 2007. The New Mexico act is similar to the federal act with one material exception: Under the New Mexico law, the citizen cannot collect if he or she files a claim after the matter has been made public, even if the reason it was made public was a report by the citizen to the media releasing the information.
The New Mexico law allows a private citizen, referred to as the “qui tam plaintiff,” to file a claim on behalf of the state if he or she has knowledge of fraudulent activity involving the use of state funds. A claim filed by the qui tam plaintiff must be made in camera (Latin: “in chambers” before a judge so as to protect the qui tam plaintiff) in district court where the claim remains under seal for 60 days.
Prior to the expiration of the 60 days, the state must decide if it is going to proceed with or decline the claim. If the state proceeds with the claim, the state has primary responsibility for prosecuting the actions. Conversely, if the state declines to pursue the claim, the qui tam plaintiff can still bring forth the action but becomes responsible for the prosecution.
If the state initially declines to pursue the claim, it retains the right to intervene at a later date.
Substantial rewards
The rewards to the qui tam plaintiff can be substantial, both morally and financially. If the state proceeds and prevails with the action the qui tam plaintiff shall receive:
- At least 15 percent but not more than 25 percent of the proceeds of the action or settlement, depending upon the extent to which the qui tam plaintiff contributed; or
- No more than 10 percent of the proceeds or settlement if the action was based primarily on disclosers of specific information not provided by the qui tam plaintiff.
If the state does not proceed with the action and the qui tam plaintiff prevails, the qui tam plaintiff shall receive:
- At least 25 percent but not more than 30 percent of the proceeds of the action or settlement, plus an amount for reasonable expense incurred for bringing forth the action and attorney fees.
These amounts can be reduced if it is found that the qui tam plaintiff did not contribute to the action.
The remaining proceeds are first used to reimburse the fund that paid for the prosecution fees, and then the balance goes into the state’s general fund.
Change to NM law needed
The difference referenced earlier in this article between the federal law and the state law regarding the filing of a claim before knowledge of the claim is made public is an area that must be corrected. Under the New Mexico law, a person cannot file a claim if public disclosure of that action has taken place. For example, I can’t file a claim under the New Mexico act regarding a fraudulent act if that fraudulent act has been previously reported in the newspaper, online or other media outlet. There are no exceptions to that limitation.
Under the Federal False Claims Act, there is an exception to this limitation. A person can make a claim under the Federal False Claims Act regarding a fraudulent act even after that act has been released through a media outlet, if the person filing the claim is the originator or “source” of that public disclosure. Using the same example, I could file a claim under the Federal False Claims Act, if I was the person who provided the information regarding the fraudulent act to the media.
The reason this is significant to the State of New Mexico is because a bill will be presented during the 2011 legislative session requesting that the New Mexico act be amended to incorporate the exception from the public disclosure limitation as is stated under the Federal False Claims Act. If this amendment is passed the state will be able to retain additional federal dollars to assist in prosecuting Medicaid fraud.
Medicaid funds consist of both federal and state dollars. The state receives federal Medicaid money that is then matched with state funds before it is used within the State’s Medicaid program. Therefore, when money is recouped from Medicaid fraud a portion of the recoupment is maintained by the state, and then the remaining funds are sent to the federal government.
Increasing funds for the state
The Deficit Reduction Act provides an incentive for states to enact laws that establish liability to the state for individuals that submit fraudulent claims to the state’s Medicaid program. However, the state’s False Claims Act must meet certain guidelines and be approved by the Office of Inspector General (OIG). In July 2008, the New Mexico False Claims Act was rejected by the OIG because it did not contain an exception for the originator or “source” to still be able to file a claim after public disclosure has been made.
This is relevant because if the current, pending amendment is passed and the OIG approves the New Mexico False Claim Act, then the state will be able to keep additional funds from the recoupment of Medicaid fraud.
Here are some statistics to consider when evaluating the impact proceeds from the Fraud Against Taxpayers Act would have on our state and its economy:
Per the U.S. Department of Justice, from Oct. 1, 2008 through Sept. 30, 2009 there were 433 qui tam cases settled. The proceeds and settlement amounts totaled $1,970,450,777. That is almost $2 billion. The total amount paid out to the qui tam plaintiffs totaled $254,794,658.
If you look at the period since enactment there has been $15,658,403,837 recovered in proceeds and settlements and $2,477,236,248 that was paid to the qui tam plaintiffs.
Outsourcing investigations
In an article previously published by Heath Haussamen, Joseph Cervantes expressed frustration that the New Mexico Attorney General’s Office had yet to act on nearly 100 qui tam cases. Gary King, New Mexico attorney general, responded in the article stating that the cases were moving forward but, other issues prevented the cases from moving forward as quickly as it seems they should.
One of the other issues mentioned was the need for additional resources. I can assure you, based on my experience with the New Mexico Attorney General’s Office, that agency has more cases being referred to it than it has staff available to process. It’s not that they don’t want to prosecute; they simply lack the resources to do so in an efficient and timely manner.
If, however, if it were possible to outsource services based on need, they could expand the quality of staff, increase the timeliness of investigation and prosecution, and make it profitable for businesses to provide those services. As we all know, when businesses make a profit so does the government because their tax base is increased and therefore there would be a positive impact on the state’s economy.
It would be more efficient to outsource based on demand versus hiring an employee, with benefits, that they might not need if demand were to decrease. The state would not be spending additional dollars because by increasing the timeliness of investigation and prosecution, the funds recouped would outweigh the cost of outsourcing those services.
In summary
In summary, it seems we need to do the following things:
- Bring the New Mexico False Claims Act, titled the Fraud Against Taxpayers Act, into compliance with the Federal False Claims Act by not punishing a citizen who may have made the claim public prior to filing the claim.
- Convince the state Legislature to authorize the use of “contract” investigators and attorneys by the Attorney General’s Office to pursue fraudulent claims on behalf of qui tam plaintiffs.
- Begin a publicity campaign to educate the public of the problem and the rewards of coming forward.
There is an opportunity here to make government more efficient while at the same time holding government accountable. We can and must provide services to ferret out fraud and make government work even in times of reduced revenues. This can be accomplished, and the time to act is now.
Sweetser is a certified public accountant, certified fraud examiner and certified internal auditor. She worked in the public accounting industry for 14 years before establishing the City of Las Cruces’ first Internal Audit Office. She also worked with the New Mexico Attorney General’s Office in the Medicaid Fraud and Elder Abuse Division. She currently has her own practice, Sweetser Forensic Accounting, providing forensic accounting services, fraud examinations and expert testimony.