How to Avoid False Claims Act Violations

By Scott Dawson
June 10, 2024

Understanding How to Avoid False Claims Act Violations

In today’s highly regulated environment, understanding the intricacies of the False Claims Act (FCA) is imperative for organizations, particularly those within the defense sector. The False Claims Act serves as a primary tool for the federal government to combat fraud, imposing significant penalties on those who knowingly submit false claims for government funds. With the cyber requirements in DFARS and NIST and the advent of the Cybersecurity Maturity Model Certification (CMMC), compliance has become even more complex, intertwining cybersecurity protocols with legal obligations. The CMMC, designed to safeguard sensitive information, requires organizations to adhere to stringent cybersecurity standards, thereby reducing the risk of cyber threats.

NIST and the Civil Cyber-Fraud Initiative

Integral to this framework is the National Institute of Standards and Technology (NIST) 800-171 Self-Assessment. This assessment, found in defense contracts under DFARS 252.204-7012, mandates that contractors protect controlled unclassified information (CUI) by adhering to specified security requirements. Organizations must perform thorough self-assessments to ensure compliance, as inaccuracies can lead to substantial legal repercussions under the False Claims Act. Additionally, the Civil Cyber-Fraud Initiative has intensified scrutiny, targeting misrepresentations in cybersecurity practices. This initiative underscores the importance of transparency and accuracy in cybersecurity compliance, reinforcing the need for organizations to meticulously verify their adherence to required standards.

The purpose of this article is to illuminate the steps organizations must take to avoid False Claims Act violations. By exploring the intersection of the False Claims Act, Cybersecurity Maturity Model Certification (CMMC), NIST 800-171 Self-Assessment, and the Civil Cyber-Fraud Initiative, this article aims to provide a comprehensive understanding of these essential components. Ensuring compliance not only mitigates legal and financial risks but also fortifies the defense sector’s cybersecurity posture, and safeguarding national security interests. In the following sections, we will explore practical strategies and best practices to help organizations navigate this intricate landscape and maintain robust compliance.

False Claims Act Exceed $2.68 Billion in Recoveries in 2023

“Settlements and judgments under the False Claims Act exceeded $2.68 billion in the fiscal year ending Sept. 30, 2023, Acting Associate Attorney General Benjamin C. Mizer and Civil Division Principal Deputy Assistant Attorney General Brian M. Boynton announced today. The government and whistleblowers were party to 543 settlements and judgments, the highest number of settlements and judgments in a single year. Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $75 billion.”

From: https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023

What is the False Claims Act?

The False Claims Act (FCA), a cornerstone of American jurisprudence, was enacted during the Civil War to combat rampant fraud against the government by suppliers of war materials. Its inception in 1863 was driven by the need to curtail deceitful practices that undermined the Union war effort. The False Claims Act empowers the federal government to impose severe penalties on individuals and entities that knowingly submit false or fraudulent claims for government funds.

False Claims Act Server protection

Safeguarding the Federal Treasury

The primary purpose of the False Claims Act is to safeguard the federal treasury by deterring and penalizing fraudulent activities. It plays a pivotal role in ensuring integrity and accountability in federal contracting. Key provisions of the FCA include liability for treble damages (i.e. 3x) and civil penalties for each false claim, as well as robust whistleblower provisions that incentivize individuals to report fraud. Whistleblowers, known as “relators,” can receive a significant percentage of recovered damages, fostering a culture of vigilance and transparency.

The FCA has Expanded to Include Cybersecurity Compliance

In recent years, the FCA has been instrumental in addressing complex fraud schemes, mostly in the healthcare sector including COVID-related fraud. High-profile cases, such as those involving major defense contractors and healthcare providers, underscore its far-reaching impact. With the introduction of the Cybersecurity Maturity Model Certification (CMMC) and the Civil Cyber-Fraud Initiative, the FCA’s scope has expanded to include cybersecurity compliance, reflecting the evolving nature of threats and the government’s commitment to protecting national security interests. These developments highlight the continued relevance and adaptability of the FCA in safeguarding public resources.

One Company Pays $2.68 Million for Violating the False Claims Act

“Insight Global LLC, headquartered in Atlanta has agreed to pay $2.7 million to resolve allegations that it violated the False Claims Act by failing to implement adequate cybersecurity measures to protect health information obtained during COVID-19 contact tracing..”

From: https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023

Cybersecurity Maturity Model Certification (CMMC)

The Cybersecurity Maturity Model Certification (CMMC) represents a significant advancement in safeguarding sensitive information within the Defense Industrial Base (DIB). Developed by the U.S. Department of Defense (DoD), the CMMC framework integrates various cybersecurity standards and best practices to enhance the protection of controlled unclassified information (CUI). The model is structured into three maturity levels, ranging from basic cyber hygiene to advanced security, ensuring a comprehensive approach to cybersecurity.

CMMC 2.0 chart

CMMC Levels Allow for Scalability

Each level of the Cybersecurity Maturity Model Certification requires specific controls and processes, which increase in complexity and robustness. At the foundational level, organizations must demonstrate basic safeguarding practices, while higher levels necessitate more stringent measures, including continuous monitoring and adaptive response strategies. 

False Claims Act Discussion

This tiered approach allows for scalability and ensures that even small contractors can participate in defense contracts while progressively improving their cybersecurity posture.

Falsely Declaring Compliance

Non-compliance with DFARS and NIST can lead to severe ramifications under the False Claims Act. The FCA imposes liability on individuals and organizations that knowingly submit false claims for government funds. Contractors falsely declaring compliance may face significant penalties, including treble damages and civil fines.

The interplay between DFARS 252.204-7012, NIST SP 800-171, the Cybersecurity Maturity Model Certification, and the False Claims Act emphasizes the obligation for contractors to maintain rigorous cybersecurity standards and transparent reporting practices. This alignment not only protects national security but also shields contractors from legal and financial jeopardy.

Legal Implications

Enforcement of the False Claims Act in cybersecurity involves meticulous scrutiny of contractors’ claims regarding their cybersecurity compliance. If a contractor misrepresents their cybersecurity posture to secure a government contract, this misrepresentation is considered a violation of the FCA. Such violations can trigger investigations by federal authorities, leading to severe penalties. The ramifications of non-compliance are profound, including treble damages, which are three times the government’s actual damages, and civil fines of up to $23,331 per false claim.

Whistleblowers

The whistleblower provisions of the FCA empower individuals to report fraudulent activities. Whistleblowers, known as “relators,” can initiate lawsuits on behalf of the government and are incentivized with a share of the recovered funds. This provision not only fosters accountability but also amplifies the potential consequences for contractors who falsely claim DFARS and NIST compliance.

a False Claims Act Whistleblower

$2.3 Billion in Settlements and Judgements Brought by Whistleblowers

“Of the more than $2.68 billion in settlements and judgments reported by the government in fiscal year 2023, over $2.3 billion arose from lawsuits that were filed under the qui tam (whistleblower) provisions of the False Claims Act and pursued by either the government or whistleblowers. During the same period, the government paid out over $349 million to the individuals who exposed fraud and false claims by filing qui tam actions.”

From: https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023

Best Practices for FCA Compliance

Ensuring compliance is essential for organizations aiming to maintain integrity and avoid violations under the False Claims Act (FCA). Implementing best practices can safeguard against severe penalties and fortify cybersecurity defenses.

Implement Regular Cybersecurity Audits

First, organizations should conduct thorough and regular audits of their cybersecurity protocols. These audits ensure adherence to DFARS, NIST, and CMMC standards and help identify potential vulnerabilities. Establishing a rigorous internal review process enables continuous improvement and adaptation to evolving threats.

Foster a Transparent Culture

Second, fostering a culture that values transparency and ethical conduct is paramount. Whistleblowers play a vital role in maintaining compliance. They are often the first to detect discrepancies and unethical practices. Under the FCA, whistleblowers are protected and incentivized to report non-compliance. Encouraging an environment where employees feel safe to report issues can significantly reduce the risk of FCA violations.

Invest in Ongoing Training

Lastly, staying abreast of the current DFARS, NIST, and CMMC requirements and cybersecurity trends is essential. The cybersecurity landscape is dynamic, with new threats emerging regularly. Organizations should invest in ongoing training and development for their cybersecurity teams, ensuring they are equipped with the latest knowledge and tools to meet Compliance standards.

Investigate Internal Complaints

A thorough investigation involves evaluating the integrity of cybersecurity measures, ensuring that all protective mechanisms are in place and functioning correctly, and verifying that there are no misrepresentations in the compliance reports submitted to the government. This process not only helps address the immediate concerns raised but also fortifies the organization’s overall cybersecurity posture, fostering a culture of accountability and proactive risk management.

Conclusion

In summary, achieving compliance is imperative for organizations engaged with the Department of Defense. The intersection of the False Claims Act and cybersecurity mandates rigorous adherence to established standards to avoid severe penalties. Ensuring accurate reporting and robust cybersecurity practices not only protects sensitive information but also upholds the integrity of government contracts.

Organizations must recognize the critical role of compliance in safeguarding their operations and reputation. Proactive measures, such as regular audits, fostering a culture that encourages whistleblower protections, and staying updated with the latest requirements, are essential steps toward maintaining compliance.

Now is the time for organizations to take definitive action. By thoroughly understanding and complying with both the False Claims Act and NIST, DFARS, and CMMC requirements, they can shield themselves from legal and financial repercussions while contributing to a more secure and trustworthy defense industrial base. Invest in compliance today to fortify your organization against the complexities of cybersecurity threats and regulatory obligations.

How Core Business Solutions Can Help

At Core Business Solutions, we specialize in helping American small businesses achieve cybersecurity. As a Registered Provider Organization with the CMMC Accreditation Board (CMMC-AB), we’re trained to help businesses like yours achieve CMMC. We have several CMMC-AB Registered Practitioners on staff, ready to help you apply these requirements to your business. We also provide training, gap assessments, and technical security solutions to take the “guesswork” out of CMMC prep.

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