On April 24, 2024, the US District Court for the Western District of Pennsylvania issued a decision on the Defendant’s request to dismiss a False Claims Act brought by a relator alleging violations and retaliation by Magee-Womens Research Institute and Foundation (Foundation), University of Pittsburgh, University of Pittsburgh Medical Center and UPMC Magee-Womens Hospital under the False Claims Act. The decision identified the areas of the False Claims Act that pertained to the case as follows:
- Knowingly present, or cause to be presented, a false or fraudulent claim for payment or approval
- Knowingly make, use, or cause to be made or used, a false record or statement material to a false or fraudulent claim
- Conspire to commit a violation
- Knowingly make, use, or cause to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceal or decrease an obligation to pay or transmit money.
Allegations Leading to the Qui Tam Suit
The relator was hired as the Director of Grants and Contracts to review and improve the Foundation’s internal accounting and compliance systems. The Foundation received the majority of grant funding from the National Institute of Health, which required compliance with the Uniform Grant Guidance in 2 Code of Federal Regulations (CFR) 200. The Foundation leased employees and related services from the referenced Universities and Hospitals (i.e., Defendants). The Director identified three deficiencies in violation of the FCA.
- Inadequate Accounting and Financial System – The accounting system was outdated and limited the ability to produce reliable reports, trace expenditures and budgets, resulting in inaccurate reports submitted to the Federal agency.
- Spenddown Scheme - Costs were transferred from nonfederal grants with a budget deficit to federal grants with a budget surplus.
- Failure to Report Program Income - Program income generated by the program was not reported.
The Director submitted a report to management and a Board of Directors disclosing the issues and was fired. As a result, the fired employee filed a Qui Tam Suit for the violations and retaliation under the FCA.
Case Decision
The Court ruled that the case will move forward against the Foundation for the inadequate accounting system, spend-down scheme, and retaliation by the University of Pittsburgh because they conspired with the Foundation to improperly make transfers of costs from nonfederal grants to federal grants (spend-down scheme). The Program Income deficiency was considered immaterial and lacked support.
Takeaway
Companies that receive federal funds under grants are required to have an adequate accounting and financial management system along with internal controls for 2 CFR 200.302 Financial Management. Each report submission, invoice, etc., requires a certification that the information submitted is accurate, complete, and complies with regulations 2 CFR 200.415 Required certifications. The Federal Acquisition Regulations (FAR) have similar requirements.
Most grants do not spell out the requirements; they merely reference 2 CFR 200, and you are responsible for reading and determining the applicable requirements. Make sure you take the time to read, understand, and implement the requirements. The number of False Claims Act (FCA) claims is increasing, especially among employees who are fired after reporting a deficiency. If a company is found liable under the FCA, the penalty is three times the damages, which is pretty hefty.
Support for 2 CFR 200 Grant Compliance
Redstone Government Consulting provides comprehensive support to contractors in meeting the requirements of 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Grants. Our team can assist with drafting or reviewing written policies and procedures for accounting and financial systems on grants, reviewing timekeeping policies to ensure accurate time reporting, providing monthly accounting support or invoice reviews for subaward compliance, and delivering live or webinar-based training on post-award grant topics.
We also help contractors develop accounting policies, checklists, and review government reports to support compliance with the 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Grants. Redstone GCI serves clients across the U.S. and internationally, offering practical guidance to meet government expectations for grant management.
