5 of the Most Common Types of Whistleblower Fraud
From the Front Lines of a National Whistleblower Law Firm
It’s no secret that blowing the whistle is becoming an increasingly popular action taken by professionals to help stop fraud, from Wall Street to biotech, from medical devices and mortgage companies to school lunch programs. The numbers don’t lie: whistleblowers are making themselves heard.
In this increasingly ripe climate of reporting fraud through whistleblowing, there are a few areas that stand out as the major hotbeds – breeding grounds for fraud against the government and the public. Here are five stand-out fields where whistleblowers are making a difference and submitting claims in record numbers.
1. Health Care Fraud
By far the single most common area for fraud reported by whistleblowers remains health care fraud. This shouldn’t come as a surprise. As this particular sector has grown tremendously in size over the past decade, the varieties, scale, and complexity of health care fraud have grown along with it.
Since the early 2000s, the government has had a keen eye on the health care industry as a fraud Petri dish of sorts. A bipartisan coalition backed strengthening the False Claims Act in 2009, and the Obama administration pushed for more money and tougher fraud-fighting provisions in the 2010 health care law. By 2012, nearly 40 percent of the nearly $16 billion recovered by the Justice Department in health care whistleblower fraud cases came since 2009, records show, reflecting the growth of fraud in health care and increased focus on fighting fraud.
Large health care fraud cases often involve pharmaceutical companies, hospitals, physician practices, medical device companies, and various forms of insurers, drug wholesalers and many other players in our health care system. Many of the fraudulent schemes in this area directly put public health at risk.
Some forms of health care fraud are blatant, black and white fraud, such as billing for services not provided or for government payment at a level not commensurate with the actual services. Medical providers and others in the industry make false statements to regulators about their compliance with various federal and state laws and programs. Sometimes these embellishments are material to payment by a government health program, leading to False Claims Act violations.
Violations of the Anti-Kickback Statute and the Stark Act are increasingly reported against medical providers
Providers, including medical device makers and pharmaceutical companies, continue to engage in off-label marketing or promotion of a medical device or drug for uses not approved by the FDA.
2. Defense Contractor Fraud
One look at the list of top government contractors will give this sector’s prominence away. The reach of the defense and aerospace industries are vast, and with so much government funding going to outside contractors, whistleblower fraud and reporting remains quite common in the defense industry.
Lockheed Martin Corporation leads the list of top contractors to the U.S. federal government1, with 21,026 actions performed in 2013 and more than $44 billion dollars obligated. Boeing is the next in line with 10,377 actions and more than $21 billion dollars. The top five contractors by their percentage of dollars allotted include Raytheon Company, General Dynamics Corporation and Northrop Grumman Corporation.
For reference, in Fiscal Year 2011, the top five departments by dollars obligated were the Department of Defense ($373.6 billion), Department of Energy ($25.1 billion), Health and Human Services ($19.3 billion), Department of Veteran Affairs ($17.4 billion) and NASA ($15.4 billion).
With all of this funding, what does defense contractor fraud look like? Large scale aerospace and defense contracts can quickly amount to massive whistleblower defense fraud, which can include bid rigging, falsifying invoices or overcharging the government, failure to provide the best price to the government and violation of “TINA” requirements, and false certifications of compliance with various contractual obligations.
Sometimes, defense contractors are guilty of using inferior or unsafe products in their government contracts, which can come in the form of manufacturing equipment and supplies. In other instances, contractors will shift costs for a more lucrative (and illegal) gain, away from a fixed-price model contract to cost-plus.
3. Tax/IRS Fraud
Tax fraud is a topic that tends to arise every political election cycle, and many balk at the squabbles for candidates to show their full tax payments and reports. While there may be ulterior motives when partisan politics comes into play, tax evasion is no joking matter. The tax gap is estimated to topple $400 billion every year.
Tax fraud whistleblowers help the government by reporting tax evasion for high-earning individuals or businesses that are intentionally defrauding the government by refusing to pay up.
In 2015, IRS – Criminal Investigations initiated 3,853 cases and recommended 3,289 cases for prosecution. Prosecutors indicted almost 3,208 of those individuals and convicted over 93 percent of the cases closed in early 2016.
In recent years, the number of claims received under the Tax Whistleblower Program has jumped, from 8,166 in 2011, 9,493 in 2012, 10,520 in 2013 to a whopping 14,365 in 2014.
4. Securities Fraud
Another high-profile area of whistleblower fraud is the realm of securities and investor fraud. According to the SEC’s Office of the Whistleblower annual report, the number of whistleblower award claims received by the office has continued to increase.
In Fiscal Year 2015, the SEC’s Office of the Whistleblower received more than 120 whistleblower award claims, representing a significant increase compared to prior years. The SEC’s Chief of the Office of the Whistleblower stated that he believes this uptick in whistleblower award claims is “attributable to the increased public awareness of the SEC’s whistleblower program and in response to the tens of millions of dollars that have been paid to whistleblowers under the program.”
Since the SEC’s new whistleblower rules went into effect in August 2011, the Commission has paid more than $54 million to 22 whistleblowers, and in FY 2015 alone, $37 million was paid in whistleblower rewards alone for their original information that led to successful SEC enforcement actions.
According to the SEC’s Office of the Whistleblower, the types of securities violations reported by whistleblowers have remained generally consistent over the last four years. Since the beginning of the program, Corporate Disclosures and Financials, Offering Fraud, and Manipulation have consistently ranked as the three highest allegation types reported by whistleblowers.
For Fiscal Year 2015, the most common complaint categories reported by whistleblowers included Corporate Disclosures and Financials (17.5%), Offering Fraud (15.6%) and Manipulation (12.3%).
5. Procurement Fraud
Think of procurement fraud as the grab bag of the federal False Claims Act and state false claims laws. Common methods of procurement fraud occur in industries spanning from construction, to food suppliers, technology service providers, contractors of all sorts and outsourced providers of all kinds. Procurement fraud can entail many forms of false claims and manipulation, and refers to the mechanism by which the government acquires goods, services or property.
Due to the high cost and large scale of government contracts, procurement fraud is a highly active area of False Claims Act fraud for whistleblowers to uncover. Overcharging the government, bid-rigging, bidding manipulation, false invoices, or use of inferior goods are just a few examples. Contractors can also be guilty of kickbacks and bribes used to secure or retain procurement work and contracts
