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Giving Credit Where Credit is Due: University’s False Claims Act Settlement Highlights Importance of Proper Accounting Practices for Federal Award Recipients

On March 21, 2019, the Department of Justice (“DOJ”) announced that the University of Wisconsin-Madison (the “University”) agreed to pay $1.5 million to settle allegations that it had violated the False Claims Act (“FCA”) by failing to properly credit rebates and discounts to costs allocable to federal grants and awards obtained by the University. While cases involving defense contractors and Medicare or Medicaid providers tend to dominate FCA headlines, the University’s settlement serves as a reminder that the FCA applies to all recipients of federal grants and awards. With the United States government awarding over $500 billion in federal awards annually,1 this recent settlement underscores the importance of careful cost accounting practices for the many institutions and organizations benefitting from federal money each year.

The University, as a public research institution, receives substantial awards from the federal government to conduct research in fields common to higher education institutions such as science, health care, and engineering. The University allegedly failed “to properly account for rebates and credits to reduce costs allocable to” these awards.2 Specifically, the University is alleged to have participated in rebate and discount programs with various vendors, which in turn resulted in the University’s receipt of rebates and discounts. These rebates and discounts were used by the University to offset purchases of supplies and equipment but were not credited to the University’s federal awards. The

University’s actions contravened Office of Management and Budget (“OMB”) cost principles governing the awards which require applying any rebates and discounts obtained in connection with a federally awarded program to the grant or award amount.3 The government alleges the University’s failure to do so in this case resulted in “overcharging” the government.

The University also allegedly failed to comply with its own accounting practices related to rebates and discounts. In connection with its federal awards and grants, the University must provide the government with a Cost Accounting Standards Board Disclosure Statement, which contains information on an awardee’s cost accounting practices. The DOJ noted that the University’s accounting failed to comply with its own disclosure statement “as it relates to accounting practices for service centers.”

This settlement comes at a time when many elite universities find their admissions practices under unwanted scrutiny as a result of the much-publicized reports of a widespread admissions bribery scandal. While the recent bribery-related allegations are somewhat new to the world of higher education, FCA-related actions and investigations have been far more common, with schools such as Duke University in North Carolina and North Greenville University in South Carolina recently settling FCA actions.4 The University of Wisconsin settlement serves as a reminder of the requirements that universities, as federal awardees, must follow as conditions of their awards and underscores the importance of careful accounting practices for all federal award recipients.

Visit our website to learn more about V&E’s False Claims Act/Qui Tam Litigation practice. For more information, please contact Vinson & Elkins lawyer John Satira.

1 Press Release, Dep’t of Justice, University to Pay $1.5 Million to Settle False Claims Act Allegations (March 21, 2019), https://www.justice.gov/usao-wdwi/pr/university-pay-15-million-settle-false-claims-act-allegations.

Id.

3 Federal award recipients are required to comply with a number of cost principles in addition to the OMB principles at issue here, which are found in Subpart E of 2 C.F.R. Part 200. See 2 C.F.R. § 200.100(a) (“The requirements established in this part apply to Federal agencies that make Federal awards to non-Federal entities. These requirements are applicable to all costs related to Federal awards.”).

See, e.g., Press Release, Dep’t of Justice, Duke University Agrees to Pay U.S. $112.5 Million to Settle False Claims Act Allegations Related to Scientific Research Misconduct (Mar. 25, 2019), https://www.justice.gov/opa/pr/duke-university-agrees-pay-us-1125-million-settle-false-claims-act-allegations-related (announcing that Duke University settled FCA allegations involving the submission of falsified grant applications and progress reports to government agencies); Press Release, Dep’t of Justice, South Carolina University to Pay $2.5 Million to Settle False Claims Act Allegations Arising From Violation of Ban on Incentive Compensation (Feb. 11, 2019), https://www.justice.gov/opa/pr/south-carolina-university-pay-25-million-settle-false-claims-act-allegations-arising (announcing that North Greenville University settled FCA allegations involving the payment of incentive-based compensation to student recruiters with federal dollars earmarked for tuition).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.