Submitting Claims to UST Fund? Don’t Become Next Target of Office of Enforcement’s New Fraud, Waste & Abuse Unit
On April 17, 2013, the California State Water Resources Control Board (“SWRCB”) announced that it had given the green light to its Office of Enforcement (“OE”) to staff a permanent unit within the OE called the Fraud, Waste and Abuse Unit. The SWRCB states that the purpose of this unit is to “root out fraud, waste and abuse against unscrupulous consultants and claimants submitting false, misleading or inflated invoices for reimbursement to the Underground Storage Tank Cleanup Fund. These cases are being referred to the State Attorney General’s office, frequently resulting in civil and/or criminal prosecutions.
Everyone could be a target
The Unit was originally launched as a pilot program in February 2010, around the time that a $1.2M judgment was entered against E2C Remediation, Inc., an environmental and consulting firm located in Bakersfield. Subsequently, the Unit has targeted multiple consultants across California, subjecting them to civil and criminal prosecution. (To date, all the Unit’s targets have been consultants. However, the Unit has stated its intent to go after claimants/owners. Thus, UST Owners that submit requests for reimbursement to the UST Cleanup Fund should be equally concerned.) A number of the targeted consultants have been subjected to criminal prosecution for traditional fraud including submitting invoices for reimbursement to the UST Cleanup Fund when no work was performed, or billing equipment purchased for a different project. However, even if you are not participating in unlawful practices, you may still be the target of an investigation.
The Unit is casting a wide net; the criteria for being targeted by the SWRCB, or the AG’s office, can be quite expansive and often difficult to pinpoint. For example, you may be targeted for billing the UST Cleanup Fund for personnel or equipment rates that are inconsistent with the cost guidelines, no matter how outdated they are. Or, you may find yourself in trouble for not keeping adequate back-up documentation to support your invoices, such as time sheets and field logs. Simply charging higher than the “going rates” of your competitors’ may flag you as a potential target for the Unit.
What are the red flags the unit is looking for?
Any of the following information (or lack thereof) may raise a red flag, potentially subjecting you to an investigation:
- Missing information in your requests for reimbursement (did you receive multiple requests for additional information from the claims reviewer?)
- Invoices that appear altered or tampered with
- Consistent errors in your reimbursement requests
- Lack of and/or inconsistent back-up documentation
- Multiple projects near the $1.2M ceiling
- Rates for personnel and/or equipment that exceed the average rates in the community
- A high number of reimbursement requests tied up in appeals
- Internal complaints by your employees about your firm’s billing practices
- Public Records Act requests being made for your files (although this may be difficult for you to know)
It is important to note that any combination of the above factors may land you on the Unit’s radar. Additionally, it is also possible that one of your employees or former employees may be making direct complaints to the SWRCB about your business operations. In addition to triggering Unit investigations, “whistleblower” actions may also result in civil lawsuits being filed by your employee on behalf of the SWRCB. (These lawsuits are referred to as “Qui Tam” lawsuits, wherein the whistleblower is entitled to bring an action under the California False Claims Act on behalf of the State and/or SWRCB. This type of action entitles the whistleblower to collect a percentage of any judgment that would otherwise go to the State and/or SWRCB.)
What to do when targeted?
The Unit’s investigation may afford you the opportunity to be proactive going forward. Once the Unit has identified a target, it engages in an internal initial investigation of the consultant and/or claimant. Sometimes, as part of the initial investigation, the Unit (or anyone at the SWRCB) will conduct unannounced visits to your project sites. Such visits are a red flag that the Unit is conducting an initial investigation into your business practices.
Once the Unit performs its initial investigation, it issues a letter requesting documents including, but not limited to, invoices, requests for reimbursement, and back-up documentation. The letter may or may not state that the Unit is conducting an audit of your business. Document requests are a red flag that the Unit has conducted an initial investigation into your business practices and may be referring you to the AG’s office. Note that the Unit may issue an administrative subpoena instead of a letter, which should put you on equally high alert that you may be referred to the AG.
Do you have a target on your back?
If you are unsure whether the request for documents is simply a routine request as part of the claims review process, or a red flag that you may be a target of the Unit, please consider the following:
-Who is requesting the documents? If the request for documentation is coming from the claims reviewer, it is likely routine. On the other hand, if the request is coming from the OE or Unit, it may have more serious implications.
-What types of documents are being requested? If the documents are related to one specific project or scope of work, you may not have cause for concern. However, if the documents requested include the following, you may be at risk for future civil or criminal prosecution:
- Site list
- Employee list
- Form W-2s
- Form 1099s
- Large equipment serial numbers
- Subcontractor list
Once you have submitted documents responding to the Unit’s letter, you may receive another letter that the audit is complete. If this happens, you are likely in the clear. If, however, you do not receive such a response, you need to ensure you are in the best possible situation to defend yourself in the event of civil and/or criminal prosecution.
The next step the Unit will take is to refer your case to the State AG’s office. Unfortunately, you may not know this until it is too late. The AG, in conjunction with the Unit, has been conducting unannounced search and seizures during normal business hours, interviewing employees and seizing documents, computers and servers. Again, if you find yourself in this situation, you need to take measures to best protect you from the impending allegations.
What are the best measures?
1. Document Management: Make sure you have a trustworthy document management system implemented, no matter how small your business. This includes keeping copies of important documentation related to the UST Cleanup Fund – time sheets, communications, field logs, policies and procedures for submission – and daily business operations — tax documents, payroll, employee and personnel files.
2. Electronically Stored Information (“ESI”): If possible, set up twin servers and make sure privileged communications with your attorney are kept in an identifiable location and segregated from other documents. Note: it is sometimes easier to recover ESI from the AG, so if you have the ability to electronically store important documents for your business instead of simply retaining them in hard copy format, you should.
3. Legal Representation: At the earliest indication of any red flags, make sure to contact an experienced UST attorney. An attorney can help you best prepare at each stage of communication with the SWRCB and the Unit, ensuring that your document management, ESI systems and compliance procedures are intact. Furthermore, he or she can set up a search warrant protocol in the event of a search and seizure by the AG, and help to defend you and/or your firm against civil and/or criminal proceedings.
Engaging an attorney to assist and advise with compliance and best practices relative to submitting claims for reimbursement to the UST Cleanup Fund is certainly the best way to avoid any run-ins with the SWRCB and its new permanent Unit.
Lara A.H. Shortz is an attorney at Michelman & Robinson, LLP, a national law firm with offices in Los Angeles, Orange County, San Francisco, Sacramento and New York. She represents consultants in connection with the defense of actions involving the UST Cleanup Fund. She is based in Los Angeles, California. For more information, please visit www.mrllp.com.
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