The United States Environmental Protection Agency (EPA) has a new Inspector General (IG), following an extended period of oversight by acting IGs.  Sean O’Donnell was confirmed on December 19, 2019 to lead the agency’s Office of Inspector General (OIG), an independent office within the EPA that performs audits, evaluations, and investigations of the agency and its contractors, with a mission to promote economy and efficiency, and to root out fraud, waste, abuse, mismanagement, and misconduct.

The EPA awards more than $4 billion in grant and other assistance funding every year to further the protection of human health and the environment.  EPA grantees include state and local governments, tribes, nonprofit organizations, public and private universities, and other entities.  EPA grant money funds projects and activities essential to environmental protection and human health including:

• state, local, and tribal pollution prevention efforts and activities that complement programs under established environmental statutes such as the Clean Air Act and Clean Water Act
• research opportunities including fellowships, research associateships, and small business innovative environmental technology research
• environmental cleanup and remediation efforts
• environmental education efforts

A bevy of laws, rules, and regulations govern EPA grantee behavior. For private and municipal recipients of EPA grants—such as private universities, local governments, and small businesses—a knowing failure to comply with applicable requirements can trigger civil False Claims Act (FCA) liability.  The FCA—a federal statute enacted in 1863 by a Congress concerned that the suppliers of Civil War goods were defrauding the government—prohibits the knowing submission of false or fraudulent claims for payment to the government.  Knowledge in the context of the FCA includes deliberate ignorance and reckless disregard.  Violation of the FCA can result in treble damages (three times actual damages) and steep civil penalties.

In its current form, the FCA applies not only to those who contract with and invoice the government, but also to federal grantees and subgrantees.  This is so because the statute is focused on the use of federal money, including money that grantees draw down from grants.  EPA grantees can run afoul of the FCA in various ways.  At its most basic, grant fraud that could trigger FCA liability occurs when grantees attempt or succeed in deceiving the government about their entitlement to, or use of, grant funds.  Organizations and entities receiving EPA grant funds may be exposed to FCA liability if they know—or should know—that, for example, their employees falsely certified their credentials, misapplied federal funds, failed to maintain adequate time and effort reports, overstated research results, or submitted false information in grant proposals to secure awards. Past enforcement actions in which EPA OIG has played a role include investigations into the following alleged conduct:

• Research misconduct at a private university that involved the inclusion of purportedly falsified research results in grant applications and progress reports submitted to the EPA and the National Institutes of Health (NIH) over a period of several years.
• A nonprofit Financial Director’s misapplication of federal grant funds allocated to improve and preserve the water quality of Alaska’s Yukon River and its watershed.
• The Nation’s largest supplier of water, sewer, fire protection, and storm drain products’ manipulation of the Disadvantaged Business Enterprise (DBE) program to obtain subcontracts on federally-funded projects to which it was not entitled.
• A Michigan special unit of local government’s Executive Director’s theft of federal grant funds awarded to assist in maintaining and improving land, water, and wildlife.
• A Connecticut-based training center that purported to offer a variety of certification courses related to lead paint and asbestos abatement, but that instead traded fraudulent certifications for cash.

Grantees should also exercise caution if required to certify compliance with applicable environmental laws and regulations.  Successful FCA cases have been premised on failures to comply with hazardous materials disposal regulations, the Clean Water Act, and the Clean Air Act, where a government contract or agreement expressly required compliance with those environmental laws and regulations.

The EPA has not historically been a lead in FCA enforcement; however, its new IG may bring a change in this regard.  Prior to his nomination, IG O’Donnell served as a Department of Justice (DOJ) Trial Attorney in, among other units, DOJ’s Civil Fraud Section, which handles affirmative FCA investigations and litigation, as well as whistleblower-initiated suits.  During his time in the Civil Fraud Section, IG O’Donnell led a number of complex investigations under the FCA and other fraud statutes, recovering more than $2 billion for the taxpayers.

In his October 30, 2019 testimony before the Senate Committee on Environment and Public Works, IG O’Donnell noted that OIG had “recently concluded a False Claims Act settlement, working collaboratively with other agencies on a grant matter,” and identified the FCA as “[e]xactly the sort of thing that .  . . is an important tool in fighting waste, fraud, and abuse, [and] really returning money . . . to the taxpayers.” IG O’Donnell further commented that going forward he envisions the EPA collaborating with DOJ to use the FCA to “make sure that the EPA is not defrauded with respect to grants or contracts.”

An increased use of the FCA to deter false claims, fraud, research misconduct, and other material violations of—or noncompliance with—EPA grant and contract requirements would be a significant shift in the enforcement landscape.  EPA grantees and other recipients of EPA funding should thoroughly evaluate and carefully mitigate FCA risk to avoid exposure to the FCA’s severe penalties.

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Rosie Dawn Griffin is a senior associate in the firm’s Litigation and Government Investigations practice group and has years of experience working on False Claims Act matters. She can be reached at rgriffin@feldesmantucker.com or (202) 466-8960 with any questions.