Just a few weeks after the U.S. Department of Justice (DOJ) announced that its total recoveries (judgments and settlements alike) for FY14 under the federal False Claims Act amounted to $5.69 billion (the first time annual recoveries exceeded $5 billion), the Maricopa County Community College District (MCCCD) agreed to pay $4.08 million to settle allegations that it submitted false claims for AmeriCorps state and national grants. MCCCD is the entity responsible for operating community colleges in Maricopa County, Arizona. This case and the DOJ's recent announcement serve as reminders for nonprofit federal grant recipients and subrecipients of the importance of maintaining internal controls to prevent fraud, waste, and abuse from occurring within an organization.

MCCCD Settles False Claims Act Lawsuit for $4.08 Million

On December 1, 2014, MCCCD agreed to pay $4.08 million to resolve allegations that it submitted false claims to the Corporation for National and Community Service (CNCS) concerning AmeriCorps state and national grants. MCCCD obtained AmeriCorps funding for Project Ayuda, a program that proposed to engage students in national service. In order to receive an AmeriCorps education award up to $5,350, a student had to meet certain service-hour requirements. Between 2007 and 2010, MCCCD allegedly falsified student timesheets and improperly certified that students had completed the required number of service hours to be eligible for an education award. According to the complaint, students counted hours for activities toward the requirements that did not qualify for an AmeriCorps education award. For more information regarding the settlement and allegations, click here and here.

Grantees Can Look to the Green Book for Guidance on How to Deter Potential Fraud

The MCCCD settlement serves as a reminder for nonprofit grantees to implement proper internal controls to ensure that all certifications and backup cost documentation is accurate. The U.S. Office of Management and Budget Super Circular [2 C.F.R. § 200.303 (2014)] states that non-federal entities must establish and maintain effective internal controls that are in compliance with the U.S. Government Accountability Office's Standards for Internal Control in the Federal Government, known as the Green Book. The Green Book was recently expanded in September 2014, and provides far greater detail as to the type of internal controls that nonprofit grantees can adopt to help prevent fraud, waste, and abuse.

For example, the Green Book recommends the creation of an oversight body designed to supervise management's internal control system. The body's role, in part, is to identify and respond to risks, such as fraud, that are harmful to an organization's objectives. The Green Book states that fraud occurs when "circumstances exist, such as the absence of controls, ineffective controls, or the ability of management to override controls, that provide an opportunity to commit fraud." In the MCCCD case discussed above, the opportunity to commit fraud existed because the director of the program had a great deal of discretion to submit time sheets to the government without independent verification of the submissions. An oversight body reviewing this practice might have recognized the opportunity for fraud that was created by giving too much authority to one person to submit backup documentation for millions of dollars of funding.

While a nonprofit organization with an oversight body would remain at risk for mistakes and even fraud, establishing effective internal controls would (i) allow the organization to meet the regulatory requirements for receiving federal grant funding, (ii) mitigate a finding of civil or criminal fraud by negating reckless disregard or malicious intent to submit false claims, and (iii) demonstrate an organization's present responsibility, thereby also reducing the likelihood of administrative repercussions, such as suspension or debarment.