Earlier this summer, the former chief of staff for the Illinois Department of Public Health was sentenced to eight years in federal prison for obstruction of justice and accepting kickbacks or bribes in relation to more than $13 million in federal grants and contracts she awarded. Unfortunately, recent reports such as these are not uncommon, and serve as a stark reminder to nonprofits of the serious consequences of misconduct and malfeasance with federal funds. Further, while this case was rather clear-cut, we take this opportunity to point out that bribes and kickbacks are not always so easy to recognize, sometimes may not strike the average person as being inappropriate at all, and to discuss what you can do to identify hazards and ultimately avoid civil, criminal or administrative consequences for giving bribes or kickbacks—even inadvertently.
What Are Bribes and Gratuities?
While a number of federal statutes and regulations eloquently define bribes and their companion term, "gratuities," the definitions boil down to the offering or seeking of something of value for favorable action. The favorable action, or "consideration", can have either occurred in the past or be something to occur in the future. This notion may seem straightforward, but it can get murky when dealing with personal relationships or seemingly polite overtures that are not readily identifiable as a bribe, such as picking up the cab fare to an airport following a conference.
Often individuals and organizations rely upon various exclusions, including the de minimis exception; however, if the purpose or aim of offering the thing of value is to persuade or influence the person, the exception does not apply. This may also seem easy to rebut, but proving a negative in the face of an investigation is often difficult. For example, how can one prove that a lunch or cab fare did not influence a government decision maker? In response, we often hear, "It was not worth that much," but value is also very subjective and therefore susceptible to different interpretations.
What Is a Kickback?
The Anti-Kickback Act defines a kickback in a similar manner as the definitions of a bribe or gratuity:
[A]ny . . . thing of value . . . that is provided to a prime contractor, prime contractor employee, subcontractor, or subcontractor employee to improperly obtain or reward favorable treatment in connection with a prime contract or a subcontract relating to a prime contract.
41 U.S.C. § 8701(1). Accordingly, many of the same pitfalls that apply to bribes and gratuities also apply to kickbacks. In this context, again, we often see individuals and organizations viewing themselves as above the fray, but many traditional business practices include conduct that could be viewed as a kickback when the conduct involves federal funds, and particularly a cost-reimbursable grant. For example, rebates, where a subcontractor refunds money to a prime contractor, are rife with potential kickback implications. In some circumstances the nonprofit grantee may not even be aware that a rebate exists between a prime contractor and subcontractor, if it is pursuant to a pre-existing arrangement. Nevertheless, the government may take the viewpoint that the true cost of a contract is the cost incurred by the prime contractor, minus rebates.
What to Do?
While we could go on at length about the nuances of these concepts and various pitfalls, because of the endless scenarios, it is more important that nonprofits focus on sensible and practical methods for identifying potentially compromising situations and addressing them before they become a calamity. Some must-do items include:
- Create and implement clear policies on gifts, including the limitations, purposes and required record-keeping. Further, nonprofits need to have tight accounting procedures for the treatment of gifts, to ensure they are paid for through proper funding streams.
- Establish and implement clear policies on vendor reward programs, rebates and the like.
- Train your personnel regularly on these topics and provide avenues for them to raise concerns.
- Flow down your policies to (or review and approve the policies of your) business partners, subrecipients, contractors, subcontractors, and others. Their conduct will reflect upon your organization; therefore, their standards should be at least as stringent as yours.
- Require that your business partners notify you of any rebates or discounts that are not reflected in the invoices you receive.
- Create reporting channels for your employees, as well as your business partners. It is always better to be the first to address a situation, and if your employee or business partner does not feel they have internal recourse, they may report it externally.
- If unsure of whether specific conduct violates any of the multitude of bribery, gratuity or kickback statutes, speak with experienced counsel.