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Incentives Sought : Blowing the Whistle for Hefty Profit

September 17, 1986|JOHN DREYFUSS | Times Staff Writer

Sen. Jacob Howard (R-Mich.), his florid complexion set off by a thick thatch of black hair, rose in Senate chambers and spoke in his typically precise though ponderous manner. The senator was indignant.

"Persons have been employed to furnish shells for the use of the Army; and in several cases, it has turned out that these shells have been filled not with the proper explosive materials for use, but with sawdust!"

Howard also complained that "frauds of a very gross character have . . . been practiced in the purchase and furnishing of small arms for the use of the Army."

People in the highest places shared the senator's indignation. Even the President supported legislation to provide a handsome financial payoff for whistle-blowers--defense contractors' employees who turn in bosses who cheat the government.

Today's Law More Lenient

Abraham Lincoln was the President. Sen. Howard spoke on St. Valentine's Day, 1863, at the height of the Civil War.

The biggest difference between companies that swindled the government in 1863 and those that do so in 1986 seems to be that today's crooks get away with more.

Another difference is the federal False Claims Act, which is the legislation that Lincoln supported more than 120 years ago. Congressional revision has diluted the act to a degree just this side of annihilation.

A few politicians are working to invigorate the False Claims Act. If they are successful--and it appears they will be--they could create new multimillionaires: whistle-blowers who can combine patriotism, ethical conduct and fiscal success by turning in companies that bilk the government.

Under the amended act, a company that defrauds the government could be fined $10,000 per infraction and between two and three times the amount of the fraud, depending on the final configuration of the amendment. And a whistle-blower who turned in the company would get between 10% and 30% of what the government collects, while being protected against retribution from the company.

Can Keep Part of Award

The False Claims Act puts a whistle-blower in the highly unusual position of filing a lawsuit in the name of the U.S. government, essentially acting as the U.S. attorney general. The law also is unusual in that it allows a whistle-blower to keep a percentage of the amount awarded to the government.

The act covers the whole range of businesses contracting with the federal government: hospitals and doctors who overcharge Medicare, defense contractors who submit fraudulent bills, road builders who skimp on material, vendors who add soy beans to meat patties served in federally supported school lunch programs. The list is almost endless.

The amended act has passed both houses of Congress, although differences remain between the House and Senate versions. Sponsors of the amendment and other involved parties are working to reconcile those differences, in hopes of reaching agreement in time to send the amendment to President Reagan before Congress adjourns early next month.

In Lincoln's day, the act mandated hefty fines for contractors who gulled Uncle Sam. And there were significant rewards for employees who turned in their cheating organizations.

Abuses Prompt Revisions

The False Claims Act was invoked occasionally before Congress revised it during World War II to counter citizens who tried to take advantage of the act by using it to collect on fraud they learned about after government officials knew the facts. In the process, the act was weakened.

Today, politicians in Washington trying to put some bite back into the law are advocating proposed legislation written in part by John Phillips of Los Angeles, a co-director of the Center for Law in the Public Interest, a not-for-profit firm specializing in cases like those that can be brought under the False Claims Act.

Legislators are worried about more than $404.25 socket wrenches, $900 ash trays and clamps that sold for $2,710 despite a $102 price tag 16 months before, all of which have been purchased by the Navy in the last five years.

Nobody knows precisely the extent of current fraud against the government. Estimates made by the General Accounting Office, the Department of Defense Inspector General's office and the Department of Justice range between $1 billion and $100 billion annually.

Companies in Violation

This summer, Litton Industries agreed to plead guilty and pay $15 million in restitution and penalties after a federal grand jury charged a division of Litton with inflating prices on about 45 contracts for electronic equipment between 1975 and 1984. In addition to the financial penalty, Litton was temporarily barred by the U.S. Navy from receiving new Defense Department contracts. Such suspensions have also been handed out in recent months against General Dynamics Corp. and General Electric Co.

Federal investigators, not company whistle-blowers, uncovered Litton's violations.

There are, however, workers who have tried, without recent success, to apply the False Claims Act.

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