Universities and other research organizations receiving federal grants should take note of the recent multimillion-dollar False Claims Act settlement between the prestigious Scripps Research Institute (Scripps) and the U.S. Department of Justice.[1]  The settlement illustrates the dangers of imprecise grant reporting.  It is a reminder that federal funds have many strings attached, and institutions and their principal investigators (PIs) must pay close attention to grant rules.

Federal Grants and False Claims Act Risk
Federal grants are vital for many research organizations, including colleges and universities.  In a recent year, for instance, five federal agencies alone—the National Science Foundation, plus the Departments of Health & Human Services, Energy, Defense, and Agriculture—invested a staggering $68.4 billion dollars to fund research.[2]  But those funds do not come easily to PIs or their institutions.  Federal grant applications can be hundreds of pages long, and competition for grants can be fierce.

Moreover, once a grant is awarded, the work to receive actual funds (cash) is far from over.  Federal regulations and grant terms prescribe rules that must be scrupulously followed to unlock grant funds.  For PIs focused on their missions, these rules may appear labyrinth and tedious.

The government has punished violations of these rules harshly, putting PIs and their institutions at risk.  Most organizations and researchers intuit that blatant misappropriation of grant funds for personal gain may trigger criminal prosecution and severe penalties.  It will.  Yet, even when a PI and an institution commit no deliberate wrongdoing and lack any fraudulent intent, their errors can nevertheless trigger severe civil penalties.  The most pervasive risks arise under the False Claims Act.

The False Claims Act (FCA) is a powerful, and often counterintuitive, statute that empowers the government to collect treble damages and penalties against recipients of federal funds, like grants, for submitting so-called false claims.  The government brings FCA cases on its own and additionally invites whistleblowers to file cases, with the incentive that whistleblowers may share in government recoveries.  Significantly, the FCA does not require the government to prove fraud.  Instead, recklessness suffices.  So, when the government aims the FCA at grant recipients who have improperly accounted for grant funds, PIs and their organizations can be responsible for repaying those funds with treble damages, i.e., three times over.  And both organizations and PIs can be held legally responsible for those amounts.

What Happened at Scripps:  Mischarging for Grant-Writing Efforts and Other Tasks
The Scripps settlement should be a wake-up call for any university or research organization not laser-focused on grant compliance and accounting.  Scripps is a world-renowned research institution that boasts of more than 2,400 employees and annual federal and state grants beyond $250 million a year.[3]  Like many of its research-centered peers, it has an entire office to assist with grant administration, an “Office of Sponsored Programs.”  Yet even Scripps, with its enviable experience and infrastructure, ended up mischarging significant sums to NIH-funded grants, according to the Justice Department. 

Here’s what the Justice Department alleged:  Federal grant rules prohibit recipients from charging the government for researchers’ salaries to the extent they reflect time spent on tasks distinct from the funded project.  So, PIs and their teams cannot charge the government for the many hours spent writing or developing grant applications or renewal applications.  Nor can they charge the government for teaching, committee work, or administrative tasks outside the scope of their funded grants.  Yet Scripps, according to the government, did not have a system in place to account for that time, and, between 2008 and 2016, overcharged the NIH for salaries including such tasks. 

The Scripps investigation took the Justice Department five years to resolve and resulted in Scripps paying the government a $10 million FCA settlement.  The case began not with an NIH audit but, as many FCA cases do, a complaint from a whistleblower, Thomas Burris, Ph.D.  According to Dr. Burris’s recently unsealed complaint, he was a tenured professor at Scripps for five years.  He alleges that he was a PI on numerous grants but was kept “in the dark” on governing federal rules and unwittingly reported all of his salary to be charged to federal grants, even though he in fact spent 20-50% of his time on grant writing activities, which should never have been charged to the government.  Dr Burris received a $1.75 million reward from the settlement for tipping off the government. 

The Scripps case is a cautionary tale.  It serves to remind researchers and research institutions, like colleges and universities, that following federal grant rules must be a priority.  Organizations should regularly audit their grant accounting and educate those responsible for reporting.  For Scripps, the alleged violation was the failure to exclude time spent writing new grant applications or renewals, or time spent teaching or on administrative tasks.  Those are some of the many potential pitfalls in grant reporting.  Because institutions often rely on PIs to allocate time and charges, both institutions and their PIs must understand the rules—and the stakes.  

HSE attorneys have the expertise necessary to advise organizations and individuals on False Claims Act grant risks and how to handle government investigations relating to potential grant misallocation.  If you would like our assistance, or if you have any questions about this LEGALcurrents, please contact any member of our Government and Internal Investigations practice groups. 

[1] See Department of Justice, Press Release, “The Scripps Research Institute To Pay $10 Million To Settle False Claims Act Allegations Related To Mischarging NIH-Sponsored Research Grants” (Sept. 11, 2020), at https://www.justice.gov/opa/pr/scripps-research-institute-pay-10-million-settle-false-claims-act-allegations-related.

[2] See Christopher Pece, National Science Foundation, “Federal Research Obligations” (Jan. 20, 2020), at www.nsf.gov/statistics/2020/nsf20308.

[3] https://www.scripps.edu/about/facts-at-a-glance/

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