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I assume that the alleged fraud resulting in the rates being higher than they would have been had no fraud occurred.  If that is the case, you can be held criminally and/or civilly liable for any over payments the government made.  This may not entail reopening your rates, but you will not be relieved of potential criminal and/or civil liability if the rates are not reopened and adjusted.

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It might be a FCA false claim. 

See, for example, https://www.justice.gov/sites/default/files/civil/legacy/2011/04/22/C-FRAUDS_FCA_Primer.pdf

Don’t know which party you represent. Although the government would have to prove it, it might be beneficial for the contractor to voluntarily pay back any overcharged amounts.

Check with legal counsel, regardless of which side you represent. 

 

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On 12/17/2021 at 1:06 PM, Former_DCAA said:

If a company had a settled indirect rate year and then discovers some sort of fraud that changes the rates, is there a mechanism to redo the settled rates to account for the change? I'm not seeing anything in FAR 42.705 Final indirect cost rates.

Emphasis added.

This is the kind of inquiry that just drives me crazy. "[I]s there a mechanism to redo the settled rates?"

Yes! Of course! But why do people need a regulation to tell them how to do EVERYTHING? 

I'm going to assume that your reference to "fraud" means that the government will want a rate reduction.

First, within your company and with the advice of an attorney, discuss how you want to handle this "fraud" thing. Are you sure fraud was involved? A person who has to ask a question like yours may not know fraud from fricassee. Get legal advice.

Second, after your company has decided how to approach the government on the matter, by saying it (or someone) committed fraud or that it made a mistake, write a letter to the CO or auditor who made the annual rate determination in question and say that you need to make a change. Include a revised indirect cost rate proposal to send with the letter. Require proof of delivery.

Third, stand by for a response. If you don't get one within a reasonable time, send another letter, and again require proof of delivery. If you don't get a prompt response from the addressee, send a letter to the addressee's superior.

What happens from then on will likely depend on government inquiries and instructions. If it is possible that anything was involved beyond a provably honest mistake, be guided in all your communications and actions by your lawyer.

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59 minutes ago, Vern Edwards said:

Emphasis added.

This is the kind of inquiry that just drives me crazy. "[I]s there a mechanism to redo the settled rates?"

Yes! Of course! But why do people need a regulation to tell them how to do EVERYTHING? 

I'm going to assume that your reference to "fraud" means that the government will want a rate reduction.

First, within your company and with the advice of an attorney, discuss how you want to handle this "fraud" thing. Are you sure fraud was involved? A person who has to ask a question like yours may not know fraud from fricassee. Get legal advice.

Second, after your company has decided how to approach the government on the matter, by saying it (or someone) committed fraud or that it made a mistake, write a letter to the CO or auditor who made the annual rate determination in question and say that you need to make a change. Include a revised indirect cost rate proposal to send with the letter. Require proof of delivery.

Third, stand by for a response. If you don't get one within a reasonable time, send another letter, and again require proof of delivery. If you don't get a prompt response from the addressee, send a letter to the addressee's superior.

What happens from then on will likely depend on government inquiries and instructions. If it is possible that anything was involved beyond a provably honest mistake, be guided in all your communications and actions by your lawyer.

Agree. I don’t advise using the term “fraud” in communications with the government; rather advise of a “mistake”.
Not enough info provided (that’s okay - don’t elaborate) to determine if it was internal fraud or if the company knew about the incorrect information when the rates were finalized.

But do first get a lawyer before discussing with the government. 

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Fraud requires intent, which is a matter for a judge or jury to decide. A practitioner should never use that term. I'm just saying that I agree with Joel's advice.

Second, check out Kearfott Guidance, ASBCA No. 55626, June, 2011. Less on point (but interesting) is Information Systems & Networks Corp., US Court of Federal Claims, May, 2020. After you've looked at them, then obtain competent legal advice.

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Most people who use the word fraud have no idea what it means. It is a word that I never use except when responding to people who do use it. It is a complicated idea. Here are some readings about fraud:

"The Elements of Common Law Fraud"

https://www.mitchell-attorneys.com/common-law-fraud

"When Is It Legal to Lie in Negotiations?

https://faculty.wharton.upenn.edu/wp-content/uploads/2012/04/Ethics1.pdf

"Reflections on Certification, Interpretation, and the Quest for Fraud That Counts under the False Claims Act"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2836645 

Supreme Court - Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016)

https://www.supremecourt.gov/opinions/15pdf/15-7_a074.pdf

"What is a False Claim?"

https://www.mololamken.com/knowledge-What-Is-a-False-Claim

Here is a recent board of contract appeals decision in which the ASBCA concluded that the act of a contractor had constituted fraud in the inducement. Hollymatic Corp., ASBCA 61920, March 22,2021.

https://www.asbca.mil/Decisions/2021/61920, 61956 Hollymatic Corporation 3.22.21 Decision.pdf

 

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Yes there are several ways in FAR that protect the gov'ts interest and allow a way for the ACO to re-coup monies from a KTR.  Instead of getting tangled in the argument to prove FRAUD,  consider the  other situations in which final rates have been settled  but then,  later,  it is  determined there are issues  with costs to see the parallels to your circumstances.  For example, in the case of CAS Non-compliances outstanding, one can still settle indirect rates, because in resolving the CAS Non-compliance a 'cost impact' must be determined. If there is a resultant cost impact to contracts the KTR will have to allocated those costs back across the contracts, and re-run Schedule "H" and "I", and then re-submit invoices which reflect the cost impact.  The other avenue is that at contract close-out process the file shall not closed if the contract is in litigation or under appeal (assuming you do have an actual  legal proceeding due to the FRAUD).

Let's say your choice of words "fraud", was a little too strong, but instead it is an cost accounting error (on purpose maybe), one can look to 32.6 Contract Debts.  See 32.601 (a)(8) Duplicate or erroneous payments.   Which can lead the ACO to 32.604 where a 'Demand for Payment' letter is issued to the KTR.

This does happen where mistakes are made, sometimes with less than honorable intent, and sometimes its as simple as the person who was responsible for making those journal entries retired, and never told anyone how to do it and so it was overlooked.  So whether it is ''real fraud', a CAS Non-compliance or just an 'OOPS',  it can be fixed. 

Of course as it was said by the others above, check with your Legal team and DOCUMENT DOCUMENT DOCUMENT the file.

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