Anti-Fraud Waste and Abuse Efforts

BACKGROUND: 

The Fund stakeholders share the USTCF’s belief that a healthy Fund requires an efficient process for detecting and punishing fraudulent behavior.   Far too little money is available for Fund claimants as it is to allow any attempts to divert these limited resources from their intended and rightful recipients.   We understand that the Fund has used the Attorney General’s Office to pursue these offenders and while those efforts have been fruitful, far too many other offenders have not been pursued due to the high cost of litigation. Although the Fund stakeholders have reservations regarding the January 22, 2014 proposal from the Governor’s Office, they believe that enough good can and will come from implementation of the proposal that they are willing to accept most of the language.   For example, the stakeholders are willing to live with the imputed liability that comes with defining the parties subject to the liability provisions as “persons” rather than focusing on the “individuals” that make these poor decisions.  Serious concerns were also discussed with Fund management regarding the maximum amount of the authorized penalties, reliance on jurisprudence to define misrepresentation and the lack of any requirement that the information that is the subject of a violation under Section 25299.78 or 25299.80 be material to the Fund claim or reimbursement request.

We also discussed at length two concerns that are the focus of the attached proposal:  the lack of claimant culpability in the vast majority of the Office of Enforcement’s fraud investigations and the potential impact on a claimant’s entire portfolio of sites if third party fraudulent conduct occurs.  In response to these concerns, the stakeholders have prepared the attached, narrowly drafted proposal.

PROPOSAL:

As explained below and as shown in the attached redline, the proposal provides:  (1) that the Fund may hold claimants liable upon evidence of significant, intentional misconduct; (2) a notice and opportunity for claimants to cure for minor and unintentional violations; and (3) that the Fund has the ability to disqualify a claimant’s sites from further participation in the Fund upon evidence of significant, intentional misconduct by the claimant.

Liability Findings:

Generally, Section 25299.78 speaks to civil liability for failure/refusal to provide documents or providing false documents.  We have added a new subsection to this section, 25299.78(d), that provides that claimants cannot be held liable unless one of the following is established: (1) the alleged violation is knowing, willful, or intentional; (2) the alleged violation enabled the claimant to receive a material economic benefit from noncompliance; or (3) that the alleged violation is chronic or that the claimant is a recalcitrant violator.

Notice and Opportunities to Cure:

Section 25299.78 (also discussed above) was amended to include a notice and opportunity to cure provision for claimants for any alleged violations that are minor in nature.  We borrowed concepts from other sections of Porter Cologne and defined minor violations to be those that are:  (1) not knowing, willful, or intentional; (2) do not enable the violator to receive a material economic benefit from noncompliance; or (3) are not chronic violations or committed by a recalcitrant violator.

Section 25299.80, which addresses civil liability for misrepresentations to the Fund, was also amended to include a notice and opportunity to cure provision for claimants for any alleged violations that are not knowing, willful or intentional.  Pursuant to new subsection 25299.80(d), those claimants that act with intent to deceive (i.e., intentional misrepresentation), will not be given a notice and opportunity to cure.  Claimants that were negligent (i.e., their conduct was objectively unreasonable, but they did not intend to deceive) will be given a notice and opportunity to cure.

Disqualification of a Claimant from Participation in the Fund:

Our proposal, shown in subsections 25299.71 (b) and (c), allows the Fund to disqualify claims that were the subject of the conviction or civil liability from further participation in the Fund if the claimant’s violations were knowing, willful or intentional.   In addition, the Fund may disqualify the Claimant’s other sites that were not the subject of the conviction or civil liability if:  (1) the alleged violation is knowing, willful, or intentional, (2) the claimant received a material economic benefit from the actions which caused the violation, and (3) the alleged violation is chronic or that the claimant is a recalcitrant violator.

FRAUD PREVENTION AND RECOVERY HAS THE POTENTIAL TO PROTECT THE FUND’S LIMITED RESOURCES

As evidenced by the Fund’s lengthy priority list consisting of approximately 4,500 eligible claims, the limited annual budgets available for claimants since the Fund’s financial crisis in 2008-2009 and the number of applications that continue to be submitted to the Fund, the Fund can’t afford the high costs of fraud.

Working Group Fraud Mock-Up 3/10/14

Section 25299.71: 

(a)  Subject to Subsections (b) and (c) below, if a person is convicted under Section 25299.82 or found to be civilly liable under Sections 25299.78 or 25299.80, then the Executive Director may permanently disqualify such person from further participation in the fund.  If the disqualified person is a consultant, a claimant shall not submit invoices to the fund for any work performed or directed by that person. 

(b) If the person convicted under Section 25299.82 or found to be civilly liable under Sections 25299.78 or 25299.80 is a claimant, then the Executive Director may permanently disqualify the claimant from further participation in the fund, with respect to the fund claims that are the subject of such conviction under Section 25299.82 or such civil liability under Section 25299.78 or 25299.80, only upon a finding that the alleged violation is knowing, willful, or intentional. 

(C) If the person convicted under Section 25299.82 or found to be civilly liable under Sections 25299.78 or 25299.80 is a claimant, then the Executive Director may permanently disqualify the claimant from further participation in the fund, including fund claims that are not the subject of such conviction under Section 25299.82 or such civil liability under Section 25299.78 or 25299.80, only upon a finding that (1) the alleged violation is knowing, willful, or intentional, (2) the claimant received a material economic benefit from the actions which caused the violation, and (3) the alleged violation is chronic or that the claimant is a recalcitrant violator, determined pursuant to Section 13399(g) of Chapter 5.8 of Division 7 of the Water Code. 

(d)  In determining the extent to which a person convicted under Section 25299.82 or found to be civilly liable under Section 25299.80 or 25299.78  should be disqualified from further participation in the fund, including the extent to which pending or future claims for reimbursement should be rejected, the Executive Director , or the court, as the case may be, shall take into account the nature, circumstances, extent, and gravity of the violation, the person’s ability to pay, any prior history of misrepresentations by such person to the state board, or local agency, any economic benefits or savings that resulted or would have resulted from the false statement, and other matters as justice may require. 

Section 25299.78: 

(a)  Subject to Subsections (d) and (g) below, any person who fails or refuses to furnish information under subdivision (b) or furnishes false information to the fund is subject to a civil liability of not more than $10,000 for each violation of this subdivision. 

(b) No claimant shall be liable under subsection (c) unless it is established that (1) the alleged violation is knowing, willful, or intentional, (2) the alleged violation enabled the claimant to receive a material economic benefit from noncompliance, or (3) that the alleged violation is chronic or that the claimant is a recalcitrant violator, determined pursuant to Section 13399(g) of Chapter 5.8 of Division 7 of the Water Code.

 (c) The Attorney General, upon request of the state board, shall bring an action for civil sanctions in superior court to impose the civil liability specified in subdivision (c). 

(d)  The Executive Director may impose the civil liability specified in subdivision (c) administratively pursuant to Article 2.5 (commencing with section 13323) of Chapter 5 of Division 7 of the Water Code. 

(e) For any violations by a claimant of subdivision (c) which (1) are not knowing, willful, or intentional (2) do not enable the violator to receive a material economic benefit from noncompliance, or (3) are not chronic violations or committed by a recalcitrant violator, the state board or an authorized representative shall first issue a notice to comply pursuant to Chapter 5.8 (commencing with section 13399) of Division 7 of the Water Code prior to proceeding under subsections (d) or (e),(h)  In determining the amount of any civil liability imposed under this Section, the Executive Director, or the court, as the case may be, shall take into account the nature, circumstances, extent, and gravity of the false statement, the person’s ability to pay, any prior history of misrepresentations by the person to the state board, or local agency, any economic benefits or savings that resulted or would have resulted from the false statement, and other matters as justice may require. 

(f)  Remedies under this section are in addition to, and do not supersede or limit, any other civil, administrative or criminal remedies. 

(g)  All funds collected pursuant to this section shall be deposited into the fund. 

Section 25299.80: 

(a) Subject to Subsection (d), any person who makes any misrepresentation in any claim, including, but not limited to, a record, report, certification, application, invoice, form, or other document that is submitted to the fund, is subject to a civil liability of not more than $500,000 for each violation of this subdivision. 

(b) The Attorney General, upon request of the state board, shall bring an action for civil sanctions in superior court to impose the civil liability specified in subdivision (c). 

(c) The Executive Director may impose the civil liability specified in subdivision (c) administratively pursuant to Article 2.5 (commencing with section 13323) of Chapter 5 of Division 7 of the Water Code. 

(d) For any violations by a claimant of subdivision (a) which are not knowing, willful, or intentional, the state board or an authorized representative shall first issue a notice to comply pursuant to Chapter 5.8 (commencing with section 13399) of Division 7 of the Water Code prior to proceeding under subsections (b) or (c), 

(e) In determining the amount of any civil liability imposed under this Section, the Executive Director, or the court, as the case may be, shall take into account the nature, circumstances extent, and gravity of the violation, the person’s ability to pay, any prior history of misrepresentations by the person to the state board, or local agency, any economic benefits or savings that resulted or would have resulted from the false statement, and other matters as justice may require. 

(f) Remedies under this section are in addition to, and do not supersede or limit, any other civil, administrative or criminal remedies. 

(g) All money collected pursuant to this section shall be deposited into the fund. 

(h)  The state board shall file a complaint with any applicable licensing board against any person who is found to be liable under this Section.   

Section 25299.81 

(7) The imposition and collection of civil liabilities pursuant to Article 7 (commencing with Section 25299.70), as that article read on December 31, 2015; however, nothing contained herein shall be construed as extending or modifying any applicable statute of limitations. 

Section 25299.82: 

(a)  Any person who knowingly makes or causes to make any false statement, material misrepresentation, or false certification in any claim, including, but not limited to, an application, record, report, certification, plan or invoice form, or other document that is submitted, filed or required to be maintained under this chapter, shall upon conviction, be punished by a fine of not more than $10,000, or by imprisonment for not more than two years. 

(b)  The Attorney General, upon request of the state board, may bring an action for criminal liability in superior court to impose a criminal penalty specified in subdivision (a). 

(c)  Remedies under this section are in addition to, and do not supersede or limit, any other civil or criminal remedies. 

(d)  All funds collected pursuant to this section shall be deposited into the fund. 

(e)  The state board shall file a complaint with any applicable licensing board against any person who is convicted under this Section.  

Section 25299.84: 

All actions by the Executive Director under this Division are subject to review by the state board in the same manner as provided for the review of actions by a regional board under Water Code section 13320.

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