We had an employee come to us with a pretty serious allegation concerning potential fraud. We don’t have a confidential hotline, so what’s the best way to handle a whistleblower complaint?
Quick Answer
Investigate the allegation promptly and thoroughly, keep the identity of the whistleblower confidential, and take any required remedial action.
Legal Perspective
Ogletree Deakins
Atlanta, Georgia
Many state and federal laws offer protections to whistleblowers, so you must proceed very carefully, says employment law attorney Meg Campbell of the firm Ogletree Deakins.
First of all, it’s important to do everything you can to keep the identity of the whistleblower anonymous. This can sometimes be difficult – if the whistleblower names a specific person, it could be easy for colleagues to figure out who reported it.
But the most important thing is to thoroughly investigate the whistleblower’s claim. Be prompt and thorough, be as transparent as possible, don’t make promises you can’t keep, and take proper steps to address the findings of the investigation.
Relevant Case Law
Johnson v. District of Columbia
Weinstein v. Univ. of Connecticut
Patterson v. Glory Foods, Inc.
HR Insight
CertiK
New York, New York
Investigate this with confidentiality to the extent possible, says Erin ImHof, HR Leader. You can always bring in an independent third-party investigator if the claims are serious to show there is no bias.
Obey Clothing
Irvine, California
Your HR department should hear the complaint and conduct a full investigation to understand the complaint and remedy the allegations whether it’s implementing changes in response to an oversight or conveying to the complainant there were no such fraud, according to Director of HR Julie Palumbo.
Town of Geddes
Syracuse, New York
Manager Jennifer Kolakowski says: Take all information that is to be provided in a confidential manner and follow up on the lead without revealing the name or names of the people who reported it.
The Cost of Noncompliance
Whistleblower’s fraud complaint about double-billing leads to $1.9M payout
Who was involved: Mile High Psychiatry LLC, a psychiatry practice in Colorado; its owner, Michael K. Chism, II; and a compliance manager in charge of auditing patient charts and billing codes.
What happened: According to the DA’s Office for the District of Colorado, the practice and its owner submitted inflated bills to Medicare and Medicaid, seeking payment for both “evaluation and management services” and “psychotherapy services” that were provided during the same patient visit. Rules for Medicare and Medicaid clearly state that the services must be separately identifiable and cannot be double counted in billing.
The DA’s Office alleged the company and owner knowingly disregarded the rule, improperly double-billed for these services and unlawfully obtained inflated reimbursement for thousands of patient visits between 2017 and 2021.
An employee – the compliance manager – was suspicious of the billing practices and filed a whistleblower complaint under the False Claims Act (FCA).
Result: The practice and its owner agreed to pay $1.9 million to settle the matter. The whistleblower will receive approximately $325,000 as her portion of the settlement.
Info: Colorado Psychiatry Practice and Owner Agree to Pay $1.9 Million to Settle Allegations of Fraudulent Billing, 9/11/23.
OSHA investigates whistleblower complaints: Company pays $50K
Who was involved: House of Hounds, a doggie daycare facility in Idaho, and two employees who were fired after they expressed safety concerns to the company owner.
What happened: The employees raised concerns to the owner about working alongside a co-worker who was awaiting COVID test results. Afterward, according to OSHA investigators, the owner told them to finish what they were doing, clock out and go home. The two workers were removed from the employer’s social media platform and were not included on the weekly schedule. OSHA said this amounted to termination.
Moreover, when the workers filed for unemployment insurance, House of Hounds challenged the benefits claims, saying the two employees “had quit.” After determining the employer violated federal whistleblower regulations, OSHA sued on behalf of the employees, alleging they faced discrimination and retaliation for exercising their legal right to speak up about workplace safety. At some point during the investigation and litigation, the owner sold House of Hounds.
Result: The parties reached an agreement to resolve the dispute. Under the consent judgment, House of Hounds and the former owner must:
- pay $25,000 in general and punitive damages to each of the two employees
- issue a verbatim public apology to the two employees from her personal Facebook account
- provide OSHA-approved training to supervisors and managers, and
- post a notice about employees’ rights under federal whistleblower protections.
Info: Court orders doggie daycare, former owner to pay $50K to two employees fired after reporting COVID safety concerns, 10/3/23.
COVID relief fraud: Whistleblower case leads to $2M payout
Who was involved: Feast American Diners LLC and Dawood “David” Beshay, the corporate owner and managing member of multiple Denny’s restaurants throughout Arizona and New York.
Background info: To provide support to American businesses that were struggling to stay afloat during the pandemic, Congress enacted several measures. One such measure allocated $28.6 billion for Restaurant Revitalization Fund (RRF) grants. Relevant here, any restaurant that owned or operated more than 20 locations as of March 13, 2020, was not eligible for an RRF grant.
What happened: In May 2021, Beshay applied for an RRF grant on behalf of Feast American Diners, in the amount of $928,554. A question on the application specifically asked whether Feast American Diners owned or operated more than 20 locations as of March 13, 2020, to which Beshay responded “no.” That same question explained that applicants who responded “yes” would be ineligible for the grant. Toward the end of the application, Beshay initialed the following statement: “The Applicant, together with its affiliates, does not own or operate more than 20 locations.”
But that wasn’t the case. Feast American Diners owned 21 Denny’s locations as of March 13, 2020, and each location made sales that day. A whistleblower filed a complaint under the False Claims Act (FCA).
Result: Feast American Diners LLC and Beshay agreed to pay $2 million to settle allegations that Beshay falsely certified that he and his company were eligible for an RRF grant when he knew or should’ve known that he and his company owned and operated too many locations to qualify for the COVID relief funding. The whistleblower will receive $200,000 of the settlement.
Info: First-Ever Settlement of False Claims Act Whistleblower Case Involving Grants for Restaurants and Similar Businesses Struggling During the COVID-19 Pandemic, 11/1/23.
Clause in separation agreement leads to $35M civil penalty
Who was involved: Activision Blizzard, a video game development and publishing company, and an undisclosed number of former employees.
What happened: According to the Securities and Exchange Commission (SEC), the company failed to maintain disclosure controls and procedures to ensure that it “could assess whether its disclosures pertaining to its workforce were adequate.” A clause in the company’s separation agreement violated a Commission whistleblower protection rule, the SEC determined, by requiring an undisclosed number of former workers to provide notice to the company if they received a request for information from the Commission’s staff. The SEC issued a $35 million civil penalty for the violation in the separation agreement.
Result: Activision agreed to remove the clause, revise its separation agreements and pay the $35 million civil penalty without appealing/admitting wrongdoing.
Key Takeaways
- Have reporting methods in place, such as email, phone, or a form that can be submitted anonymously.
- Treat the allegation seriously.
- Investigate the allegation promptly and thoroughly.
- Keep the whistleblower informed about the status of your investigation.
- Be sure to preserve all relevant documents.
- Set a deadline to complete your investigation, and meet it.
- Do not retaliate against the whistleblower.
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