I n January 2015, the U.S. Department of Justice made head- lines - PDF document

Health Care Innovators Under the Microscope: Important Takeaways Concerning Federal Research Grants and Contracts in the Face of Increased Law Enforcement Scrutiny Shireen M. Becker Pete J. Mazza Jones Day San Diego, CA I n January 2015, the U.S. Department of Justice made head- lines when it brought criminal charges against a San Diego biotech company for alleged widespread accounting fraud arising from several grants and a $50 million contract awarded Brief Reminder of OIG Compliance Guidance by the National Institutes of Health (NIH). 1 The company, Before addressing the risks associated with increased scrutiny Ansun Biopharma Inc. (Ansun), received federal grants and of recipients of federal grants and contracts, it may be useful contracts from 2004 to 2011 to develop treatments to combat to provide a brief reminder of the applicable OIG guidance. infmuenza, including an experimental antiviral treatment called In 2005, OIG issued recommended compliance guidance Fludase. 2 According to settlement documents, top executives to companies seeking federal grants and contracts. 11 At a at the company: (1) “fabricated timesheets” for company minimum, the OIG guidance indicates that academic medical employees to maximize billing on the NIH grants and contract; centers, research institutions, and other recipients of public (2) billed employee project hours to the NIH contract, even if health funding awards should consider eight elements to mini- the project did not fall within the contract’s scope; and mize the risks—and potential damage—of improper conduct, (3) moved employee hours from nongovernment projects to like the accounting improprieties alleged in the Ansun case. 12 the NIH-funded grants to recoup money from NIH for work These internal controls and procedures include the following: not covered under the awards. 3 Ansun agreed to pay the federal government more than $2 million to resolve the allega- • Written Policies and Procedures That Refmect the Institu- tions of accounting fraud. 4 tion’s Commitment to Compliance. Institutions receiving federal awards should develop written policies and The Ansun settlement is noteworthy for two reasons. First, procedures to promote compliance with federal grant although the health care industry is no stranger to civil and contract requirements; 13 lawsuits based on claims of fraudulent accounting, 5 the Ansun case serves as a powerful reminder that improper • Designation of a Compliance Offjcer. Every institution accounting practices also can lead to criminal charges. 6 should designate a compliance offjcer with day-to-day Second, the settlement comes at a time when the life sciences responsibility for developing, operating, and monitoring industry increasingly is under the microscope. The Afford- the compliance program. 14 The compliance offjcer at a able Care Act and recent Work Plans by the U.S. Department research institution should have visibility into, and over- of Health and Human Services Offjce of Inspector General sight of, the specifjc policies and procedures relating to (OIG) have increased resources for government enforce- federal funding requirements (e.g., timekeeping policies for ment, 7 placed a renewed emphasis on accounting fraud, 8 and employees working on research funded by federal awards); focused on new technology to identify red fmags and outliers • Regular Education and Training Programs . Federal in a grantee’s accounting records. 9 Moreover, Congress is funding, by defjnition, comes with proverbial strings poised to consider new legislation in 2015—dubbed the 21st attached in the form of strict accounting and reporting Century Cures Initiative—designed to revise the regulatory requirements. At the outset of a newly funded grant or process surrounding NIH research grants and contracts. 10 contract, research organizations should provide training Given the current enforcement environment, the stakes sessions to educate employees about the time and effort surrounding government-funded research are higher than reporting requirements, the importance of internal ever. Recipients of federal grants and contracts therefore accounting controls, and the available mechanisms for would be well-served to vigilantly maintain and enforce their reporting potential fraud and other possible unethical compliance programs and to proactively monitor internal conduct. 15 Such training should be repeated on a peri- accounting controls. odic basis so that researchers are reminded of the federal 5