Deep in the pages of the new Federal Accountability Action Plan is an important initiative that has received only a fraction of the media coverage that it deserves.
Tory MP Pierre Poilievre, the plan states, "has been asked to work on proposals for establishing a 'made in Canada' regime that would allow members of the public to initiate legal action against private companies who may be defrauding the government of taxpayers' money."
The concept comes from a legislative scheme in the United States called the False Claims Act (FCA). Signed into law by president Abraham Lincoln, the FCA was originally designed to stem the fraud being committed against the U.S. government by war profiteers during the Civil War.
In short, the FCA awards a "bounty" to private citizens who inform the authorities when a company overcharges the government for goods or services. Think of it, perhaps, as the "white collar" division of Crime Stoppers.
While it has had its share of critics, according to publicly available figures the U.S. government may have recovered as much as US$4-billion under the plan since 1986.
If a supplier is found to have overcharged the government, it is liable to pay three times the amount in addition to a fine of between $5,000 and $11,000 for each false claim. So, if a company overcharges the government by $1 on 100 invoices, the damages will be $300 but the penalties could reach $1,100,000.
A Canadian version of the FCA would be a natural extension of the Prime Minister's "culture of accountability." It would no doubt compliment the creation of a $1,000 reward for public service whistleblowers, which was also part of the new Accountability Act.
While the value of a Canadian FCA may seem self-evident, the American experience tells us there are a number of pitfalls the government should avoid. Moreover, Canadian business should be fully aware, and to some extent fearful, of the possible consequences of this legislation.
The law, for example, might not necessarily distinguish between fraud resulting from deliberate corporate misconduct and innocent errors in bookkeeping practices. Also, several well-known companies in the United States have opted for quick out-of-court settlements in order to avoid the cost and publicity associated with a lengthy trial.
One of the challenges is that the law can create a financial incentive for individuals to bring frivolous claims against large companies in the hopes of recovering a substantial portion -- up to 33% -- of the amount recovered by the government.
To date, more than US$1-billion has been paid out to whistleblowers in the United States.
This may be particularly true where a disgruntled employee seeks to have some revenge on a former employer. It is therefore vital that any Canadian version of the FCA contain safeguards to prevent those types of abuse -- ultimately the kind of fraud that the legislation seeks to eliminate.
To that end, and in the spirit of the ongoing development process, the following are some suggestions for how the Canadian version can improve on the original.
First, I would propose that the Canadian International Trade Tribunal (CITT) be given the jurisdiction to administer and oversee the new act and its provisions. The CITT already has the mandate and expertise to review government contracting disputes relating to federal government purchases, thereby removing the need to create an expensive new agency.
Moreover, the CITT has rules and procedures in place to easily weed out frivolous or vexatious claims that are brought without merit. It can screen potential claims at the outset, to determine which claims warrant a full investigation -- as it currently does for procurement complaints filed by aggrieved bidders.
Most importantly, the CITT's inquiry process is significantly faster and more cost effective than lengthy litigation through our already overburdened court system.
A second suggestion would be to limit the amount that private citizens can recover in the form of rewards. While the amount must clearly justify the level of effort required to bring an action, it need not become a windfall. The higher the potential reward, the greater the incentive will be for some people to bring frivolous claims that have no merit whatsoever.
Third, the Canadian legislation must include some protections for private companies that choose to do business with the federal government. These laws should not punish companies that commit inadvertent accounting errors or that have otherwise been diligent in the conduct of their business relations with the government.
Lastly, the penalties for individual infractions should be far more restrained than what we see in the United States.
Although we Canadians are not as litigious as our American cousins, it is still important that we ensure that the system is not hijacked by those looking to make a quick buck. Nor should the government incite fear in companies that supply it with the many goods and services purchased every day.National Post's Financial Post & FP Investing
