Eighth Circuit Reinstates FCA Case Over Changed College Grades, Attendance Records

October 28, 2016 Advisory

Can changing grades and attendance records be actionable under the False Claims Act (FCA)? According to the Eighth Circuit, the answer is yes. Specifically, in United States ex rel. Miller v. Weston Educational, Inc., two former employees of Heritage College alleged that Heritage violated the FCA by falsely promising to keep accurate student records. The district court granted summary judgment for Heritage, but the employees appealed. The U.S. Court of Appeals for the Eighth Circuit reversed, allowing the case to proceed to trial.

Like many colleges and universities, Heritage gets a significant portion of its revenue through Title IV funding. As part of that process, Heritage signed a Program Participation Agreement (PPA) with the U.S. Department of Education. In order to be eligible for Title IV funding, the students are required to make “satisfactory academic progress” (SAP), which is measured by the student’s GPA. If a student does not maintain the requisite grades, the student is no longer eligible for Title IV funding, and in all likelihood, probably cannot afford to continue to go to school. Heritage is also required to refund money to the government if a student withdraws from school. Determining whether a refund is required is measured by the last date of attendance. Thus, there is no doubt that record-keeping on grades and attendance matters to schools.

In this case, the former employees claimed that Heritage altered grade and attendance records to keep students enrolled, which ensured that Heritage would receive the maximum amount of Title IV funds and would not have to refund any money.

The lower court determined that Heritage had not promised to keep perfect records, and that the falsified records did not cause improper disbursements or retention of Title IV funds. Because of this, the records were not material to the government’s funding decisions. The Eighth Circuit disagreed, finding that there was enough evidence to allow these issues to be submitted to a jury.

The Court found that there was a dispute of material fact about how Heritage understood its obligations and whether it intended to comply with the PPA. First, the Court found that the government expressly conditioned Heritage’s participation in Title IV on compliance with the record-keeping requirement, so it was therefore material to the government’s decision to enter into the PPA with Heritage. Second, the Court reiterated that actual harm to the government was not an element of materiality.

Finding that there is sufficient evidence to warrant a trial and being found to have violated the FCA are two very different things. Yet, this case should serve as a warning for all participants in Title IV, especially considering that the FCA carries a potential for treble damages, attorney’s fees, and disbarment from participation in federal programs. Such results would be a death knell for many schools. Schools need to carefully review their policies, training and compliance functions as they pertain to record-keeping obligations under Title IV. It is key that schools maintain sufficient internal controls with multiple signoffs to change grades or attendance. In addition, the school’s compliance team must be able to use the school’s student records system to review grade and attendance changes when they are made.

FCA liability can result from a school’s failure to maintain the integrity of its academic records, and in particular SAP and attendance. The timing of the alleged noncompliant conduct relative to when the school signed the PPA does not appear to matter. The Court’s opinion makes clear that a pattern of noncompliant conduct, even occurring after the school signs its PPA, can demonstrate the school did not intend to maintain accurate records when it earlier signed its PPA.

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