Whistleblower to DOJ: You’ve left the door open for more fraud

When Sarah Feinberg was a young lead associate at the consulting firm of Booz Allen Hamilton between 2010 and 2016, she noticed that the company was overbilling the U.S. government for its defense and national security contracts, and thus was effectively subsidizing the firm’s work for the Saudi government.

That discovery set off a series of events that culminated in July with a government settlement with the McLean, Va.-based firm worth $377 million — a return that made Feinberg a hero under the whistleblower statute and entitled her to a $70 million reward.

But now, Feinberg tells POLITICO, she believes the government did not go far enough in recovering money from Booz Allen, and that government contractors continue to be incentivized to defraud the government because of the Justice Department’s weakness.

Feinberg, who was 31 when she alerted colleagues to the alleged overbilling, said after her years with Booz Allen she had identified over $250 million of overbilling of the U.S. government by the firm, but that the firm continued to carry out the practice for another five years. She estimated that the total scope of the overbilling was at least $500 million.

“Them paying this settlement is — really represents an interest-free loan from the government rather than a penalty for the fraud,” she said. “Maybe [the government] didn’t have the financial capability to understand what they were looking at.”

The Justice Department, in response, said the $377 million it recovered from Booz Allen was the largest such settlement in history, and a Justice Department official said the decision to accept it was based in part on prosecutors’ assessment of the strength of their case. The department said it would continue to be vigilant in similar cases.

Booz Allen declined to address Feinberg’s new allegations, and noted that the settlement did not acknowledge any wrongdoing.

The case was brought under the False Claims Act, the statute that allows a whistleblower to bring a suit against those who have defrauded the government for damages on behalf of the government, and Feinberg claimed that the firm overcharged the government for costs related to its commercial and international operations. The allegations of fraud spanned a decade from around 2011 to 2021, and the investigation into the firm took about six or seven years.

But Feinberg emphasized that the government’s slowness allowed the firm to continue to overbill the U.S. for years.

“The fact that [the Department] took so long allowed [Booz Allen] to continue doing this until 2021,” Feinberg stressed.

“When you can make a risk calculation that tells you that you’re going to pay back less than what you take from your customers and that you won’t be held accountable from the Department of Justice, then yeah I think it’s an easy calculation for people without ethics in finance to decide to continue defrauding the government,” Feinberg said.

Moreover, she said she was told in 2015 that the Defense Contract Audit Agency, the government authority charged with catching potential fraud or overpayments, had not yet audited Booz Allen for 2012. The long lag times in audits can allow fraudulent billing to go undetected for multiple years without oversight.

A spokesperson for the Defense Contract Audit Agency did not return a request for comment.

Feinberg, a former captain in the U.S. Marine Corps, joined Booz Allen after serving in Iraq. When she returned to the firm after earning her M.B.A. from the Wharton School at the University of Pennsylvania, Feinberg was part of a project focused on the firm’s internal financial data. Her team was tasked with improving its tracking and analysis, according to her complaint filed under the False Claims Act.

At the time, Booz Allen was in the process of building its commercial and international operations, after it had separated its government work from its global commercial operations, which became its own entity later acquired by the firm of PricewaterhouseCoopers.

But Booz Allen was losing tens of millions each year on its commercial and international practice, and sought to recoup the funds by overbilling the government for costs related to its billions of dollars of consulting contracts, Feinberg’s complaint alleged. In practice, that meant the federal government was effectively billed for administrative costs related to growing Booz Allen’s business with foreign governments or companies, “entities that often maintain at least partially antagonistic relationships with the United States,” the complaint alleged.

When Feinberg found that the firm was overcharging the U.S. government, she said, she alerted colleagues. In one meeting, a colleague allegedly said the Department of Defense was “too stupid” or “not smart enough” to catch the firm and could not recover the money, according to the complaint. However, that same colleague also claimed, according to the complaint, that the firm had some reserves if the overbilling was discovered.

Booz Allen’s explanation, according to Feinberg, was that the government would not be motivated to collect the overpayments in full because, whatever it was, the government “would be proud of whatever they recovered.”

“That’s really my concern now, is that they’ve been proven right, and Booz was proven right in that, and so there’s an incentive now to defraud the government when you know you’re not going to actually have to pay back the full amount,” Feinberg said. “I think it’s a bad precedent for DOJ to be setting.”

Ultimately, the firm’s failure to act prompted Feinberg to resign from her post at Booz Allen in 2016. A month later, she filed the lawsuit under the False Claims Act, on behalf of the government. The Securities and Exchange Commission launched its own investigation, although the firm recently said on an earnings call that the investigation had concluded.

In its release announcing the settlement, the Department of Justice touted it as “one of the largest procurement fraud settlements in history.” A Justice Department official, granted anonymity to discuss sensitive matters related to the case, stressed that this settlement represented the largest purely civil procurement fraud recovery in U.S. history.

The official said the settlement reflected the department’s calculation of the risk of litigation versus the benefits of recovery. They added that the relator — the government’s term for a whistleblower, Feinberg in this case — had the right to object to the settlement, but she did not.

In response to questions about the Department’s aggressiveness in investigating the allegations of fraud, Patricia Hartman, a spokesperson for the U.S. Attorney's Office for the District of Columbia, emphasized that the Booz Allen settlement indicated the office’s commitment to exposing fraud.

“This settlement, which is one of the largest procurement fraud settlements in history, demonstrates that the United States will pursue even the largest companies and the most complex matters where taxpayer funds are alleged to have been pilfered,” Hartman said in a statement. “The Justice Department is committed to ferreting out all fraud, waste, and abuse in government programs — small or large, simple or complex.”

In return for her help with the investigation, Feinberg received about $70 million, although a significant portion of that will go to her legal team. Before taxes, it’s about $42 million, she said. Despite her misgivings about the total settlement, she said her motivation was not to maximize her share but to “reject this kind of behavior by a company,” so she agreed to the settlement amount.

In a statement, a spokesperson for Booz Allen reiterated that with the conclusion of the government’s yearslong civil investigation, the firm did not admit civil liability as part of the settlement. The firm “cooperated fully and has always believed it acted lawfully and responsibly,” the spokesperson added. The government had also concluded its criminal investigation without action two years ago, and the firm cooperated with both processes, the spokesperson said.

Feinberg’s complaint maintained that the firm charged the government to cover “costs expended attempting to grow Booz’s business with foreign companies and governments.” Feinberg said that included Booz Allen’s work for Saudi Arabia.

Booz Allen received more than $3 million for consulting work done for the Royal Embassy of Saudi Arabia in 2017 and 2018, according to public disclosures. It was also reportedly tasked in 2017 with drafting a presentation for then Saudi deputy Crown Prince Mohammed bin Salman to make at the Trump White House that included information on the Kingdom’s U.S. investments. Booz Allen later registered as an agent of the Kingdom retroactively in 2020. Feinberg claimed that the firm's decision to overcharge the federal government effectively subsidized the firm’s work for the Kingdom.

In response, Booz Allen said that its contracts were entirely appropriate.

“The U.S. government is Booz Allen’s largest and most important client, and it has fully vetted all work the company has engaged in with foreign governments in the past to ensure it was consistent with U.S. foreign policy and interests,” the spokesperson said. “Any insinuation to the contrary is categorically false and ignores the U.S. government’s most stringent requirements for all its private sector partners.”