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Home Business How a whistleblower says Booz Allen Hamilton defrauded the government

How a whistleblower says Booz Allen Hamilton defrauded the government

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AUGUST 28, 2023

Former Booz Allen employee Sarah Feinberg earned $70 million for making the case known to authorities. (Matt McClain/TWP)

Sarah Feinberg’s complaint about the company’s billing practices led to a $377 million settlement with the Justice Department

Only a few months into a new finance job, Sarah Feinberg felt stunned when a senior manager with a Northern Virginia-based defense contractor called federal auditors “too stupid” to notice overcharging, according to a federal complaint she filed.

Feinberg said she had warned the manager that the company, Booz Allen Hamilton, was losing tens of millions of dollars and, in her view, billing more than it should on U.S. government contracts to cover the losses.

During the ensuing nine months, she repeatedly raised concerns with senior executives, including internal compliance officials and the chief financial officer, according to the 37-page civil complaint she filed against Booz Allen in 2016 under the federal False Claims Act.

In July, the Justice Department, which investigated her complaint, announced that Booz Allen had agreed to pay $377 million — $209 million in restitution to the federal government and the rest in penalties — to settle the matter, one of the largest awards in a government procurement case in history.

Feinberg, who said she felt vindicated and was to receive nearly $70 million for making the case known to authorities, nevertheless could not help feeling doubts about whether justice was served.

Feinberg had filed a “qui tam” lawsuit in which whistleblowers are awarded a portion of any financial judgment or settlement as incentive to come forward with evidence of fraud against the U.S. government. While the system dates back to the Civil War, when authorities sought to root out corruption in the production of war materials, the number of whistleblowers has grown significantly since Congress strengthened the law in 1986.

The Booz Allen Hamilton office building in McLean, Va., in 2013. (Kevin Lamarque/Reuters)

According to federal data, 652 people filed qui tam complaints last year, and the Justice Department recovered $2.2 billion in false claims by companies from 351 of those cases, the second-highest number of cases ever. The largest awards have come in health care, procurement and mortgage-lending, federal officials said.

Legal analysts have questioned whether the system has been effective in delivering a strong enough message of deterrence to companies that operate within the federal government’s vast contracting network. In civil cases, they say, companies are rarely required to admit liability, senior executives often do not face personal accountability, and investors typically react with a shrug, sometimes pushing stock prices higher because the legal cloud is lifted.

“Assuming the company is not debarred and can continue to do business with the government, there’s a real question, in terms of the system as a whole, of whether the consequences are significant enough,” said Seton Hall University law professor Jacob T. Elberg, a former federal prosecutor.

Booz Allen holds thousands of federal contracts, offering consulting and technical support in defense, cybersecurity, analytics and engineering to the Pentagon, U.S. intelligence divisions and other agencies.

Executives have said in statements that they deny wrongdoing by the publicly traded company, which has 32,000 employees and an annual revenue this year of $9.3 billion. The Justice Department closed a criminal investigation in 2021 without charges, and the civil settlement did not require Booz Allen to admit liability.

Company officials told investors on an earnings call in late July that they settled the case to avoid protracted litigation. Horacio Rozanski, the president and chief executive, said the company “acted lawfully and responsibly.”

Thirteen days after the settlement, Booz Allen’s stock price reached an all-time-high closing price of $124.06 per share.

In a statement to The Washington Post, Booz Allen spokeswoman Jessica Klenk said that when Feinberg raised her concerns, the company “promptly facilitated meetings for her with third-party experts as well as its financial, compliance and accounting teams to examine her concerns. Over the next year, these experts repeatedly affirmed that the company’s practices were lawful and compliant.”

The company “has always believed it acted lawfully and responsibly, guided by its strong culture of ethics and accountability, and its position has been consistently grounded in facts,” Klenk said in the statement.

Feinberg, who had resigned from her job as a financial analyst at Booz Allen ahead of filing the legal complaint, and her lawyer, William Pittard of KaiserDillon, signed off on the settlement. In a recent interview, she said she considered seeking a higher amount but feared that doing so would have put her at odds with federal prosecutors and forced her to face Booz Allen’s significant legal firepower on her own.

She said she believes the settlement, which covers the period from 2011 to 2021, required Booz Allen to pay far less than what may have served as a deterrent.

“The settlement has to be more than the damages or you’re giving them an interest-free loan, not a penalty,” Feinberg said.

A senior Justice Department official who was involved in the settlement negotiations disputed her contention. Prosecutors reviewed thousands of Booz Allen’s internal financial documents, this person said, and the settlement reflects a good-faith estimate of how much the government could prove in damages if the case went to trial.

“We think this sends a strong message of deterrence that the government will pursue even the most complex fraud cases,” said the Justice official, who spoke on the condition of anonymity to discuss private deliberations. “We think it is fair and reasonable in all respects.”

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Feinberg, 39, who worked for three years in financial planning operations at The Post after leaving Booz Allen, lives in Northern Virginia with her husband, Evan, and their three sons. She works as chief financial officer at National Journal and Bradley Media Holdings.

Assigned to Anbar Province, Feinberg led a logistics convoy that transported military equipment to Ain al-Asad air base in western Iraq. During one patrol, she coordinated the recovery of a civilian vehicle after a grenade attack. In late December 2009, she received the Navy and Marine Corps Achievement Medal for “superior performance of her duties.”

Amaury Gallais, a Marine officer who served with Feinberg, recalled her attention to detail to help ensure the convoy’s safety: “I remember going to the motor pool to see her get ready, and watching her running through every drill, every scenario, doing rehearsals to prepare and be ready for every contingency.”

Feinberg sits in a Marine helicopter that provided security for supply convoys she led between Syria and Jordan to Ain al-Asad air base in Iraq between 2009 and 2010. (Courtesy of Sarah Feinberg)

Feinberg returned to the United States in 2010 and joined Booz Allen, a popular landing spot for military veterans. There, she spent four years on Pentagon contracts helping the Marine Corps improve its war operations in Afghanistan. (The Feinbergs helped resettle an Afghan refugee family with three children in a condominium they own in Shirlington, Va.)

In 2014, she completed a master’s in business administration at the Wharton School at the University of Pennsylvania. Returning to Booz Allen in spring 2015, she was assigned to a new job on a three-person team in the finance department.

Feinberg said in her complaint and in an interview that she discovered within months that Booz Allen was losing millions of dollars on its commercial sector, which included international work, and, she contends, using a deceptive tactic to keep those operations solvent.

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Feinberg’s lawsuit presented a picture of a company eager to satisfy investors with a diversified growth strategy.

In 2008, Booz Allen had separated its commercial operations from its government consulting business ahead of an initial public offering two years later. By 2011, the company moved to reestablish the commercial business. It wasn’t easy, according to Feinberg’s lawsuit, which cited losses of tens of millions of dollars annually.

To cover the deficits, she alleged, Booz Allen was lumping government and commercial work together in combined “costs centers” or “cost bands” — and then billing the Pentagon higher amounts than was permitted under federal compliance rules.

Feinberg said that in late October 2015, she emailed her boss, R. Timothy Lawrence, then a vice president for financial planning and analysis, calling attention to a “major legal … compliance issue.”

Lawrence, according to the lawsuit, replied that he believed the company was in financial compliance. He suggested she meet with two senior managers, including Warren Kohm, then the company’s director of financial analytics and strategy.

It was Kohm, Feinberg alleged in the lawsuit, who told her three days later that federal auditors were “too stupid” to figure out what Booz was doing. He called the compliance rules ambiguous and said the auditors would not be motivated to collect all of the overcharges even if some billing was not permitted, according to Feinberg’s complaint.

Kohm, who left Booz Allen in February 2016, did not respond to messages seeking comment. Lawrence, who still works at the company, was not available for comment, a company official said.

According to her lawsuit, Feinberg raised the issue for months with senior executives. Among them were Lloyd Howell Jr., who served as chief financial officer from 2016 to 2022, and one of his deputies, Matthew Calderone, who succeeded Howell as finance chief.

Booz Allen executives said in the statement to The Post that they took Feinberg’s views seriously, bringing in legal and accounting experts from outside the company who assured them that their accounting practices were within federal guidelines.

Feinberg’s complaint cast the company’s leadership as defensive. Calderone, she said, questioned why she put her concerns in writing after she briefed him in a PowerPoint presentation in June 2016, according to her lawsuit. She says he also suggested she not share the written material in an upcoming meeting with Howell.

In another instance, Feinberg said in her legal complaint, a manager asked her to alter language in a PowerPoint slide that she viewed as an attempt to soften her criticism.

“The thing that frustrated me was that so much focus was on avoiding putting anything in writing, rather than on fixing the problem,” Feinberg said in the interview.

Booz Allen officials declined to discuss the specifics of Feinberg’s allegations that managers discouraged her from putting her concerns in writing. They pointed to the company’s values statement that instructs employees to “do right” and “maintain conviction no matter the circumstances.”

A former Booz Allen executive, who spoke on the condition of anonymity to discuss a sensitive legal matter, said Feinberg, because of her combat service, was considered credible by retired Marines who worked at the company. At the same time, she clashed with senior executives because she “gets committed to certain views and institutions,” this person said.

“My understanding had been that Booz believed she was overly pedantic and making a mountain out of a molehill,” said the former executive, who was not involved in the legal case.

On July 22, 2016, Feinberg and several colleagues met with Howell, who told them he would devote no more resources to the issue, according to the complaint.

Less than three weeks later, Feinberg resigned in protest. Howell, who retired from Booz last year after a 34-year career, was named executive director of the NFL Players Association in June. He declined to comment for this story, according to a representative.

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Feinberg said she kept documentation, including PowerPoint presentations and email records, in case federal auditors came calling. Booz Allen lawyers sent letters asking her to return or destroy all proprietary information and threatening criminal or civil action if she failed to comply.

That’s when she hired a lawyer, and her husband encouraged her to inform federal authorities.

“I loved Booz,” she said in the interview. “The idea that all the people I respected were doing the wrong thing was devastating to me. I did not want to further dwell on that. But my husband said, ‘This can’t be about you. You have to do the right thing.’”

A month after resigning, she filed the legal complaint. In qui tam cases, the Justice Department can elect to intervene, as it did in Feinberg’s case, but legal complaints can move forward without federal help. Whistleblowers are entitled to 15 percent to 25 percent of financial awards if federal prosecutors take the case and up to 30 percent of they do not.

Feinberg and her attorney, William Pittard of KaiserDillon. (Matt McClain/TWP)

Feinberg estimated in her legal complaint that Booz Allen had overcharged the Pentagon by nearly a quarter-billion dollars by the time she left in 2016.

Legal analysts said False Claims Act cases typically settle for double the damages. Feinberg said Justice Department prosecutors should have been seeking up to $1 billion.

“If the False Claims Act is going to deter this type of conduct … the settlement number has to be high enough,” said Thomas M. Greene, a Boston-based attorney. He represented Michael Bawduniak, whose 2012 qui tam complaint against Biogen, a pharmaceutical company, resulted in a $900 million settlement last year.

Denise M. Barnes, a former federal prosecutor who worked on fraud cases but was not involved in the Booz Allen case, called the $377 million settlement significant and said it signaled to the public that the company was implicitly conceding liability.

“It’s almost $400 million — if that doesn’t dissuade you [from fraud], what would?” Barnes said.

In 2021, Booz Allen completed a restructuring of its accounting and billing systems, company officials said

For Feinberg, the personal award is life changing. After paying her lawyers, she cleared a pretax amount of $42 million — up to $12 million of which she intends to put into a charitable trust. Some funds will go to supporting her church, she said, and she is interested in investing in underserved communities.

Despite these opportunities, Feinberg can’t help thinking about the Booz Allen manager who allegedly told her the government would never get all its money back.

“The thing that’s really demoralizing about it is that that’s what Booz knew would happen at the beginning,” she said in the interview. “That’s kind of how it played out.”


Courtesy/Source: Washington Post