A recent report by the Council of the Inspectors General (IGs) highlighted federal grant fraud as one of the top challenges that federal IGs must deal with in the years to come. This emphasis mirrors a broader increase in activity across federal IGs in recent years. For example, in Fiscal Year 2013, the federal government (government) recovered $14.8 billion from investigative actions. Based on these indicators, nonprofit grant recipients should be prepared for additional federal scrutiny in their grant programs. This article focuses on how nonprofit grant recipients can prepare for one of the tools increasingly used by IGs in a government investigation: The administrative subpoena.
The Inspector General Act of 1978 authorizes federal agency IGs to conduct audits and investigations in an effort to detect and deter fraud, waste, abuse, and mismanagement in the government. The 1978 Act grants IGs the authority to subpoena "the production of all information, documents, reports, answers, records, accounts, papers" necessary to prevent fraud, waste, and abuse in the government. Federal courts have generally stated that IGs hold broad investigative authority and will enforce an administrative subpoena where 1) the subpoena is within the statutory authority of the agency; 2) the information sought is reasonably relevant to the inquiry; and 3) the demand is not unreasonably broad or burdensome. Given these relatively broad powers, nonprofit grant recipients should be careful to structure their internal policies and rules to allow an efficient response to an administrative subpoena. We recommend the following tips for dealing with administrative subpoenas:
- Create Internal Procedures for Responding to Administrative Subpoenas. Nonprofit grant recipients should have procedures in place for acknowledging and responding to government investigations and administrative subpoenas. Accordingly, staff should have ready access to guidance on what to do if they receive an administrative subpoena. Responding to an IG subpoena can be costly and frustrating, and having specific procedures in place that elevates the subpoena to the proper individual(s) will help to mitigate the cost and complexity of any required response. Further, the timely handling of an administrative subpoena also can establish good will with the IG and help to mitigate accusations and allegations of deficient systems and controls.
- Designate a Specific Official to Oversee the Response Process. It is important to have a consistent and uniform response to the subpoena process. Having a single point of contact at the nonprofit will help to eliminate any confusion and ambiguity in an organization's representations to the government and will help to ensure a smooth and consistent process.
- Issue a Preservation-Hold Notice to Relevant Custodians. Nonprofits should have a template preservation-hold notice that can be quickly adopted when needed. The responsible official should work with relevant management and staff to determine potential custodians and issue a preservation-hold notice to such custodians, as well as the organization's IT department, in order to ensure any auto-delete processes are held in abeyance for such custodians for the duration of the IG review. When in doubt, nonprofits should be overly inclusive regarding the identification of custodians, which can be narrowed later to a more relevant subgroup, if needed.
- Clarify the Scope and Production Timing of the Subpoena. In cooperating with the IG, nonprofits should seek to better understand broad and/or ambiguous inquiries or time periods. This may help to mitigate what appears to be an overly burdensome request. While initial discussions should be made orally, all inquiries, clarifications, and agreements for interpreting and responding to an administrative subpoena should be memorialized in writing and addressed to the government official with appropriate authority to clarify or modify the subpoena.
- Maintain Complete, Accurate and Organized Records and Create a Recordkeeping Policy. Given the broad scope of an IG's powers, responding to a subpoena can mean the production of numerous documents and records throughout the process. Maintaining clear and accurate records that are easily identifiable and organized will make the production of those documents easier. At a minimum, nonprofits should have broad record retention requirements that ensure the maintenance and accuracy of records for the period of time prescribed in the grant agreement and/or by applicable regulation.
- Preserve the Attorney-Client Privilege where Appropriate. The government generally takes the position that most communications by and among nonprofit staff, advisers, and others in response to an administrative subpoena are not protected from later disclosure (to the IG or others who may subpoena them). Therefore, it is important to involve legal counsel in connection with all communications related to legal advice in the audit response in order to preserve the attorney-client privilege for those discussions. Bringing legal counsel in immediately upon the receipt of an administrative subpoena is strongly recommended for many reasons, not the least of which are privilege issues.
New Bill in Congress Would Expand IG Subpoena Powers
Highlighting the growing importance of administrative subpoenas is new legislation recently introduced in Congress which would strengthen the subpoena powers of federal IGs. The bill would amend the Inspector General Act of 1978 to allow IGs to write testimonial subpoenas1 for federal contractors and former federal employees. Currently, this authority generally extends only to current federal employees. While the new bill does not explicitly include federal grantees who are not former federal employers, we will continue to track and report on the progress of the legislation and keep a close eye on that issue.
[1] A testimonial subpoena is one which requires a witness to appear and testify at a trial or deposition.