Title of Regulation: 1VAC42-30. Fraud and Abuse Whistle Blower Reward Fund (adding 1VAC42-30-10 through 1VAC42-30-100).

Statutory Authority: § 2.2-3014 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: January 25, 2019.

Agency Contact: Mark Courtney, Regulatory Coordinator, Office of the State Inspector General, 101 North 14th Street, 7th Floor, Richmond, VA 23219, telephone (804) 625-3255, FAX (804) 371-0165, or email mark.courtney@osig.virginia.gov.

Basis: Section 2.2-309 of the Code of Virginia outlines the powers and duties of the State Inspector General, and subsection E of § 2.2-3014 of the Code of Virginia requires the Office of the State Inspector General (OSIG) to promulgate regulations for the administration of the Fraud and Abuse Whistle Blower Reward Fund.

Purpose: The proposed regulations (i) provide direction to state agency employees and citizens for reporting instances of fraud or abuse within executive branch agencies; (ii) encourage state agency employees and citizens of the Commonwealth to report instances of fraud, abuse, or other wrongdoing committed within executive branch agencies and nonstate agencies or by independent contractors of state agencies; (iii) provide resources to pay monetary rewards to state agency employees and citizens who provide relevant information to the OSIG that results in recovery of funds on behalf of the Commonwealth; and (iv) provide statutory protection for state employees and citizens who report instances of abuse or wrongdoing from discrimination or retaliation by state agencies.

Substance: The proposed regulation defines the Fraud and Abuse Whistle Blower Reward Fund and its administration by the Office of the State Inspector General, including fund eligibility requirements, fund amount, fund distribution, process for leftover fund moneys at the end of the fiscal year, and the establishment of the fund on the books of the Comptroller, including:

Providing information on the Whistle Blower Protection Act and Whistle Blower Reward Fund; definitions for technical terms in regulations and how technical terms apply to Whistle Blower Reward Fund; and guidelines for reporting instances of alleged fraud, waste, or other wrongdoing in state government executive branch agencies.

Explaining OSIG's role in administering the Whistle Blower Protection Act (WBPA) Program and the Whistle Blower Reward Fund and how OSIG will communicate information about and advertise the WBPA Program and the Whistle Blower Reward Fund.

Explaining the process OSIG staff follows when a whistle blower allegation under the WBPA Program is received and when investigating a whistle blower allegation.

Explaining the structure of the Whistle Blower Reward Fund and what happens to its moneys; how payments from the Whistle Blower Reward Fund are made to whistle blowers and defining those payments; what legal protections whistle blowers have as a result of the WBPA, including antiretaliation provisions; and the annual report OSIG must provide the General Assembly and the Governor concerning the WBPA Program and the Whistle Blower Reward Fund.

Issues: The advantages of the proposed regulation is that it will provide direction to all citizens of the Commonwealth of Virginia, including state employees, for reporting instances of fraud or abuse within executive branch agencies.

All moneys recovered by the State Inspector General as the result of whistle blower activity and alerts originating with OSIG shall be deposited in the fund (85% of all sums recovered shall be remitted to the institutions or governmental agencies on whose behalf the recovery was secured unless otherwise directed by a court of law). Interest earned on moneys in the fund shall remain in the fund and be credited to it. Any moneys remaining in the fund, including interest thereon, at the end of each fiscal year shall not revert to the general fund but shall remain in the fund.

Moneys in the fund shall be used solely to (i) provide monetary rewards to persons who have disclosed information of wrongdoing or abuse and the disclosure results in a recovery of at least $5,000 or (ii) support the administration of the fund, defray fund advertising costs, or subsidize the operation of the Fraud, Waste and Abuse Hotline.

There are no anticipated disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Pursuant to Virginia Code § 2.2-3014, the Office of the State Inspector General (OSIG) proposes to promulgate this regulation in order to set out administrative procedures and rules for the Fraud and Abuse Whistle Blower Reward Fund (Fund).

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. The Fraud and Abuse Whistle Blower Protection Act (Act)¹ was enacted in 2009 in order to protect executive branch state employee whistle blowers from discrimination or retaliation by their employing agency, other state agencies, or independent contractors of state agencies. The Act also established the Fund in order to provide monetary rewards to whistle blowers who have disclosed information of wrongdoing or abuse described under the Act. Chapter 403 of the 2014 Acts of Assembly² expanded the protections of the Fraud and Abuse Whistle Blower Protection Act to all Virginia citizens, and made Virginian whistle blowers not employed by the Commonwealth eligible for an award from the Fund. Chapter 316 of the 2015 Acts of Assembly³ added independent state agencies as agencies covered by the Act. Finally, Chapter 292 of the 2016 Acts of Assembly⁴ made the Act applicable to local government and public school divisions as well.

The promulgation of this regulation is beneficial in that it makes procedures and requirements more transparent for potential whistle blowers and employers. The regulation does not introduce new costs. Thus, the proposed regulation will create a net benefit.

If the primary purpose of the Fund is to increase the likelihood that instances of fraud, abuse, or other wrongdoing is reported, then it may be advisable to eliminate the residency requirement. Individuals may be reluctant to report their superiors within an agency while working there but be more willing to report once they leave that job for one perhaps out of state. Additionally, employees of an out-of-state firm that has a contract with a Virginia agency could potentially be encouraged to report fraud if they were eligible for a reward. The 2014 legislation does limit fund awards to Commonwealth residents. Therefore, OSIG does not have discretion to change that in this regulation.

Businesses and Entities Affected. The proposed regulation potentially affects all executive branch and independent state agencies, local governments, public school divisions, and independent contractors of these entities.

Localities Particularly Affected. The proposed regulation does not disproportionately affect particular localities.

Projected Impact on Employment. The proposed regulation is unlikely to significantly affect total employment.

Effects on the Use and Value of Private Property. The proposed regulation is unlikely to significantly affect the use and value of private property.

Real Estate Development Costs. The proposed regulation is unlikely to affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. The proposed regulation is unlikely to significantly affect costs for small businesses.

Alternative Method that Minimizes Adverse Impact. The proposed regulation does not adversely affect small businesses.

Adverse Impacts:

Businesses. The proposed regulation does not adversely affect businesses.

Localities. The proposed regulation does not adversely affect localities.

Other Entities. The proposed regulation does not adversely affect other entities.

_______________________________

¹See http://lis.virginia.gov/cgi-bin/legp604.exe?091+ful+CHAP0340

²See http://leg1.state.va.us/cgi-bin/legp504.exe?141+ful+CHAP0403

³See http://lis.virginia.gov/cgi-bin/legp604.exe?151+ful+CHAP0316

⁴See http://lis.virginia.gov/cgi-bin/legp604.exe?161+ful+CHAP0292

Agency's Response to Economic Impact Analysis: The Office of the State Inspector General concurs with the economic impact analysis.

Summary:

The proposed regulation defines the Fraud and Abuse Whistle Blower Reward Fund and its administration by the Office of the State Inspector General, including (i) eligibility requirements, (ii) amount and distribution, (iii) process for leftover moneys at the end of the fiscal year, and (iv) the fund's establishment on the books of the Comptroller.

CHAPTER 30
FRAUD AND ABUSE WHISTLE BLOWER
REWARD FUND

1VAC42-30-10. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Abuse" means an employer's or employee's conduct or omissions that result in substantial misuse, destruction, waste, or loss of funds or resources belonging to or derived from federal, state, or local government sources.

"Commonwealth" means the Commonwealth of Virginia.

"Disclosure" means a voluntary formal or informal communication or transmission of (i) any violation of any law, rule, or regulation; (ii) gross mismanagement; (iii) a gross waste of funds; (iv) an abuse of authority; or (v) a substantial and specific danger to public health or safety.

"Employee" means any individual who is employed on either a salaried or wage basis, whose tenure is not restricted as to temporary or provisional appointment, in the service of and whose compensation is payable no more often than biweekly in whole or in part by a Virginia governmental agency.

"Employer" means a person supervising one or more employees, including the employee filing a good faith report, a superior of that supervisor, or an agent of the governmental agency.

"Executive branch agency" or "agency" means any agency, institution, board, bureau, commission, council, public institution of higher education, or instrumentality of state government in the executive department listed in the appropriation act.

"Fraud" means the intentional deception perpetrated by an individual or an organization, either internal or external to state government, that could result in a tangible or intangible benefit to themselves, others, or the Commonwealth, including local government, or could cause detriment to others or the Commonwealth. Fraud includes a false representation of the facts, whether by words or by conduct. Fraud also includes false or misleading statements, the concealment of essential information, or information or actions that deceive or are intended to deceive.

"Fraud and Abuse Whistle Blower Protection Act Program" or "WBPA Program" means the policy of the Commonwealth that Commonwealth citizens and employees of state government are freely able to report instances of wrongdoing or abuse committed by their employing agency, other state agencies, or independent contractors of state agencies.

"Fraud and Abuse Whistle Blower Reward Fund" or "fund" means the fund used solely to provide monetary rewards to Commonwealth citizens who have disclosed information of wrongdoing or abuse under the WBPA Program that results in a recovery of at least $5,000.

"Good faith report" means a reported incident of possible wrongdoing or abuse made without malice, for which the person reporting has reasonable cause to believe wrongdoing or abuse occurred.

"Governmental agency" means (i) any agency, institution, board, bureau, commission, council, or instrumentality of state government in the executive branch listed in the appropriation act and any independent agency; (ii) any county, city, town, or local or regional governmental authority; and (iii) any local school division as defined in § 22.1-280.2:2 of the Code of Virginia.

"Hotline coordinator" means a qualified employee, designated by a governmental agency director or chief administrator, responsible for conducting State Fraud, Waste and Abuse Hotline investigations referred to the agency by OSIG.

"Internal audit director" means a director of a governmental agency internal audit program.

"Misconduct" means conduct or behavior by an employee that is inconsistent with state, local, or agency standards for which specific corrective or disciplinary action is warranted.

"Nonstate agency" means any public or private foundation, authority, institute, museum, corporation, or similar organization that is (i) not a unit of state government or a political subdivision of the Commonwealth as established by general law or special act and (ii) wholly or principally supported by state funds. "Nonstate agency" shall not include any such entity that receives state funds (a) as a subgrantee of a state agency; (b) through a state grant-in-aid program authorized by law; (c) as a result of an award of a competitive grant or a public contract for the procurement of goods, services, or construction; or (d) pursuant to a lease of real property as described in subdivision 5 of § 2.2-1149 of the Code of Virginia.

"Office of the State Inspector General" or "OSIG" means the governmental agency that conducts independent investigations, performance audits, and other services designed to provide objective and useful information to the Commonwealth and those charged with its governance and promotes efficiency and effectiveness in state government executive branch agencies in accordance with Article 1 (§ 2.2-307 et seq.) of Chapter 13.2 of the Code of Virginia.

"Public body" means any legislative body; any authority, board, bureau, commission, district, agency, or political subdivision of the Commonwealth, including counties, cities, towns, city councils, boards of supervisors, school boards, planning commissions, and boards of visitors of institutions of higher education; and other organizations, corporations, or agencies in the Commonwealth supported wholly or principally by public funds. "Public body" includes any committee, subcommittee, or other entity however designated of the public body or formed to advise the public body, including those with private sector or citizen members and corporations organized by the Virginia Retirement System. For the purposes of this chapter, the term "public body" does not include the courts of the Commonwealth.

"Reward" means a monetary benefit payable from the fund by OSIG to an eligible whistle blower.

"Screening process" means OSIG's internal review to ensure reports of information or disclosures of wrongdoing fall within the authority of the WBPA Program.

"State Fraud, Waste and Abuse Hotline" or "hotline" means the program (i) that provides Commonwealth citizens with a confidential and anonymous method to report suspected occurrences of fraud, waste, and abuse in state agencies and institutions and (ii) that provides the Commonwealth a way to investigate such occurrences to determine their validity and make appropriate recommendations to address deficiencies.

"Whistle blower" means a Commonwealth employee or citizen who witnesses or has evidence of wrongdoing or abuse and who makes a good faith, open, and public report of the wrongdoing or abuse to one of the employee's superiors, an agent of the employer, or an appropriate authority.

"Wrongdoing" means a violation, which is not of a merely technical or minimal nature, of a federal or state law or regulation or a formally adopted code of conduct or ethics of a professional organization designed to protect the interests of the public or an employee. "Wrongdoing" includes (i) any violation of any law, rule, or regulation; (ii) gross mismanagement; (iii) a gross waste of funds; (iv) an abuse of authority; or (v) a substantial and specific danger to public health or safety.

1VAC42-30-20. Office of the State Inspector General responsibilities.

A. OSIG is responsible for administering the WBPA Program and fund and the following tasks:

1. Notifying annually Commonwealth employees, citizens, and governmental bodies, including state agencies, of the WBPA Program and fund regulations and procedures for submitting information regarding wrongdoing or abuse.

2. Protecting the identity of Commonwealth employees and citizens who make allegations of wrongdoing or abuse through the WBPA Program. OSIG will keep this information confidential to the extent allowed by law.

3. Conducting appropriate investigations and preparing official reports.

4. Receiving and evaluating fund claims.

5. Ensuring payment of approved fund moneys to whistle blowers.

6. Submitting an annual report on WBPA Program activities to the Governor and General Assembly.

7. Notifying individuals making allegations of the possible incentives as a result of moneys recovered and available through the fund.

B. OSIG is responsible for assigning, coordinating, and investigating alleged wrongdoing or abuse reported to OSIG under the WBPA Program. OSIG may work with executive branch agency internal audit directors, executive branch agency hotline coordinators, or representatives of public bodies when performing WBPA Program investigations.

1VAC42-30-30. Fraud and Abuse Whistle Blower Protection Act Program and Reward Fund notification.

A. Annually, the State Inspector General will communicate with all state agency heads. The communication will:

1. Publicize the WBPA Program and fund.

2. Explain the protections afforded to individuals who report instances of wrongdoing or abuse committed within executive branch agencies and nonstate agencies.

3. Notify state agency heads of relevant statutory amendments or program changes.

4. Contain the requirements for reporting allegations to OSIG and the incentives under the WBPA Program.

5. Clarify pertinent differences between the WBPA Program and the hotline regarding the rules governing anonymity and confidentiality.

6. Provide available materials to assist agency heads in promoting the WBPA Program and fund, as well as available training for Commonwealth employees regarding the WBPA Program and fund.

B. Annually, OSIG will publicize the WBPA Program and fund on the OSIG website and to Commonwealth citizens through the distribution of a news release to Virginia media, as well as to state employees through an electronic communication in partnership with the Department of Human Resource Management. The communication will:

1. Contain the requirements for reporting allegations to OSIG and the incentives under the WBPA Program.

2. Clarify pertinent differences between the WBPA Program and the hotline regarding the rules governing anonymity and confidentiality.

1VAC42-30-40. Reporting alleged fraud, abuse, or wrongdoing.

A. A Commonwealth employee or citizen with an allegation of wrongdoing or abuse under the WBPA Program may contact OSIG by phone, email, online complaint form, United States Postal Service, or FAX.

B. OSIG staff is available to advise citizens on what to report that meets the definition of wrongdoing or abuse.

C. If an investigation results in recoverable funds, and the whistle blower seeks to file a fund claim under the WBPA Program, the whistle blower will be required to provide his name and lawful residence.

While not anonymous, OSIG will keep this information confidential to the extent allowed by law.

1VAC42-30-50. Office of the State Inspector General receipt of an allegation.

A. Allegations of wrongdoing or abuse received by OSIG undergo the hotline screening process.

B. Allegations submitted by an individual who is not a Commonwealth employee or citizen will be referred to the appropriate governmental agency or organization.

C. If the agency or organization reported is not an executive branch or independent state agency or entity or a local governmental agency or entity or school division, the information will be forwarded to that entity where possible for informational purposes only.

1VAC42-30-60. Allegation investigative process.

A. OSIG will prepare a detailed written summary that describes the allegation of wrongdoing or abuse submitted through the WBPA Program.

B. The hotline manager or designee will create a confidential tracking number for each case and assign it for formal investigation.

C. OSIG will monitor the progress of each investigation and provide the State Inspector General with regular status updates of the assignment.

D. Upon completion of an investigation, the investigator will prepare and submit a case report for management review and approval. When appropriate, recommendations for corrective action to address procedural deficiencies disclosed during the investigation will be included in the case report.

E. Formal case reports will describe all financial recovery realized on behalf of the Commonwealth as a result of the information received from the whistle blower and the subsequent investigation.

F. Case reports will be forwarded to the State Inspector General for review. Upon authorization by the State Inspector General, the investigator will prepare an executive summary that recaps the findings of the investigation, the recommendations, the recovery of funds, and the status of applicable fund claims. Upon signature approval of the State Inspector General, the executive summary will be forwarded to the subject state executive branch agency head, respective secretariat, and the Chief of Staff of the Governor.

1VAC42-30-70. Nonreverting fund.

A. OSIG will coordinate with the State Comptroller to establish a special nonreverting fund.

B. The fund will be established on the books of the State Comptroller and administered by the State Inspector General.

C. All moneys recovered by an OSIG investigation as a result of whistle blower activity shall be deposited in the fund.

D. Except for the moneys described in subsection F of this section, moneys remaining in the fund at the end of each fiscal year, including interest, shall not revert to the general fund, but shall remain in the fund.

E. Moneys in the fund shall solely be used to:

1. Provide monetary rewards to Commonwealth employees and citizens who have disclosed information of wrongdoing or abuse under the WBPA Program (§ 2.2-3009 et seq. of the Code of Virginia), and the disclosure resulted in a recovery of at least $5,000.

2. Support the administration of the fund, defray fund advertising costs, or subsidize the operation of the hotline.

F. Per the State Inspector General's authorization by the end of each calendar quarter, 85% of all sums recovered by an OSIG investigation will be remitted to the institutions or agencies concerned, unless otherwise directed by a court of law.

1VAC42-30-80. Fund payments to whistle blowers.

A. Within 10 working days, excluding state holidays and weekends, of the closing of a WBPA Program investigation that verifies a final recovery and deposit in the fund of $5,000 or more, the State Inspector General will review and certify the fund claim. Within five working days after the State Inspector General's verification, the whistle blower will be notified of the award amount he is eligible to receive. Upon approval of the fund claim, the State Inspector General will submit a written request to the State Comptroller to make a reward payment from the fund to the whistle blower.

B. The State Treasurer will make reward payments from the fund based on a warrant issued by the State Comptroller and a written request signed by the State Inspector General.

C. Award amounts.

1. The amount of the fund reward shall be up to 10% of the actual sums recovered by the Commonwealth as a result of the disclosure of the wrongdoing or abuse.

2. OSIG will consider many factors in determining the amount of an award based on the unique facts and circumstances of each case. OSIG may increase the award percentage up to the maximum allowed based on the following factors: (i) the significance of the information provided to OSIG to the success of any proceeding brought against wrongdoers; (ii) the extent of the assistance provided to OSIG in its investigation and any resulting findings; (iii) OSIG's law-enforcement interest in deterring violations of the applicable laws by making awards to whistle blowers who provide information that leads to the successful enforcement of these laws; and (iv) whether and the extent to which the whistle blower participated in his agency's internal compliance systems, such as, for example, reporting the possible violations through internal whistle blower, legal, or compliance procedures, before or at the same time the possible violations were reported to OSIG.

3. OSIG may reduce the amount of an award based on the following: (i) if the whistle blower was a participant in or culpable for the violations reported; (ii) if the whistle blower unreasonably delayed reporting the violations to OSIG; and (iii) if the whistle blower interfered with his agency's internal compliance and reporting systems, such as, for example, making false statements to the compliance department that hindered its efforts to investigate possible wrongdoing or abuse.

4. The amount of the reward will not exceed the balance of the fund, regardless of the sums recovered.

5. In the event that multiple whistle blowers have simultaneously reported the same fund-eligible occurrence of wrongdoing or abuse, the fund moneys may be split up to 10% among the whistle blowers at the State Inspector General's discretion. The State Inspector General's decision regarding the allocation of fund moneys is final and binding upon all parties and cannot be appealed.

6. The request for payment will include the name and address of the whistle blower and the payment amount. OSIG will provide documentation supporting the amount of the payment to the State Comptroller.

7. Once approved, the State Comptroller shall forward the request to Finance and Administration of the Department of Accounts (DOA) with a request that Finance and Administration process the payment to the whistle blower.

8. DOA will ensure the amount of the fund reward is properly included in the whistle blower's federal and state tax records (i.e., W-2 for employees; 1099 for Commonwealth citizens).

9. OSIG will confirm that DOA processes the fund request and that the reward payment is made to the whistle blower for the amount approved by the State Inspector General.

D. Five percent of all sums recovered on behalf of the Commonwealth will be retained in the fund to support the administration of the fund, defray advertising costs, and subsidize the operation of the hotline. Expenditures for administrative costs for management of the fund will be approved by the State Inspector General.

1VAC42-30-90. Whistle blower protections.

A. Employee protections.

1. No employer may discharge, threaten, or otherwise discriminate or retaliate against a whistle blower, whether acting individually or under the direction of another individual.

2. No employer may discharge, threaten, or otherwise discriminate or retaliate against a whistle blower who is requested or subpoenaed by an appropriate authority to participate in an investigation, hearing, or inquiry.

3. Nothing in this chapter shall prohibit an employer from disciplining or discharging a whistle blower for misconduct or violation of criminal law.

4. If an employee has, in good faith, exhausted existing internal procedures for reporting and seeking recovery of falsely claimed sums through official channels, and if the Commonwealth failed to act on the information provided in a reasonable period of time, no court shall have jurisdiction over an action brought under § 8.01-216.5 of the Code of Virginia based on information discovered by a present or former employee of the Commonwealth during the course of his employment.

5. Any whistle blower covered by the state grievance procedure may initiate a grievance alleging retaliation for reporting wrongdoing or abuse through the WBPA Program and may request relief throughout that procedure.

B. Commonwealth citizen protections.

1. No governmental agency may threaten or otherwise discriminate or retaliate against a citizen whistle blower because the whistle blower is requested or subpoenaed by an appropriate authority to participate in an investigation, hearing, or inquiry.

2. Except for the provisions of § 2.2-3011 E of the Code of Virginia, the WBPA Program does not limit the remedies provided by the Virginia Fraud Against Taxpayers Act (§ 8.01-216.1 et seq. of the Code of Virginia).

C. Protection against discrimination and retaliation - good faith required.

1. To be protected by the provisions of this chapter, an employee or Commonwealth citizen who discloses information about suspected wrongdoing or abuse shall do so in good faith and upon a reasonable belief information provided is accurate.

2. Reckless disclosures or disclosures the employee or citizen knows or should have known were false, confidential by law, or malicious are not deemed good faith reports and are not protected.

1VAC42-30-100. Whistle Blower Protection Act Program and Reward Fund annual report.

A. OSIG shall submit an annual report to the Governor and the General Assembly of Virginia summarizing the activities of the fund.

B. OSIG will provide a copy of the WBPA Program annual report to the Chief of Staff to the Governor, the Secretary of Finance, and the State Comptroller.