Chicago Transit Authority Accused of Defrauding the U.S. Department of Transportation

Red-Line-300x199 2Cause of Action, a Washington-based, independent, non-profit, public interest group, asked the Seventh Circuit today to revive its False Claims Act suit against the Chicago Transit Authority (“CTA”) for allegedly overbilling the government up to $55 million for bus usage. From at least 2001 through 2010, CTA allegedly fraudulently billed and collected approximately $2.6 million to $5.5 million per year in federal funds from the U.S. Department of Transportation under the Urbanized Area Formula Program, paid through and administered by, the Federal Transit Administration (“FTA”). In general, the program provides federal grant monies to fund the capital and operating expenses of transit programs in urbanized areas, such as Chicago. The program’s funds are disbursed using a grant formula that pays for vehicle revenue miles (“VRMs”). By charging “non-revenue” bus miles as “revenue” miles, CTA allegedly charged federal taxpayers for approximately 98.2% of its bus miles, while the nation’s eighteen other large bus operators charged for only approximately 83.5%.

Grant recipients are required by statute to submit data regarding their transit systems to the National Transit Database and to certify that such information is correct. The FTA then uses the data to apportion over $5 billion each year in grant funds for transit agencies in “urbanized areas.” The portion of allocated grant funds that each area is entitled to receive depends, in part, on the ratio between its “total bus vehicle revenue miles operated in or directly serving the urbanized area divided by the total bus vehicle revenue miles attributable to all areas.” The federal government does not pay for “deadhead miles” that a vehicle travels when out of revenue service. “Revenue service” is defined as the time when a vehicle is available to the general public and there is an expectation of carrying passengers. It also includes layover and recovery time and excludes deadhead. Taken together, these definitions require that for bus mileage to constitute VRM, two conditions must exist: (1) the bus must be driven on a fixed route and schedule; and (2) the bus must be available to the public with an expectation of carrying passengers. Despite these requirements, CTA allegedly reported deadhead miles as VRM.

In 2006 and 2007, the Illinois Office of the Auditor General contracted for an audit of CTA. An independent auditor, Thomas Rubin, discovered CTA was wrongfully over-reporting VRM and, therefore, receiving more grant funds than it was entitled to receive—CTA had been “overstating” revenue miles “by a significant amount.” He prepared a 25-page memorandum recommending that CTA self-report to FTA. CTA did not, however, recalculate its past reports of revenue miles or change how it did business in response to the memo. In 2009, Rubin sent the memo to the Department of Transportation’s Office of the Inspector General. Cause of Action is alleging that it privately received the Audit Report, the memo and a sworn statement by Rubin that included additional information about CTA’s fraudulent reporting. On April 27, 2012, the FTA sent CTA a letter noting an “in-depth review” involving CTA’s reporting of VRM. The letter stated that CTA “should revise its data.” On May 8, 2012, Cause of Action filed a complaint under seal pursuant to the False Claims Act.

Cause of Action is now arguing that the public disclosure bar does not apply to this case and that public disclosure does not occur each time a government agency discovers that fraud may be occurring. Accordingly, Cause of Action is arguing that the audit report is not a public disclosure. The report stated that the review “raised questions about the accuracy of CTA’s reporting of revenue vehicle hours and miles. CTA may be incorrectly reporting some deadhead hours/miles as revenue hours/miles.” The audit report does not, however, discuss how or why CTA’s reporting was inaccurate and does not show that the Illinois Office of the Auditor General even considered the possibility of fraud. Cause of Action maintains that the critical fact—that this inaccurate reporting over a period of years was a potential fraud on federal taxpayers—was missing. There are also no facts to suggest that Rubin (or anyone else) ever alerted the FTA of CTA’s fraud. Instead, the first time CTA’s fraud was disclosed to a proper federal authority was on March 28, 2012, when Cause of Action requested that the U.S. Department of Justice being an investigation.

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