Federal Program Fraud - Theft from Federal Programs
The phone rings mid-morning. Someone from your organization - HR, maybe the general counsel - says federal agents stopped by asking questions about grant money. Nobody was arrested. Not yet. But they left business cards. They mentioned an "inquiry" into how certain funds were used. Your organization receives federal funding. Most organizations do, in some form. Now you're trying to remember every expense report, every purchase order, every decision about where money went.
The bar for federal prosecution under 18 USC 666 is lower than most people realize.
Heres what the federal government doesn't advertise: if your organization received $10,000 or more in federal funds during any 12-month period - a grant, Medicare reimbursements, Title I funds, HUD money, military contracts, anything - and someone claims you misused $5,000 or more of ANY money the organization controlled, you can face up to 10 years in federal prison. Not state charges. Federal. The Department of Justice calls 18 USC 666 its "Swiss Army knife" for prosecuting corruption at organizations that touch federal dollars.
Welcome to Spodek Law Group. We defend individuals facing federal program fraud charges - the allegations that turn nonprofit executives, government employees, school administrators, hospital staff, and contractors into federal defendants. If you're under investigation, if an OIG or FBI agent has contacted you or your employer, this article explains exactly what your facing and what options exist.
The $10,000 Trap Most People Don't Know Exists
18 U.S.C. § 666 has two threshold requirements that make it incredibly broad. First, the organization must have received $10,000 or more in federal funds during any one-year period. That's the organizational threshold. Second, the alleged misconduct must involve $5,000 or more in value. That's the conduct threshold.
Those numbers are low. Almost every hospital, university, school district, city government, nonprofit, and federal contractor clears the $10,000 bar. The $5,000 conduct threshold captures everything from a single questionable expense to years of alleged diversion.
Who can be charged under this statute?
- State employees at agencies receiving federal grants
- City and county workers - police, public works, administrators
- School district staff handling Title I or special education funds
- Hospital and healthcare facility employees where Medicare payments flow
- Nonprofit executives and directors at organizations with federal grants
- Contractors and subcontractors on federally-funded projects
- University administrators and staff at institutions with federal research grants
Basicly anyone who is an "agent" of an organization recieving federal funds can be prosecuted. The DOJ Justice Manual makes clear that the statute was designed to "facilitate the prosecution of persons who steal money or otherwise divert property or services from state and local governments or private organizations... that receive large amounts of Federal funds."
Heres the part that catches most people off guard. The alleged misconduct dosent have to directly involve federal dollars. The Supreme Court confirmed this interpretation. If your organization recieved $10,000 in federal funding last year, and prosecutors claim you misapplied $5,000 of the organization's general operating funds - money that came from private donors, not the government - thats still federal program fraud. The federal nexus is the organization, not the specific dollars.
What triggers an investigation? Audits by inspectors general. Whistleblower complaints - often from disgruntled employees. Data analytics flags from OIG fraud detection systems. Tips to hotlines. Once your flagged, the investigation tends to expand. They start looking at one transaction. Then they look at related transactions. Then they look at your whole tenure.
What Prosecutors Are Actually Charging - And How Cases Stack
Federal program fraud charges under 18 USC 666 rarely come alone. Prosecutors stack multiple statutes on the same conduct. One act of misappropriation becomes five or six federal charges.
Consider how a single allegation gets charged:
- 18 USC 666 - Theft from programs recieving federal funds - 10 years
- 18 USC 1343 - Wire fraud (if any electronic communication involved) - 20 years
- 18 USC 1341 - Mail fraud (if any mailing involved) - 20 years
- 18 USC 1001 - False statements (if any federal paperwork involved) - 5 years
- 18 USC 371 - Conspiracy (if more then one person allegedly involved) - 5 years
- 18 USC 1956 - Money laundering (if funds moved through accounts) - 20 years
One act of alleged misappropriation. Theoretical exposure exceeding 70 years. In practice, sentences don't reach that level - but charge stacking gives prosecutors enormous leverage in plea negotiations.
The sentencing numbers are getting worse. According to TRAC Reports, the median prison sentence for white-collar crimes in the first half of FY 2025 was 14 months - up from a historical median of just 6 months. The average sentence hit 27 months. Judges are sending more people to prison for longer.
For federal program fraud specifically, pandemic-era prosecution data shows:
- 82% conviction rate across all defendants
- 81% of those convicted recieved prison time
- Sentences ranging from 1 day to 30 years
- Restitution orders reaching as high as $71 million
Beyond prison, the consequences cascade:
- Fines up to $250,000 per count
- Restitution orders - sometimes millions of dollars
- Debarment from all future government contracts
- Healthcare professionals permanently excluded from Medicare and Medicaid
- Professional license revocation in most states
- Asset forfeiture - cars, homes, accounts
- Civil False Claims Act liability - triple damages
These aren't just numbers on a page. This is career destruction.
The Cases That Show Where This Goes
Real cases show the pattern. And the pattern is brutal.
Janet Yamanaka Mello (July 2024) worked as a civilian financial program manager for the U.S. Army at Fort Sam Houston. She managed grants for child and youth services. Between 2016 and 2023, she created a fake company called "CHYLD" - Child Health and Youth Lifelong Development - that existed solely to recieve grant funds she fraudulently secured through her position.
$108 million.
One person. Fifteen years federal prison.
The IRS Criminal Investigation announcement described it as one of the largest single-defendant cases theyve handled. Mello pleaded guilty to mail fraud and filing false tax returns. The charge stacking was massive, but even the sentenced counts carried decades of exposure.
The Minnesota "Feeding Our Future" Scandal represents the other end of the spectrum - industrial-scale fraud involving dozens of defendants. Feeding Our Future was a nonprofit that sponsored meal sites under the federal Child Nutrition Program. Prosecutors allege the organization and its affiliates fraudulently obtained $246 million.
92 individuals charged. 62 have pleaded guilty or been found guilty so far. Federal prosecutors call it the largest COVID-related fraud prosecution in American history.
What makes Minnesota notable: defendants traveled from out-of-state after hearing the state was a "good opportunity." The fraud attracted people specifically because they thought they could get away with it.
Amanda Joy Quinn (November 2024) shows that smaller amounts still mean prison. Quinn was the elected Treasurer of the Long Hollow District of the Sisseton-Wahpeton Oyate Sioux Tribe in South Dakota. Between 2017 and 2020, she embezzled aproximately $107,295 by processing unauthorized checks.
Eighteen months federal prison.
Not millions. Not hundreds of thousands. Just over $100,000 spread across three years. Still prison.
The pattern emerges: position of trust + federal funds flowing through organization + any diversion = federal prosecution.
What Actually Works as a Defense
The good news is these cases have real defenses. The government doesn't win every one.
The biggest recent development: Snyder v. United States, decided by the Supreme Court in June 2024. In a 6-3 decision, the Court ruled that 18 USC 666 covers bribes but NOT gratuities.
Whats the difference? Bribes are payments made before an official act to influence that action. Gratuities are payments made after an official act as a reward or thank-you.
James Snyder was the former mayor of Portage, Indiana. The city awarded contracts to a truck company. Later, the company paid Snyder $13,000. Prosecutors charged it as an illegal gratuity. Snyder said it was payment for consulting work.
The Supreme Court threw out his conviction. Justice Kavanaugh wrote that the government's interpretation "would radically upend gratuities rules and turn § 666 into a vague and unfair trap for 19 million state and local officials."
If your facing accusations related to after-the-fact payments, Snyder matters. Alot.
Beyond Snyder, effective defenses include:
- Lack of Intent - The government must prove you "intentionally" misapplied funds. Negligence isn't enough. Mistakes aren't enough. If you genuinely beleived your use of funds was proper, that attacks the intent element.
- Following Institutional Policies - If you followed your organization's policies and guidance, that can negate criminal intent. You relied on procedures that were in place.
- Threshold Challenges - Did the organization actualy recieve $10,000+ in federal funds? Was the alleged misconduct actualy $5,000+? Both elements must be proven.
- Document Challenges - Prosecutors rely on records. If the authenticity of allegedly falsified documents is questionable, thats grounds to challenge.
- No Willful Blindness - If others at your organization engaged in misconduct you didn't know about, you cant be held responsible for there actions simply because you worked there.
"Simply having an idea is not a federal offense," one federal defense guide notes. "If prosecutors cannot prove that you executed, or attempted to execute, a plan to defraud, then they cannot secure a conviction."
Todd Spodek has defended clients facing federal program fraud charges. He understands how to challenge the government's evidence on intent, examine whether thresholds are actually met, and identify procedural errors in how investigations were conducted.
When Your Ready
If your facing questions about federal program funds - whether from an OIG investigator, FBI agent, or agency audit - Spodek Law Group can help you understand where you stand.
The consultation is free. Theirs no obligation.
What you'll get is an honest assessment. Is this still at the inquiry stage where civil resolution might be possible? Has it been referred to the DOJ for criminal prosecution? What does the evidence actually show? What are realistic outcomes - not best-case fantasies, but actual possibilities based on how these cases are prosecuted and defended?
Call us at 888-997-4071. Federal program fraud investigations move slowly until they move fast. Once charges are filed, your options narrow dramatically. The earlier you have counsel who understands both the statute and how to challenge it, the more leverage exists.
Don't wait until an indictment tells you what you should have done months ago.
Were here when you need us.
