AB 256: What It Changes for California’s False Claims Act (2024 Update)

Table of Contents#

1. Background: What Is California’s False Claims Act, and Why Was AB 256 Needed?
2. 5 Key Expansions AB 256 Makes to California’s FCA
3. Who Is Impacted by AB 256?
4. What AB 256 Means for Whistleblowers (Relators)
5. Frequently Asked Questions About AB 256
6. Final Takeaways
7. References

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1. Background: What Is California’s False Claims Act, and Why Was AB 256 Needed?#

Enacted in 1987 and modeled after the federal False Claims Act, California’s FCA (Cal. Gov. Code § 12650 et seq.) allows the state attorney general, local prosecutors, or private whistleblowers (called “relators”) to file lawsuits against individuals or entities that intentionally submit false claims for payment to state or local government agencies. Liable parties face:

• Treble (triple) damages for the total amount of stolen taxpayer funds
• Civil penalties between $5,500 and$11,000 per false claim (adjusted for inflation)
• Coverage of court costs and attorney fees

The law also includes a qui tam provision that lets whistleblowers keep 15% to 30% of any recovered funds, plus anti-retaliation protections for employees who report fraud in good faith.

Prior to AB 256, however, critical gaps in the law limited enforcement:

• Fraud involving state tax credits was entirely excluded from FCA coverage
• A broad “public disclosure bar” blocked whistleblowers from filing cases if fraud was mentioned in any public report, news story, or audit, even if the government had not launched an investigation
• Grant subrecipients (entities that receive funds pass-through from a primary grantee) were not held liable for fraud
• Emergency relief fraud (e.g., COVID-19 grants, wildfire recovery funds) often evaded enforcement due to short statute of limitations windows
• Repeat fraud offenders faced the same penalties as first-time violators

A 2023 California State Auditor report found that the state loses an estimated $10 billion annually to unprosecuted public program fraud, making AB 256 a urgent priority for reducing taxpayer waste.

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2. 5 Key Expansions AB 256 Makes to California’s FCA#

AB 256 targets each of the gaps listed above with the following formal changes to the California FCA:

2.1 Adds coverage for state tax credit fraud#

For the first time, the FCA now applies to false or fraudulent claims for state tax credits, including (but not limited to) the Low-Income Housing Tax Credit, Film and Television Tax Credit, Climate Action Tax Credit, and Work Opportunity Tax Credit. Example of covered fraud: A real estate developer lies about building 100 affordable housing units to claim $2.7 million in state tax credits, but only constructs 30 affordable units. The developer can now be sued under the FCA for triple the stolen funds, plus per-claim penalties. Notably, this change does not extend to general income tax, sales tax, or payroll tax fraud, which remains under the jurisdiction of the Franchise Tax Board and Department of Tax and Fee Administration.

2.2 Narrows the public disclosure bar to reduce barriers for whistleblowers#

The previous public disclosure rule dismissed qui tam cases if the alleged fraud was already referenced in any public record, even if the government had not taken action to investigate. AB 256 revises this rule to only dismiss cases where the state or local government had already initiated a formal investigation into the publicly disclosed fraud before the whistleblower filed their claim. This change ensures that fraud exposed by media, audits, or public records can still be prosecuted if the government has not already acted, with whistleblowers eligible for their full share of recovered funds.

2.3 Increases penalties for repeat fraud offenders#

AB 256 raises civil penalties for defendants who have a prior FCA judgment or conviction in the last 10 years. For repeat offenders, per-claim penalties jump from the standard $5,500–$11,000 range to $11,000–$22,000 per false claim. This change is designed to deter repeat violators, particularly healthcare providers that have previously been caught defrauding Medi-Cal.

2.4 Expands coverage to grant and subgrant fraud#

Prior law only held direct government contractors liable for false claims. AB 256 extends FCA liability to all entities that receive state or local grant funds, including first, second, and third-tier subrecipients. Example of covered fraud: A nonprofit receives a $500,000 subgrant from a county education agency to run after-school programs for low-income students, then falsifies attendance records to keep unspent funds for administrative bonuses. The nonprofit is now liable under the FCA. This change is particularly impactful for pandemic relief, homeless services, and climate action grants, which are often distributed through multi-layered subgrant networks.

2.5 Extends the statute of limitations for emergency relief fraud#

The standard FCA statute of limitations is 3 years from the date the government discovers fraud, or 6 years from the date of the fraudulent act, whichever is later. AB 256 extends this window to 10 years from the date of the fraudulent act for fraud involving state-declared emergency funds (e.g., COVID-19 business grants, wildfire housing assistance, flood recovery funds). This addresses the common delay in uncovering emergency fraud due to rushed program rollouts during crises.

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3. Who Is Impacted by AB 256?#

The law affects four core groups:

1. Government contractors and vendors: All entities that bill state or local agencies for goods or services face expanded liability for false claims.
2. Tax credit recipients: Businesses, developers, and individuals that apply for or receive state tax credits are now subject to FCA enforcement for false applications.
3. Grant and subgrant recipients: Nonprofits, small businesses, and local agencies that receive pass-through grant funds are now held to the same FCA standards as direct government contractors.
4. Taxpayers: Expanded FCA enforcement is projected to recover an additional $200 million annually in stolen taxpayer funds, which is redirected back to public programs and services.

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4. What AB 256 Means for Whistleblowers (Relators)#

AB 256 is a major win for whistleblowers, with three key benefits:

1. More eligible cases: Whistleblowers with evidence of tax credit fraud, subgrant fraud, or old emergency relief fraud that was previously ineligible can now file qui tam claims.
2. Fewer procedural dismissals: The narrowed public disclosure bar means fewer valid cases are thrown out due to prior public mentions of fraud.
3. Higher potential awards: Increased penalties for repeat offenders raise total case recoveries, which translates to larger shares for relators (who receive 15% to 30% of all recovered funds).

Existing anti-retaliation protections under the California FCA remain in place, including access to back pay, reinstatement, and damages for employees who face termination, demotion, or harassment for reporting fraud in good faith.

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5. Frequently Asked Questions About AB 256#

Q: Does AB 256 apply retroactively?#

A: AB 256 applies to all fraudulent acts that occur on or after January 1, 2024. It also applies to pending cases where the statute of limitations has not expired for the new covered categories of fraud.

Q: Can I file a qui tam case if the fraud I reported was already covered by a local news story?#

A: Yes, as long as the state or local government had not launched a formal investigation into the fraud before you filed your claim.

Q: How do I report fraud under the expanded FCA?#

A: If you have original, non-public evidence of fraud against California state or local government, consult an experienced qui tam attorney to review your case and file a sealed claim with the California Department of Justice.

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6. Final Takeaways#

AB 256 represents a historic strengthening of California’s anti-fraud framework, closing loopholes that allowed billions in taxpayer funds to be stolen every year. For whistleblowers, the law creates new opportunities to hold fraudsters accountable and receive fair compensation for coming forward. For businesses and nonprofits that work with government agencies, it is critical to update internal compliance policies to align with the expanded FCA requirements to avoid accidental liability.

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References#

1. California Legislative Information. (2023). Assembly Bill No. 256, Chapter 578, Statutes of 2023. Retrieved from https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB256
2. California Department of Justice. (2024). AB 256: Expanding the California False Claims Act to Protect Taxpayer Funds. Retrieved from https://oag.ca.gov/false-claims/ab256
3. California State Auditor. (2023). Report 2022-103: Billions in Taxpayer Funds Are Lost Annually to Public Program Fraud, Requiring Stronger Enforcement Tools. Retrieved from https://auditor.ca.gov/reports/2022-103
4. California False Claims Act, Cal. Gov. Code § 12650 et seq. (2024).
5. National Whistleblower Center. (2024). California AB 256: A Model for State False Claims Act Expansion. Retrieved from https://whistleblowers.org/resources/california-ab-256-false-claims-act/