DEI programs face continuing FCA scrutiny after Deloitte settlement

The Department of Justice (DOJ) has announced its second False Claims Act settlement under the Civil Rights Fraud Initiative, resolving allegations that Deloitte entities falsely certified compliance with federal anti-discrimination obligations while maintaining race- and sex-conscious employment practices. Deloitte agreed to pay $21.5 million, including $9.995 million in restitution, to resolve the allegations. The settlement follows DOJ’s April 2026 settlement with IBM, which DOJ described as the first resolution under the Initiative.

The Deloitte matter is significant not just because of its size, but because DOJ’s enforcement theory is coming into sharper focus. DOJ is using the False Claims Act (FCA) to pursue federal funding recipients that certify compliance with Title VII, Federal Acquisition Regulation equal opportunity requirements, or other civil rights obligations while operating diversity, equity, and inclusion programs that DOJ characterizes as discriminatory.

DOJ’s theory

DOJ’s theory rests on a certification chain that can apply broadly to federal funding recipients, including federal contractors, grantees, healthcare providers, research institutions, and other entities that receive federal payments. These entities often certify compliance with federal anti-discrimination laws, contract clauses, grant conditions, or program rules. DOJ alleges that when an entity knowingly certifies compliance while maintaining discriminatory practices, resulting claims for payment may be false or fraudulent under the FCA.

In the Deloitte settlement, DOJ alleged that Deloitte was required, as a federal contractor, to comply with Title VII of the Civil Rights Act and Federal Acquisition Regulation (FAR) 52.222-26, that Deloitte certified compliance with those requirements, and that Deloitte knowingly maintained practices that discriminated against employees and applicants based on race or sex. DOJ also alleged that Deloitte allocated costs relating to those practices to federal contracts and sought payment or reimbursement for those allegedly unallowable costs.

The settlement resolves allegations only. Deloitte denied the Covered Conduct and the allegations in the qui tam action.

Conduct DOJ challenged in the Deloitte settlement

The Deloitte settlement agreement identifies several categories of alleged conduct that federal funding recipients should study closely.

First, DOJ alleged that Deloitte took race or sex into account in hiring, promotion, and staffing decisions to make progress toward non-public race and sex-based workforce composition goals. According to the settlement agreement, some employees described the goals as “aggressive,” certain managers were asked to commit to achieving them, and business units received monthly demographic tracking summaries with green, yellow, and red indicators.

Second, DOJ focused on evaluation and compensation practices. Deloitte’s Partners, Principals, and Managing Directors (PPMD) allegedly were evaluated in part on their contributions to achieving workforce composition goals. For a two-year period, approximately 150 senior PPMDs allegedly could have compensation affected if business units did not meet demographic goals, with potential losses of tens of thousands of dollars per year.

Third, DOJ alleged that Deloitte used demographic goals in promotion decisions, including for annual PPMD classes. The settlement agreement describes an instance in which Deloitte allegedly identified PPMD candidates by race and sex in a spreadsheet and suggested that decisionmakers “watch this list carefully during the down select process and try to equitably maintain the current mix.”

Fourth, DOJ focused on staffing to federal contracts. Deloitte allegedly set goals relating to the demographics of employees staffed to federal contracts and sought to equalize the percentage of underrepresented minority employees who were understaffed or “on the bench.” According to the agreement, Deloitte used a “Priority Staffing Report” to identify available employees by race and sex and provided names to staffing managers where staffing those employees would help achieve demographic parity goals.

Finally, DOJ alleged that Deloitte offered certain training, mentoring, leadership development, educational, and similar opportunities based on race or sex. The settlement agreement specifically identifies the Springboard and Compass programs, where eligibility allegedly was limited based on race and sex and participants allegedly received sponsorship and networking support intended to improve career prospects.

The relator risk

The Deloitte settlement is notable because the relator was not a traditional insider whistleblower. The American Alliance for Equal Rights (AAER) is an advocacy organization led by Edward Blum, who is also associated with Students for Fair Admissions, the plaintiff in the Supreme Court’s 2023 affirmative action decision. AAER has brought challenges to race-conscious programs in other contexts, including private-sector grants, fellowships, and other opportunities that it alleges allocate benefits based on race.

The Deloitte qui tam action suggests a potentially important expansion of that litigation model. Rather than bringing only direct civil rights challenges, advocacy organizations or other relators may attempt to frame allegedly discriminatory DEI practices as FCA violations when the target receives federal funds and has certified compliance with civil rights laws. That theory may be especially attractive because the FCA provides for treble damages, statutory penalties, government intervention, and relator shares.

This creates risk beyond the possibility of employee whistleblowers. Outside organizations and individuals may review public DEI statements, program eligibility criteria, supplier diversity materials, workforce goals, leadership commitments, federal contracting data, and agency award records to identify potential targets. Internal documents that describe demographic goals, scorecards, compensation incentives, staffing levers, or exclusive programs may then become central evidence if a relator complaint triggers a government investigation.

Federal funding recipients should therefore assume that DEI-related statements and materials may be reviewed not only by employees and regulators, but also by advocacy organizations looking for FCA theories.

Timing matters

The conduct periods in the IBM and Deloitte settlements are also notable. IBM’s settlement covered alleged practices from January 1, 2019, through the effective date of its April 2026 agreement. Deloitte’s settlement covered alleged practices from January 1, 2017, through the effective date of its August 2026 agreement. Those periods predate the Supreme Court’s June 2023 decision in Students for Fair Admissions v. Harvard, the 2025–2026 executive actions focused on DEI, and Assistant Attorney General Brett Shumate’s June 11, 2025, Civil Division enforcement priorities memorandum, which directed Civil Division attorneys to prioritize FCA investigations and enforcement actions against federal funding recipients that knowingly violate civil rights laws.

That timing appears important. DOJ is signaling that its theory does not depend solely on new executive orders, new FAR clauses, or the Shumate memorandum. Instead, DOJ is grounding its claims in preexisting anti-discrimination obligations, including Title VII and FAR 52.222-26, and in certifications federal funding recipients have long made as a condition of receiving federal money.

At the same time, Students for Fair Admissions remains an important backdrop. Although that case was limited to university admissions and constitutional standards related thereto, DOJ’s recent settlements echo several themes from the decision: skepticism toward demographic balancing, concern about race being used as a plus for some and a negative for others, and resistance to programs that treat race or sex as relevant to selection, advancement, or opportunity.

New FAR Clause raises the stakes

For federal contractors, the procurement framework has now moved beyond enforcement policy. In addition to the proposed OMB Uniform Grant Regulations targeted to go into effect later this year, the FAR Council has released updates to implement Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors,” through model deviations to FAR Parts 9, 12, 22, and 52.

Those updates include a new FAR Subpart 22.22, a new clause at FAR 52.222-90, and revisions to FAR Part 9 providing that failure to comply with FAR 52.222-90 may be a cause for suspension or debarment. The clause is also included in commercial contracting provisions and added to the list of clauses flowed down to subcontracts for commercial products or commercial services through FAR 52.244-6.

The new clause provides the following:

The model deviation defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or allocation or deployment of an entity’s resources. “Program participation” includes access or admission to training, mentoring, leadership development programs, educational opportunities, clubs, associations, or similar opportunities.

Importantly, Executive Order 14398 and FAR 52.222-90 focus on race and ethnicity. The IBM and Deloitte settlements, by contrast, also include sex-based allegations. Federal funding recipients therefore should not read the new clause as the outer boundary of DOJ’s enforcement theory.

Implications for Healthcare and Life Sciences

Although the IBM and Deloitte settlements involved technology and professional services companies, DOJ’s theory could readily be applied to the healthcare, pharmaceutical, and life sciences industries. Hospitals, academic medical centers, health systems, pharmaceutical manufacturers, clinical research organizations, device companies, and other life sciences entities often receive federal funds through multiple channels, including Medicare and Medicaid reimbursement, Veterans Affairs and Department of War contracts, Federal Supply Schedule arrangements, National Institutes of HealthH grants, cooperative agreements, and federally funded clinical or public health programs.

That federal funding footprint may create FCA risk if DOJ or a relator alleges that an entity knowingly certified compliance with civil rights, grant, or contract requirements while maintaining discriminatory practices.

Federal funding recipients should consider prompt, privileged reviews of employment, staffing, leadership development, supplier, research, and federally funded program practices. Particular attention should be paid to:

• Certifications and contract clauses, including Title VII, FAR 52.222-26, FAR 52.222-90, grant assurances, and program-specific civil rights obligations;
• Demographic goals, dashboards, scorecards, and color-coded tracking tools;
• Compensation, evaluation, or promotion metrics tied to demographic outcomes;
• Hiring, promotion, candidate slate, interview, succession, and staffing processes;
• Race-, ethnicity-, or sex-limited training, mentoring, sponsorship, fellowship, or leadership programs;
• Staffing decisions for federal contracts or federally funded programs;
• Supplier diversity initiatives involving preferences, set-asides, or differential treatment;
• Cost charging for DEI, health equity, training, or workforce programs to federal contracts, grants, or cost reports;
• Internal communications that could be read as directing or encouraging managers to achieve demographic outcomes; and,
• Public information about DEI program specifics.

The key distinction is between lawful efforts to expand access and remove barriers, on the one hand, and programs that use protected characteristics as eligibility, selection, staffing, compensation, or resource-allocation criteria, on the other. Documenting good faith belief that DEI measures fall into the latter category and otherwise comply with federal and state laws is helpful in this regard.

Bottom line

The Deloitte settlement confirms that DOJ’s Civil Rights Fraud Initiative is not symbolic. DOJ is actively using the FCA to scrutinize federal funding recipients’ employment and program practices, particularly where demographic goals, compensation incentives, staffing decisions, or exclusive development programs can be characterized as treating employees, applicants, vendors, researchers, or program participants differently based on race, ethnicity, or sex.

The risk is both retrospective and prospective. DOJ is pursuing alleged conduct that predates Students for Fair Admissions and the new contractor DEI executive orders, while the new FAR clause creates additional certification, reporting, audit, flow-down, suspension/debarment, and FCA materiality risks for federal contractors going forward. Federal funding recipients should review relevant programs now with an eye toward how those practices would appear to DOJ, a contracting officer, a grants officer, a suspension and debarment official, or a qui tam relator.