A-19367, NOVEMBER 2, 1927, 7 COMP. GEN. 305

A-19367: Nov 2, 1927

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RETIREMENT DEDUCTIONS - SET-OFF -RELATIONSHIP OF SURETY IT IS LEGAL AND PROPER FOR THE GOVERNMENT. 1927: REFERENCE IS MADE TO YOUR LETTER OF JULY 27. THE FORMER EMPLOYEE WAS CONVICTED AND IS NOW SERVING SENTENCE. THAT IT WAS UNDERSTOOD THE AMOUNT DUE THE GOVERNMENT HAD BEEN PAID BY THE BONDING COMPANY. THE CHIEF INSPECTOR OF THE POST OFFICE DEPARTMENT MADE THE FOLLOWING REPORT TO THIS OFFICE: RECEIPT IS ACKNOWLEDGED OF YOUR LETTER. I HAVE TO STATE THAT THE INSPECTOR WHO INVESTIGATED THIS CASE RECOVERED ONLY $108.51 FROM THE SURETIES ON THE BOND OF MACBETH TO APPLY ON THE TOTAL OF $351.50 DUE THE GOVERNMENT. INASMUCH AS IT WAS ANTICIPATED THAT THE ITEMS OF $196.94 DUE THE FORMER EMPLOYEE IN THE RETIREMENT FUND AND $46.05 AS FINAL SALARY WOULD BE SET-OFF TO APPLY ON THE LOSSES TO THE GOVERNMENT FOR WHICH HE WAS HELD RESPONSIBLE.

A-19367, NOVEMBER 2, 1927, 7 COMP. GEN. 305

RETIREMENT DEDUCTIONS - SET-OFF -RELATIONSHIP OF SURETY IT IS LEGAL AND PROPER FOR THE GOVERNMENT, THROUGH ADMINISTRATIVE OFFICES, TO FIRST APPLY ALL AVAILABLE ASSETS IN ITS POSSESSION, INCLUDING BOTH UNPAID SALARY AND AMOUNT IN THE RETIREMENT FUND, BELONGING TO A DEFAULTING OFFICER OR EMPLOYEE, TOWARD LIQUIDATION OF THE INDEBTEDNESS, BEFORE RESORTING TO ITS REMEDY UNDER THE BOND OF THE OFFICER OR EMPLOYEE. 7 COMP. GEN. 136, DISTINGUISHED.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, NOVEMBER 2, 1927:

REFERENCE IS MADE TO YOUR LETTER OF JULY 27, 1927, REQUESTING DECISION WHETHER THE AMOUNT OF $196.94 IN THE CIVIL RETIREMENT FUND TO THE CREDIT OF KENNETH S. MACBETH, FORMERLY A POSTAL EMPLOYEE, MAY BE APPLIED AS REQUESTED BY THE POST OFFICE DEPARTMENT TOWARD PAYMENT OF HIS INDEBTEDNESS TO THE UNITED STATES ON ACCOUNT OF EMBEZZLEMENT OF GOVERNMENT FUNDS AMOUNTING TO $351.50. THE FORMER EMPLOYEE WAS CONVICTED AND IS NOW SERVING SENTENCE. THROUGH HIS BROTHER AND ATTORNEY, THE FORMER EMPLOYEE HAS RESISTED THE OFFSET FOR THE REASON,AMONG OTHERS, THAT IT WAS UNDERSTOOD THE AMOUNT DUE THE GOVERNMENT HAD BEEN PAID BY THE BONDING COMPANY.

UNDER DATE OF SEPTEMBER 7, 1927, THE CHIEF INSPECTOR OF THE POST OFFICE DEPARTMENT MADE THE FOLLOWING REPORT TO THIS OFFICE:

RECEIPT IS ACKNOWLEDGED OF YOUR LETTER, NO. A-19367, DATED AUGUST 29, 1927, WITH REFERENCE TO THE CLAIM OF THE POST OFFICE DEPARTMENT FOR $196.94 RETIREMENT FUND DEDUCTIONS DUE KENNETH S. MACBETH, FORMERLY A CHAUFFEUR-CARRIER AT BALTIMORE, MD.

IN REPLY, I HAVE TO STATE THAT THE INSPECTOR WHO INVESTIGATED THIS CASE RECOVERED ONLY $108.51 FROM THE SURETIES ON THE BOND OF MACBETH TO APPLY ON THE TOTAL OF $351.50 DUE THE GOVERNMENT, INASMUCH AS IT WAS ANTICIPATED THAT THE ITEMS OF $196.94 DUE THE FORMER EMPLOYEE IN THE RETIREMENT FUND AND $46.05 AS FINAL SALARY WOULD BE SET-OFF TO APPLY ON THE LOSSES TO THE GOVERNMENT FOR WHICH HE WAS HELD RESPONSIBLE. THE ITEM OF $108.51 WAS TRANSMITTED BY THE SURETY COMPANY UNDER DATED OF JUNE 15, 1927, AND DEPOSITED TO THE CREDIT OF THE MONEY ORDER ACCOUNT OF THE POSTMASTER AT BALTIMORE, MD., ON INSTRUCTIONS OF THIS OFFICE, CERTIFICATE OF DEPOSIT NO. 28941, DATED AUGUST 16, 1927, COVERING THE TRANSACTION. IT WILL BE READILY APPARENT, THEREFORE, THAT THE SURETY COMPANY HAS NO CLAIM TO THE AMOUNT DUE THE FORMER EMPLOYEE IN THE RETIREMENT FUND.

WITH RESPECT TO THE LAST QUESTION RAISED IN YOUR LETTER, I HAVE TO STATE THAT THE PRACTICE OF THE DEPARTMENT IS, IN MAKING DEMAND ON SURETY COMPANIES, TO ALLOW THEM CREDIT FOR ANY MONEY DUE THEIR PRINCIPAL IN THE HANDS OF THE GOVERNMENT WHICH MAY BE SET-OFF AGAINST AN AMOUNT OTHERWISE DUE FROM THE PRINCIPAL TO THE DEPARTMENT. THIS ARRANGEMENT, OF COURSE, PRESUPPOSES THAT SHOULD IT BE DETERMINED SUBSEQUENTLY THAT THE CONTEMPLATED SET-OFF CAN NOT PROPERLY BE MADE, THE SURETY WILL BE CALLED UPON TO MAKE FURTHER SETTLEMENT ACCORDINGLY.

IN DECISION OF AUGUST 22, 1927, A-18794, 7 COMP. GEN. 136, IT WAS HELD AS FOLLOWS:

* * * THE ONLY THEORY UPON WHICH A SURETY WOULD HAVE A LEGAL CLAIM FOR PAYMENT FROM THE UNITED STATES OF MONEYS DUE A DEFAULTING PRINCIPAL AS AN OFFICER OR EMPLOYEE OF THE GOVERNMENT WOULD BE THAT THE SURETY BY MAKING GOOD THE AMOUNT OF THE PRINCIPAL'S SHORTAGE WOULD BE SUBROGATED TO THE RIGHT OF THE GOVERNMENT WITH RESPECT TO ANY AMOUNT OTHERWISE DUE FROM THE GOVERNMENT TO THE PRINCIPAL. NO SUCH RIGHT OF SUBROGATION CAN BE RECOGNIZED IN SUCH A CASE AS IS HERE PRESENTED FOR THE REASON THAT UNDER THE PROVISIONS OF SECTION 14 OF THE ACT, SUPRA, THE FUNDS HERE INVOLVED ARE NOT ASSIGNABLE EITHER IN LAW OR EQUITY, OR SUBJECT TO EXECUTION, LEVY, OR ATTACHMENT, GARNISHMENT, OR OTHER LEGAL PROCESS. ADMITTEDLY, THE UNITED STATES IS NOT INDEBTED TO THE SURETY ON ACCOUNT OF THE PAYMENT MADE BY THE SURETY TO THE UNITED STATES PURSUANT TO THE TERMS OF THE BOND. SUCH INDEBTEDNESS AS THERE MAY BE IN THE MATTER IS THAT OF WILSON TO THE SURETY AND UNDER THE TERMS OF THE ACT OF MAY 22, 1920, SUPRA, HIS RETIREMENT DEDUCTIONS CAN NOT BE USED TO SATISFY THAT INDEBTEDNESS, EITHER IN WHOLE OR IN PART.

THE PRIOR DECISION IS QUOTED IN ORDER THAT SAME MAY BE DISTINGUISHED FROM THE PRESENT CASE. WHILE, AS HELD IN THE QUOTED DECISION, IT WOULD BE UNLAWFUL TO REIMBURSE A SURETY FROM THE AMOUNT TO THE CREDIT OF AN OFFICER OR EMPLOYEE IN THE RETIREMENT FUND FOR THE AMOUNT PAID TO THE GOVERNMENT BY THE SURETY TO MAKE GOOD THE LOSS SUSTAINED BY THE GOVERNMENT ON ACCOUNT OF THE DEFAULT OF SUCH OFFICER OR EMPLOYEE, IT IS LEGAL AND PROPER FOR THE GOVERNMENT, THROUGH ADMINISTRATIVE OFFICES, TO FIRST APPLY ALL AVAILABLE ASSETS (INCLUDING BOTH UNPAID SALARY AND AMOUNT IN RETIREMENT FUND) OF THE DEFAULTING OFFICER OR EMPLOYEE IN ITS POSSESSION TOWARD LIQUIDATION OF THE INDEBTEDNESS, BEFORE RESORTING TO ITS REMEDY UNDER THE BOND OF THE OFFICER OR EMPLOYEE. SEE 2 COMP. GEN. 579; 4 COMP. GEN. 112. SUCH ACTION IS NOT PROPERLY CLASSED AS A CREDIT TO THE SURETY IN ADVANCE AS STATED BY THE POST OFFICE DEPARTMENT, BUT AS AN APPLICATION OF ASSETS ALREADY UNDER THE CONTROL OF THE GOVERNMENT. IF SUCH ASSETS ARE INSUFFICIENT IN AMOUNT, THEN, NECESSARILY, THE SURETY MUST BE CALLED UPON FOR ANY DIFFERENCE BETWEEN THE ASSETS AND THE AMOUNT OF THE INDEBTEDNESS, AND UPON PAYMENT BY THE SURETY OF SUCH DIFFERENCE THERE SHOULD NOT BE GIVEN ANY RELEASE THAT WOULD PRECLUDE FURTHER COLLECTION FROM THE SURETY IN THE EVENT IT SUBSEQUENTLY SHOULD BE DETERMINED THAT THE FUNDS ADMINISTRATIVELY APPLIED IN REDUCTION OF THE INDEBTEDNESS WERE NOT AVAILABLE FOR SUCH APPLICATION.

YOU ARE AUTHORIZED, THEREFORE, TO CAUSE THE FULL AMOUNT OF $196.94 TO THE CREDIT OF KENNETH S. MACBETH IN THE RETIREMENT FUND TO BE APPLIED IN THE SETTLEMENT OF THE CLAIM OF THE POST OFFICE DEPARTMENT IN ACCORDANCE WITH THE PRACTICE HERETOFORE OBTAINING.