South Carolina's Objection to a Letter-of-Credit Procedure Used by the Department of Health and Human Services

AFMD-83-1: Published: Dec 16, 1982. Publicly Released: Jan 3, 1983.

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Pursuant to a congressional request, GAO considered questions regarding the propriety of the delay-of-drawdown letter-of-credit procedure being implemented for public assistance programs by the Department of Health and Human Services (HHS). The questions arose in light of the South Carolina Treasurer's opinion that this procedure would require him to issue bogus checks.

GAO found that, if funds are not available to cover a State check for whatever reason, the State as drawer of the check is responsible. However, if fault for the nonavailability of funds lies with the Federal Government, then it is liable to the State for the Federal portion of the check. The delay-of-drawdown letter-of-credit procedure is proper with regard to accepted legal standards; it does not violate Federal accounting standards, because they do not apply to cash management procedures. States other than South Carolina have encountered difficulties in implementing the letter-of-credit procedure, and officials of several States have written to the Secretary of HHS to advise him that, because of State constitutional or statutory provisions requiring that money be in an account before checks are written against it, their States cannot use the delay-of-drawdown procedure. However, other States have implemented the procedure despite similar statutory or constitutional provisions. Sixteen States have decided not to utilize the procedure, 29 are using it, and 5 have indicated either a firm or a tentative commitment to implementing it in the future.

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