B-130895, APR 26, 1957

B-130895, APR 26, 1957

PRECIS-UNAVAILABLE

HONORABLE ALBERT M. COLE, ADMINISTRATOR:

HOUSING AND HOME FINANCE AGENCY

YOUR LETTER OF FEBRUARY 28, 1957, SUBMITS FOR OUR APPROVAL THE PLAN PROPOSED BY THE COMMISSIONER, FEDERAL FLOOD INDEMNITY ADMINISTRATION, IN CONNECTION WITH THE ESTABLISHMENT OF A PROGRAM OF GOVERNMENT INSURANCE AGAINST FLOOD LOSSES AUTHORIZED BY THE FEDERAL FLOOD INSURANCE ACT OF 1956, PUBLIC LAW 1016, APPROVED AUGUST 7, 1956, 70 STAT. 1078.

AS REQUIRED BY SECTION 13(A) OF THE CITED ACT, THE PLAN PROVIDES FOR THE UTILIZATION OF PRIVATE CHANNELS OF TRADE FOR MAKING FLOOD DAMAGE INSURANCE AVAILABLE TO THE GENERAL PUBLIC. THE PLAN AND IMPLEMENTING PROCEDURES, WHICH HAVE BEEN THE SUBJECT OF INFORMAL DISCUSSIONS BETWEEN REPRESENTATIVES OF THE ADMINISTRATION AND OUR OFFICE, ARE OUTLINED IN YOUR LETTER AS FOLLOWS:

"*** ACCORDINGLY, THE COMMISSIONER PROPOSES TO ENTER INTO AGREEMENTS WITH PRIVATE INSURANCE CARRIERS (FIDUCIARY AGENTS) WHO WILL ACT AS AGENTS OF THE COMMISSIONER AS PRINCIPAL (SECTION 18(B) OF THE ACT). THE PROPOSED AGREEMENT PROVIDES THAT FIDUCIARY AGENTS WILL RECEIVE, REVIEW AND APPROVE APPLICATIONS FOR CONTRACTS OF INDEMNITY, COLLECT FEES FOR SUCH CONTRACTS FROM AGENTS AND BROKERS (PRODUCERS), ISSUE CONTRACTS OF INDEMNITY ON FORMS PRESCRIBED AND FURNISHED BY THE COMMISSIONER, DEPOSIT FEES COLLECTED IN SPECIAL ACCOUNTS, DRAW CHECKS THEREON FOR SPECIFIED OPERATIONAL EXPENSES, REFUNDS DUE APPLICANTS, AND REMIT NET AMOUNTS TO THE COMMISSIONER, AS DIRECTED BY HIM.

"UNDER DIRECTION OF THE COMMISSIONER, UPON RECEIPT OF FEES, THE FIDUCIARY AGENT WILL DEPOSIT SUCH AMOUNTS IN A SPECIAL ACCOUNT TITLED IN THE FIDUCIARY AGENT'S OWN NAME AS TRUSTEE OF THE FEDERAL FLOOD INDEMNITY ADMINISTRATION, IN A BANK INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. THE FIDUCIARY AGENT WILL DRAW CHECKS ON SUCH ACCOUNT FOR COMMISSIONS DUE AGENTS AND BROKERS (PRODUCERS), PREDICATED ON DETERMINED COMMISSION RATES; REFUNDS DUE APPLICANTS BY REASON OF OVERPAYMENT OF FEES AND/OR CONTRACT CANCELLATIONS, BASED ON ESTABLISHED PREMIUM RATES AND A REFUND FORMULA; OUT-OF-POCKET EXPENSES DUE FIDUCIARY AGENTS, CALCULATED ON PREDETERMINED STANDARDS APPROVED BY THE COMMISSIONER; AND THE AMOUNTS WHICH THE FIDUCIARY AGENT WILL REMIT FROM TIME TO TIME TO THE FEDERAL FLOOD INDEMNITY COMMISSIONER FOR DEPOSIT IN THE DISASTER INSURANCE FUND.

"IT IS RECOGNIZED THAT THE EXPENDITURES FOR COMMISSIONS AND OUT-OF POCKET EXPENSES ARE CONSIDERED ADMINISTRATIVE EXPENSES AND CHARGEABLE TO APPROPRIATED FUNDS UNDER SECTION 15(G) OF THE ACT. (SEE H.R. NO. 2746, 84TH CONGRESS, 2D SESS., PP. 18-19, AND S. 3732 WHICH WAS ENACTED INTO PUBLIC LAW 1016). IT IS PROPOSED THAT AT THE TIME THE COMMISSIONER DEPOSITS IN THE DISASTER INSURANCE FUND NET PROCEEDS RECEIVED FROM FIDUCIARY AGENTS, HE WILL TRANSFER FROM APPROPRIATED FUNDS FOR THE ACCOUNT OF THE DISASTER INSURANCE FUND, AMOUNTS PROPERLY CHARGEABLE AS ADMINISTRATIVE EXPENSES. THE FEDERAL FLOOD INDEMNITY COMMISSIONER WILL RETAIN CONTROL AT ALL TIMES AND WILL BE ABLE TO RENDER COMPLETE ACCOUNTABILITY FOR THE DISASTER INSURANCE FUND AND FOR THE APPROPRIATION FOR ADMINISTRATIVE EXPENSES."

IN SUPPORT OF THE FOREGOING PROPOSAL YOU SAY THAT PRIVATE INSURANCE ORGANIZATIONS HAVE ESTABLISHED A METHOD OF DOING BUSINESS, THE ADOPTION OF WHICH APPEARS TO BE THE MOST EFFECTIVE AND PRACTICABLE WAY OF MAKING FLOOD DAMAGE INSURANCE AVAILABLE TO THE GENERAL PUBLIC. YOU FURTHER SAY THAT EVERY CONSIDERATION WAS GIVEN TO UTILIZING TO THE FULLEST EXTENT THE KNOW- HOW AND SERVICE POTENTIALS OF STATE LICENSED INSURANCE ORGANIZATIONS FOR FURNISHING NATIONWIDE INSURANCE SERVICE, RATHER THAN SUBSTITUTE A MORE COSTLY SYSTEM WITHIN THE FRAMEWORK OF THE ADMINISTRATION.

YOU SUGGEST THAT THE PROPOSAL HAS THE DECIDED ADVANTAGE OF ENABLING PROMPT PAYMENT OF COMMISSIONS DUE PRODUCERS OF INSURANCE, REFUNDS TO APPLICANTS ON ACCOUNT OF OVERPAYMENT OF FEES OR CONTRACT CANCELLATIONS, AND REIMBURSEMENT OF OUT-OF-POCKET EXPENSES DUE THE FIDUCIARY AGENTS; ALSO, THAT IT WILL ENABLE CONSIDERABLE SAVINGS TO THE ADMINISTRATION BY ELIMINATING BOOKKEEPING AND SIMILAR COSTS INCIDENT TO THE HANDLING OF SUCH DISBURSEMENTS. UNDER THE PROPOSAL AUTHENTICATED SUMMARY STATEMENTS OF ALL TRANSACTIONS BY EACH FIDUCIARY AGENT WOULD BE REQUIRED BY THE COMMISSIONER AT SUCH TIMES AS HE MIGHT DIRECT, WHICH WOULD SERVE AS THE BASIS FOR CONTROL ACCOUNTING. ADDITIONAL CONTROLS WOULD BE PROVIDED FOR IN THE ADMINISTRATIVE REGULATIONS AND THE FIDUCIARY AGENT'S AGREEMENT BY REQUIRING THAT THE LATTER'S ACCOUNTING PROCEDURES AND PRACTICES CONFORM WITH GENERALLY ACCEPTED AND RECOGNIZED ACCOUNTING PRACTICES; THAT ACCOUNTING RECORDS WOULD BE SO MAINTAINED THAT ALL COSTS AND EXPENSES PROPERLY APPLICABLE TO THE FIDUCIARY AGENT'S AGREEMENT BE READILY ASCERTAINABLE; AND THAT THE COMMISSIONER WOULD HAVE ACCESS TO ALL BOOKS, RECORDS, AND ACCOUNTS MAINTAINED BY THE FIDUCIARY AGENT PERTAINING TO ITS OPERATIONS UNDER THE AGREEMENT, FOR AUDIT OR OTHERWISE.

BRIEFLY STATED, THERE IS HERE PROPOSED THE MARKETING OF FEDERAL FLOOD DAMAGE INSURANCE TO THE GENERAL PUBLIC THROUGH THE USE OF PRIVATE INSURANCE CARRIERS, AS AGENTS OF THE GOVERNMENT, WHO WOULD RETAIN FROM THE PREMIUMS COLLECTED THEREON AMOUNTS TO COVER THE AUTHORIZED EXPENSES OF SUCH SALES, AND REMIT THE NET PROCEEDS TO THE COMMISSIONER, FEDERAL FLOOD INDEMNITY ADMINISTRATION, FOR DEPOSIT INTO THE DISASTER INSURANCE FUND. SIMULTANEOUSLY WITH THE LATTER ACTION, THE COMMISSIONER WOULD ALSO TRANSFER TO THE FUND FROM APPROPRIATIONS TO BE MADE AVAILABLE FOR ADMINISTRATIVE EXPENSES, THE EQUIVALENT AMOUNTS RETAINED BY THE INSURANCE CARRIERS AS COMPENSATION AND OTHERWISE PROPERLY CHARGEABLE AS ADMINISTRATIVE EXPENSES.

THE DOUBT AS TO THE PROPRIETY OF THIS ARRANGEMENT ARISES BY REASON OF THE PROVISIONS OF SECTION 15(B) OF THE ENABLING ACT, WHICH REQUIRE THE DEPOSIT INTO THE DISASTER INSURANCE FUND OF ALL INSURANCE FEES COLLECTED FOR INSURANCE POLICIES ISSUED UNDER THE ACT; AND SUBSECTION (G) OF THE SAME SECTION, WHICH PROVIDES FOR PAYMENT OF ALL ADMINISTRATIVE EXPENSES UNDER THE ACT FROM APPROPRIATIONS MADE BY THE CONGRESS FOR THAT PURPOSE.

THE EFFECT OF THE INHIBITION CONTAINED IN SAID SECTION 15(B) IS DECLARATORY OF THE STATUTORY REQUIREMENTS OF SECTION 3617, REVISED STATUTES, 31 U.S.C. 484, WHICH PROVIDES THAT THE GROSS AMOUNT OF ALL MONEYS RECEIVED FROM WHATEVER SOURCE FOR THE USE OF THE UNITED STATES (WITH CERTAIN EXCEPTIONS NOT INVOLVED HERE) SHALL BE DEPOSITED INTO THE TREASURY WITHOUT ANY ABATEMENT OR DEDUCTION ON ACCOUNT OF SALARY, FEES, COSTS, ETC.

THIS PROHIBITORY STATUTE HAS BEEN THE SUBJECT OF MANY DECISIONS BY OUR OFFICE AND WE CONSISTENTLY HAVE HELD THAT, IN THE ABSENCE OF AN EXPRESS PROVISION TO THE CONTRARY OR AN OTHERWISE CLEARLY DEFINED INTENT ON THE PART OF THE CONGRESS, MONEYS RECEIVED FOR THE USE OF THE UNITED STATES MUST BE DEPOSITED WITHOUT DEDUCTION INTO THE TREASURY OF THE UNITED STATES.

THUS, IT IS CLEAR THAT THE TERMS OF SECTION 15(B) DO NOT PERMIT ANY DEDUCTIONS TO BE MADE FROM THE FEES COLLECTED FOR INSURANCE POLICIES ISSUED UNDER THE ACT, BEFORE DEPOSIT OF SAID FEES INTO THE DISASTER INSURANCE FUND. AND WE FIND NOTHING IN THE LANGUAGE OF SECTION 13(A) WHICH REASONABLY MAY BE CONSTRUED AS INDICATING A CONGRESSIONAL INTENT THAT, IN UTILIZING THE FACILITIES AND SERVICES OF PRIVATE ORGANIZATIONS AND PERSONS AUTHORIZED TO ENGAGE IN THE INSURANCE BUSINESS, THE ADMINISTRATION MAY DISREGARD OR CIRCUMVENT THIS STATUTORY REQUIREMENT.

MOREOVER, THE DELIBERATE CHARGING OF EXPENDITURES TO OTHER THAN THE PROPER APPROPRIATION WITH A VIEW TO SUBSEQUENT ADJUSTMENT BEING MADE BETWEEN THE ADMINISTRATIVE EXPENSES APPROPRIATION AND THE DISASTER INSURANCE FUND HAS BEEN REGARDED AS IN CONTRAVENTION OF SECTION 3678, REVISED STATUTES, 31 U.S.C. 628, WHICH PROVIDES THAT ALL SUMS APPROPRIATED FOR THE VARIOUS BRANCHES OF EXPENDITURE IN THE PUBLIC SERVICE SHALL BE APPLIED SOLELY TO THE OBJECTS FOR WHICH THEY ARE RESPECTIVELY MADE, AND FOR NO OTHERS. SEE 26 COMP.GEN. 902 AT PAGE 906, AND DECISIONS THEREIN CITED.

ACCORDINGLY, AND UNDER SUCH CIRCUMSTANCES, WE MAY NOT APPROVE OR SANCTION THE PROPOSED PLAN SO FAR AS IT CONTEMPLATES WITHHOLDING FROM DEPOSIT INTO THE DISASTER INSURANCE FUND-- FOR EXPENDITURE PURPOSES-- ANY PORTION OF THE GROSS AMOUNT OF COLLECTIONS REPRESENTING INSURANCE FEES. IN OTHER WORDS, THERE IS NO AUTHORITY HERE TO READ INTO THESE PLAIN STATUTORY INHIBITIONS OF THE ACT AN EXCEPTION WHICH THE CONGRESS DID NOT SEE FIT TO EXPRESSLY PROVIDE FOR. SEE 26 COMP.GEN. 857.

HOWEVER, IN VIEW OF THE REPRESENTATIONS IN YOUR LETTER AS TO THE MATERIAL ADVANTAGES TO BE DERIVED IN PERMITTING INSURANCE CARRIERS TO REMIT INSURANCE PREMIUM FEES ON A NET BASIS, THAT IS TO SAY, LESS PAYMENTS MADE THEREFROM FOR SELLING AND SERVICING INSURANCE POLICIES, AND THE FACT THAT ADEQUATE FISCAL ACCOUNTING CONTROLS CAN BE ESTABLISHED IN CONNECTION WITH SUCH TRANSACTIONS, YOU MAY WISH TO BRING THIS MATTER TO THE ATTENTION OF THE CONGRESS FOR THE ENACTMENT OF APPROPRIATE AMENDATORY LEGISLATION TO ENABLE THE ACCOMPLISHMENT OF THIS PURPOSE.