B-132257, SEP. 6, 1957

B-132257: Sep 6, 1957

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THE FACTS REGARDING THE EMBEZZLEMENT ARE SET OUT IN DETAIL IN THE ACTING POSTMASTER GENERAL'S LETTER AND THE FILE TRANSMITTED THEREWITH. DETERMINATION WAS MADE BY THE POST OFFICE DEPARTMENT THAT THE POSTMASTER OF THE MOUNT MORRIS POST OFFICE. DEMAND WAS MADE ACCORDINGLY BUT NO COLLECTION FROM MR. DEMAND ALSO WAS MADE UPON LIZER AND HIS SURETY. THE SURETY CONTENDED THAT ITS LIABILITY ON THE BOND IS NONCUMULATIVE AND HENCE LIMITED TO $2. OUR OPINION IS REQUESTED AS TO THE LIABILITY OF THE POSTMASTER AND HIS SURETY FOR THE BALANCE OF $34. 096.31 WHICH WILL REMAIN IF THE $5. 000 IN COMPROMISE IS ACCEPTED. A QUESTION IS RAISED AS TO THE EFFECT THE ACCEPTANCE OF THE COMPROMISE WOULD HAVE ON THE DEMAND ON THE POSTMASTER AND HIS SURETY WITH RESPECT TO THE DIFFERENCE BETWEEN THE MAXIMUM POSSIBLE LIABILITY OF LIZER'S SURETY COMPUTED ON THE CUMULATIVE LIABILITY THEORY.

B-132257, SEP. 6, 1957

TO THE POSTMASTER GENERAL:

ON JUNE 17, 1957, YOUR REFERENCE 401, THE ACTING POSTMASTER GENERAL PRESENTED FOR OUR CONSIDERATION A NUMBER OF QUESTIONS ARISING FROM THE EMBEZZLEMENT OF $44,610 OF POSTAGE-DUE TRUST FUNDS FROM THE MOUNT MORRIS, ILLINOIS, POST OFFICE BY DALE M. LIZER, FORMER CLERK AT THAT OFFICE.

THE FACTS REGARDING THE EMBEZZLEMENT ARE SET OUT IN DETAIL IN THE ACTING POSTMASTER GENERAL'S LETTER AND THE FILE TRANSMITTED THEREWITH. BRIEFLY, THE EMBEZZLEMENT EXTENDED OVER A PERIOD FROM FISCAL YEAR 1945 THROUGH 1954, INCLUSIVE. THE AMOUNT THEREOF HAS BEEN REDUCED TO $39,096.31 BY THE APPLICATION OF MR. LIZER'S FINAL SALARY PAYMENT OF $90.97 AND THE $5,422.72 BALANCE IN HIS RETIREMENT ACCOUNT. DETERMINATION WAS MADE BY THE POST OFFICE DEPARTMENT THAT THE POSTMASTER OF THE MOUNT MORRIS POST OFFICE, DWIGHT S. SHARER, AND HIS SURETY SHOULD BE HELD ACCOUNTABLE FOR THAT PART OF THE LOSS CONSIDERED UNCOLLECTIBLE FROM MR. LIZER AND HIS SURETY. DEMAND WAS MADE ACCORDINGLY BUT NO COLLECTION FROM MR. SHARER OR HIS SURETY HAS BEEN EFFECTED TO DATE. DEMAND ALSO WAS MADE UPON LIZER AND HIS SURETY, THE NATIONAL SURETY CORPORATION, IN THE AMOUNT OF $19,600, COMPUTED ON THE BASIS OF ANNUAL CUMULATIVE LIABILITY ON LIZER'S $2,000 BOND. THE SURETY CONTENDED THAT ITS LIABILITY ON THE BOND IS NONCUMULATIVE AND HENCE LIMITED TO $2,000, THE PENAL SUM ON THE BOND. HOWEVER, TO AVOID THE EXPENSE AND UNCERTAINTIES OF LITIGATION, IT OFFERED THE SUM OF $5,000 IN COMPROMISE OF ITS LIABILITY.

OUR OPINION IS REQUESTED AS TO THE LIABILITY OF THE POSTMASTER AND HIS SURETY FOR THE BALANCE OF $34,096.31 WHICH WILL REMAIN IF THE $5,000 IN COMPROMISE IS ACCEPTED. A QUESTION IS RAISED AS TO THE EFFECT THE ACCEPTANCE OF THE COMPROMISE WOULD HAVE ON THE DEMAND ON THE POSTMASTER AND HIS SURETY WITH RESPECT TO THE DIFFERENCE BETWEEN THE MAXIMUM POSSIBLE LIABILITY OF LIZER'S SURETY COMPUTED ON THE CUMULATIVE LIABILITY THEORY, $19,600, AND THE AMOUNT OF THE COMPROMISE. ALSO, A QUESTION IS RAISED AS TO THE EFFECT OF THE THREE YEAR LIMITATION ON TIME FOR FINAL SETTLEMENT OF THE ACCOUNTS OF FISCAL OFFICERS, CONTAINED IN 31 U.S.C. 82I, ON THE POSTMASTER'S LIABILITY. SPECIFICALLY, ADVICE IS REQUESTED AS TO WHETHER THE ENACTMENT OF THE POST OFFICE DEPARTMENT FINANCIAL CONTROL ACT OF 1950 WOULD PRECLUDE THE OPERATION OF THE THREE-YEAR LIMITATION.

IN ADDITION, $14,600 OF THE SUM EMBEZZLED BY LIZER REPRESENT DEPOSITS ADVANCED BY THE KABLE PRINTING COMPANY OF MOUNT MORRIS, ILLINOIS, TO DEFRAY CHARGES AS REFLECTED IN THEIR POSTAGE-DUE ACCOUNT, FOR WHICH NO SERVICE APPEARS TO HAVE BEEN RENDERED. THE KABLE PRINTING COMPANY IS CLAIMING REFUND OF THE $14,600. THE INVESTIGATION DISCLOSED THAT LIZER'S EMBEZZLEMENTS WERE FACILITATED BY THE KABLE COMPANY'S FAILURE TO MAINTAIN ADEQUATE RECORDS OF ITS POSTAGE-DUE ACCOUNT, WHICH FACT WAS KNOWN BY LIZER, AS WELL AS THE FACT THAT SOME OF THE POSTAGE-DUE STAMPS REUSED BY LIZER TO FURTHER HIS EMBEZZLEMENTS WERE OBTAINED BY HIM FROM AN EMPLOYEE OF THE PRINTING FIRM.

IN VIEW OF THE ABOVE AND BECAUSE OF THE UNRESOLVED ISSUE OF CUMULATIVE LIABILITY ON LIZER'S BOND, AND TO AVOID THE EXPENSE OF LITIGATING A CASE THE OUTCOME OF WHICH IS IN DOUBT, OUR CONCURRENCE IN THE ACCEPTANCE OF THE $5,000 COMPROMISE OFFER IS REQUESTED. ALSO, IN VIEW OF THE POSSIBILITY OF CONTRIBUTORY NEGLIGENCE ON THE PART OF THE KABLE PRINTING COMPANY, ITS CLAIM FOR A REFUND OF $14,600 IS FORWARDED FOR OUR CONSIDERATION.

AN EXAMINATION OF COURT DECISIONS REVEALS A WIDE DIVERGENCE OF OPINION ON THE QUESTION OF WHETHER A SURETY BOND CARRIES "CUMULATIVE" LIABILITY OR MERELY A "CONTINUOUS" LIABILITY LIMITED TO THE PENAL SUM STATED IN THE BOND. DIFFERENT COURTS HAVE REACHED OPPOSITE CONCLUSIONS IN CASES INVOLVING SUBSTANTIALLY SIMILAR FACTUAL SITUATIONS AND BONDS. THE CIRCUIT COURT OF APPEALS FOR THE SEVENTH CIRCUIT, WHICH INCLUDES THE STATE OF ILLINOIS, HAS HELD THE LIABILITY ON SURETY BONDS TO BE NONCUMULATIVE IN THE ABSENCE OF SPECIFIC WORDING IN THE BOND REQUIRING CUMULATIVE LIABILITY. SEE MONTGOMERY WARD AND COMPANY, INC., ET AL. V. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, ET AL., 1962 FED.2D 264. SINCE THERE IS NOTHING IN THE PROVISIONS OF LIZER'S BOND SPECIFICALLY ESTABLISHING CUMULATIVE LIABILITY, IT IS VERY IMPROBABLE THAT THE GOVERNMENT COULD RECOVER FROM THE SURETY ANY MORE THAN $2,000, THE PENAL SUM STIPULATED IN LIZER'S BOND, IF THE MATTER WERE LITIGATED.

THE LIABILITY OF THE POSTMASTER AND HIS SURETY IS SEVERELY LIMITED BY THE PROVISIONS OF 31 U.S.C. 82 (SEE SUBSEQUENT DISCUSSION). IF THE SUM OF $5,000 OFFERED IN COMPROMISE OF THE LIABILITY OF LIZER'S SURETY WAS APPLIED IN THE CUSTOMARY MANNER, THAT IS, AGAINST THE OLDEST OUTSTANDING INDEBTEDNESS, THE PERIOD FOR WHICH THE POSTMASTER AND HIS SURETY WOULD BE LIABLE UNDER 31 U.S.C. 821--- THAT IS THE PERIOD NOT MORE THAN THREE YEARS PRIOR TO THE DATE OF SETTLEMENT OF HIS ACCOUNT-- WOULD NOT BE REACHED. EVEN IF THERE WERE TO BE COLLECTED THE MAXIMUM LIABILITY OF $19,600 AND SUCH AMOUNT SIMILARLY WERE APPLIED TO THE OLDEST OUTSTANDING INDEBTEDNESS, THE PERIOD AS TO WHICH THE POSTMASTER AND HIS SURETY WOULD BE LIABLE UNDER 31 U.S.C. 82I WOULD NOT BE AFFECTED. ALSO, IT IS UNDERSTOOD THAT THE POSSIBILITY OF FURTHER COLLECTIONS FROM LIZER PERSONALLY IS REMOTE DUE TO HIS FINANCIAL CONDITION. THEREFORE, WE DO NOT BELIEVE THAT THE ACCEPTANCE OF THE COMPROMISE OFFER AS A PRACTICAL MATTER WOULD HAVE ANY DELETERIOUS EFFECT UPON THE GOVERNMENT'S RIGHT TO RECOVER FROM THE POSTMASTER AND HIS SURETY OR FROM LIZER PERSONALLY. HOWEVER, TO AVOID THE POSSIBILITY OF SUBSEQUENT DISPUTES, AND SINCE LIZER'S LIABILITY IS FOR FULL AMOUNT OF HIS EMBEZZLEMENTS, IT IS SUGGESTED THAT THE MATTER BE DISCUSSED WITH THE POSTMASTER AND HIS SURETY WITH A VIEW OF OBTAINING THEIR APPROVAL PRIOR TO ACCEPTANCE OF THE COMPROMISE. ALSO, IT IS SUGGESTED THAT THE SUM OFFERED BE ACCEPTED IN COMPROMISE OF THE LIABILITY OF LIZER'S SURETY AND IN NO WAY AFFECT LIZER'S PERSONAL LIABILITY. IF THE POSTMASTER AND HIS SURETY AGREE TO ACCEPTANCE OF THE COMPROMISE OFFERED IN SETTLEMENT OF THE LIABILITY OF LIZER'S SURETY, WE CONCUR IN YOUR DEPARTMENT'S VIEWS THAT SUCH OFFER SHOULD BE ACCEPTED.

SECTION 82I OF TITLE 31, U.S.C. PROVIDES IN PERTINENT PART AS FOLLOWS:

"EFFECTIVE THREE YEARS AFTER MAY 19, 1947, THE MONTHLY OR QUARTERLY ACCOUNTS OF ANY DISBURSING, ACCOUNTABLE, OR CERTIFYING OFFICER OF THE GOVERNMENT SHALL BE SETTLED BY THE GENERAL ACCOUNTING OFFICE WITHIN A PERIOD OF NOT TO EXCEED THREE YEARS FROM THE DATE OF THE RECEIPT OF THE ACCOUNT BY THE GENERAL ACCOUNTING OFFICE. A COPY OF THE CERTIFICATE OF SETTLEMENT IN EACH CASE SHALL BE SENT TO THE OFFICER INVOLVED AND SUCH SETTLEMENT SHALL BE FINAL AND CONCLUSIVE ON THE GENERAL ACCOUNTING OFFICE AFTER THE EXPIRATION OF THREE YEARS FROM THE DATE OF RECEIPT OF THE ACCOUNT TO THE EXTENT THAT NO FURTHER CHARGES OR DEBTS SHALL BE RAISED IN SUCH ACCOUNT THEREAFTER EXCEPT AS TO MONEYS WHICH HAVE BEEN OR MAY BE LOST TO THE UNITED STATES DUE TO FRAUD OR CRIMINALITY ON THE PART OF SAID OFFICER: * * *"

THE EFFECT OF THIS PROVISION, EXCEPT AS PROVIDED THEREIN, IS TO RENDER CERTIFICATES OF SETTLEMENT OF AN ACCOUNTABLE OFFICER'S ACCOUNTS BY THE GENERAL ACCOUNTING OFFICE FINAL AND CONCLUSIVE ON US AFTER THE EXPIRATION OF THE PERIOD OF LIMITATION SO AS TO PREVENT THE RAISING OF FURTHER CHARGES OR DEBTS IN SUCH ACCOUNTS THEREAFTER. THE EXCEPTION IN CASES INVOLVING FRAUD AND CRIMINALITY ON THE PART OF THE ACCOUNTABLE OFFICER DOES NOT APPEAR TO BE APPLICABLE HERE SO FAR AS THE POSTMASTER IS CONCERNED. SINCE THE PROVISIONS OF 31 U.S.C. 74 RENDER CERTIFICATES OF SETTLEMENT OF AN ACCOUNTABLE OFFICER'S ACCOUNTS ISSUED BY THE GENERAL ACCOUNTING OFFICE FINAL AND CONCLUSIVE UPON THE EXECUTIVE BRANCH OF THE GOVERNMENT, IT IS APPARENT THAT NEITHER THE GENERAL ACCOUNTING OFFICE NOR THE POST OFFICE DEPARTMENT CAN NOW RAISE A NEW CHARGE AGAINST THE POSTMASTER IN ANY ACCOUNT MORE THAN THREE YEARS OLD.

THE POST OFFICE DEPARTMENT FINANCIAL CONTROL ACT OF 1950, 39 U.S.C. 794- 794F, APPEARS NOT TO HAVE AFFECTED THE TIME LIMITATION ESTABLISHED BY 31 U.S.C. 82I. HENCE, THE POSTMASTER AND HIS SURETY MAY BE HELD LIABLE ONLY FOR THOSE DEFALCATIONS WHICH OCCURRED IN ACCOUNTS NOT YET THREE YEARS OLD, EXCEPT FOR SUCH OLDER PERIODS, AS TO WHICH A TIMELY CHARGE WAS RAISED.

WHILE 31 U.S.C. 82I BASES THE LIMITATION PERIOD PROVIDED THEREIN ON THE DATE OF RECEIPT OF THE ACCOUNT BY THE GENERAL ACCOUNTING OFFICE, THE ACCOUNTING AND AUDITING PROCEDURES WERE SO CHANGED UNDER THE POST OFFICE DEPARTMENT FINANCIAL CONTROL ACT OF 1950 THAT POSTMASTERS' ACCOUNTS ARE NO LONGER RECEIVED IN THE GENERAL ACCOUNTING OFFICE. ALSO, THAT ACT PROVIDES THAT IN THE DETERMINATION OF AUDITING PROCEDURES TO BE FOLLOWED, THE GENERAL ACCOUNTING OFFICE SHALL GIVE DUE REGARD TO THE ADEQUACY OF THE SYSTEM OF ACCOUNTS AND INTERNAL CONTROL MAINTAINED BY THE POST OFFICE DEPARTMENT. THEREUNDER, A PROCEDURE DEVELOPED WHEREBY POSTMASTERS' ACCOUNTS WERE SETTLED BY THE POST OFFICE DEPARTMENT SUBJECT TO A SPOT OR TEST AUDIT BY THE GENERAL ACCOUNTING OFFICE. UNDER THAT PROCEDURE, A CERTIFICATE OF SETTLEMENT WAS ACTUALLY ISSUED BY THE GENERAL ACCOUNTING OFFICE ONLY IN SUCH INSTANCES AS THE POST OFFICE DEPARTMENT AND THE GENERAL ACCOUNTING OFFICE DISAGREED ON AN ACCOUNT OR WHEN A POSTMASTER WHO LEFT THE SERVICE OWED A BALANCE TO THE GOVERNMENT. THIS PROCEDURE, IN EFFECT, RENDERED A SETTLEMENT OF A POSTMASTER'S ACCOUNT BY THE POST OFFICE DEPARTMENT, WHEN NOT SPECIFICALLY DISAPPROVED BY THE GENERAL ACCOUNTING OFFICE, THE EQUIVALENT OF A GENERAL ACCOUNTING OFFICE SETTLEMENT FOR THE PURPOSE OF 31 U.S.C. 82I. ACCORDINGLY, THE PERIOD OF LIMITATION ESTABLISHED BY 31 U.S.C. 82I BEGINS TO RUN ON THE DATE THE POSTMASTER'S ACCOUNT IS RECEIVED IN THE POST OFFICE DEPARTMENT FOR ADMINISTRATIVE AUDIT.

INFORMATION NOW OF RECORD INDICATES THAT THE ACCOUNT OF POSTMASTER SHARER ON WHICH CHARGES FOR THE EMBEZZLEMENT HERE IN QUESTION WERE FIRST RAISED WAS HIS ACCOUNT FOR THE MONTH OF JUNE 1954, WHICH APPEARS TO HAVE BEEN RECEIVED BY THE POST OFFICE DEPARTMENT ON JULY 6, 1954. SINCE MORE THAN THREE YEARS HAVE ELAPSED SINCE THAT DATE, NO FURTHER CHARGES CAN BE RAISED ON THAT OR ANY PRIOR ACCOUNT. HOWEVER, SINCE THE CHARGE RAISED ON THE JUNE 1954 ACCOUNT BY THE STATEMENT OF DIFFERENCES DATED SEPTEMBER 30, 1954, COVERED THE ENTIRE EMBEZZLEMENT, THE RAISING OF THAT CHARGE REOPENED ALL PRIOR ACCOUNTS AFFECTED BY THE EMBEZZLEMENT WHICH WERE NOT AT THAT TIME MORE THAN THREE YEARS OLD. HENCE, POSTMASTER SHARER AND HIS SURETY ARE LIABLE FOR THE AMOUNT OF ALL EMBEZZLEMENTS OCCURRING IN THE THREE YEAR PERIOD PRIOR TO JULY 1954; THAT IS, FROM JULY 1951, THROUGH JUNE 1954, INCLUSIVE. ASSUMING THE ACCURACY OF THE FIGURES GIVEN IN INSPECTOR MCGEE'S SUPPLEMENTAL REPORT OF MAY 4, 1956, TO THE INSPECTOR IN CHARGE AT CHICAGO, THAT AMOUNT WOULD BE $6,400.

CONSIDERATION MUST BE GIVEN TO THE PROVISIONS OF 39 U.S.C. 40, WHICH RELEASE A POSTMASTER'S SURETY IF SUIT IS NOT INSTITUTED WITHIN THREE YEARS AFTER THE CLOSE OF THE ACCOUNT WHEREIN THE SHORTAGE IS STATED. SINCE POSTMASTER SHARER'S JUNE 1954 ACCOUNT APPARENTLY WAS CLOSED BY THE ,STATEMENT OF DIFFERENCES" DATED SEPTEMBER 30, 1954 (SEE UNITED STATES V. CASH, 293 F. 584), THIS PERIOD OF LIMITATION WILL EXPIRE ON SEPTEMBER 30, 1957. IN VIEW OF THE EXTREMELY SHORT PERIOD OF TIME REMAINING, OUR CIVIL ACCOUNTING AND AUDITING DIVISION IS BEING INSTRUCTED TO STATE A CERTIFICATE OF SETTLEMENT AGAINST THE POSTMASTER IMMEDIATELY FOR TRANSMITTAL TO THE DEPARTMENT OF JUSTICE IN ORDER THAT A SUIT MAY BE FILED TO TOLL THE RUNNING OF THE STATUTE.

WITH RESPECT TO THE CLAIM OF THE KABLE PRINTING COMPANY, IT WOULD APPEAR THAT THE FAILURE TO MAINTAIN ADEQUATE RECORDS OF ITS POSTAGE DUE ACCOUNT WOULD CONSTITUTE POOR BUSINESS PRACTICE IN VIEW OF THE LARGE SUMS OF MONEY INVOLVED THEREIN BUT NOT CONTRIBUTORY NEGLIGENCE SUCH AS WOULD WARRANT REFUSAL TO PAY THEIR CLAIM. THE SAFETY OF FUNDS ENTRUSTED TO THE POST OFFICE DEPARTMENT IS NOT--- OR SHOULD NOT BE--- DEPENDENT UPON THE ACCURACY AND COMPLETENESS OF THE ACCOUNTING RECORDS OF THE POST OFFICE DEPARTMENT'S PATRONS. THE PRIMARY RESPONSIBILITY FOR THE SAFETY OF SUCH FUNDS AND THE HONESTY AND INTEGRITY OF POST OFFICE DEPARTMENT EMPLOYEES LIES WITH THE POST OFFICE DEPARTMENT. FURTHERMORE, THE INVESTIGATION REVEALED THAT THE EMPLOYEE OF KABLE WHO FURNISHED SOME USED POSTAGE-DUE STAMPS TO LIZER DID SO WITHOUT KNOWLEDGE OF LIZER'S EMBEZZLEMENTS AND UNDER THE IMPRESSION THAT LIZER WAS USING THEM FOR PHILATELIC PURPOSES. HENCE, THE ACTIONS OF KABLE'S EMPLOYEE, WHILE POSSIBLY IMPROPER, WERE NOT TAINTED WITH ANY IMPLICATION OF FRAUD OR CRIMINAL INTENT. IN ANY EVENT, SINCE SUCH ACTS WERE NOT AUTHORIZED BY OR EVEN KNOWN TO THE KABLE PRINTING COMPANY, THEY CANNOT DEFEAT THAT COMPANY'S RIGHT TO A REFUND. ACCORDINGLY, YOU ARE ADVISED THAT THE SUM OF $14,600 MAY BE PAID TO THE KABLE PRINTING COMPANY BY YOUR DEPARTMENT, IF SUCH PAYMENT IS OTHERWISE PROPER.