B-140201, SEPTEMBER 17, 1959, 39 COMP. GEN. 203

B-140201: Sep 17, 1959

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CIVILIAN PERSONNEL - ACCOUNTABLE OFFICERS - DEBT LIQUIDATION - ADDITIONAL SURETY BOND COVERAGE - MANDATORY SET-OFF OF AMOUNTS DUE EMPLOYEE THE PURCHASE BY EMPLOYEES WHO ARE COVERED BY POSITION SCHEDULE SURETY BONDS UNDER 6 U.S.C. 14 OF SUPPLEMENTAL COVERAGE. IN THE EVENT THE EMPLOYEE IS INDEBTED TO THE GOVERNMENT WHEN TERMINATED. THE AGENCY MAY NOT PLACE AMOUNTS DUE THE EMPLOYEE IN A SUSPENSE ACCOUNT UNTIL CONCLUSION OF NEGOTIATIONS WITH THE SURETY UNDER THE AGREEMENT BUT MUST IMMEDIATELY SET OFF AGAINST THE DEBT ANY AMOUNTS DUE THE EMPLOYEE AND REQUEST THE CIVIL SERVICE COMMISSION TO SET OFF RETIREMENT FUNDS FOR ANY BALANCE UNLESS THE EMPLOYEE IS SUBJECT TO THE DEFERRED RETIREMENT PROVISIONS OF 5 U.S.C. 2258 REQUIRING AN ANNUITY ELECTION BY THE EMPLOYEE PRIOR TO SET-OFF.

B-140201, SEPTEMBER 17, 1959, 39 COMP. GEN. 203

CIVILIAN PERSONNEL - ACCOUNTABLE OFFICERS - DEBT LIQUIDATION - ADDITIONAL SURETY BOND COVERAGE - MANDATORY SET-OFF OF AMOUNTS DUE EMPLOYEE THE PURCHASE BY EMPLOYEES WHO ARE COVERED BY POSITION SCHEDULE SURETY BONDS UNDER 6 U.S.C. 14 OF SUPPLEMENTAL COVERAGE, AT THEIR OWN EXPENSE, UNDER AGREEMENTS WHICH PRECLUDE THE EMPLOYEE FROM VOLUNTARILY SETTLING ANY CLAIM UNDER THE BOND WITHOUT THE CONSENT OF THE SURETY DOES NOT WARRANT ANY DEPARTURE IN THE MANDATORY DEBT LIQUIDATION WITHHOLDING PROCEDURE UNDER 5 U.S.C. 82, 27 COMP. GEN. 703, IN THE EVENT THE EMPLOYEE IS INDEBTED TO THE GOVERNMENT WHEN TERMINATED; THEREFORE, THE AGENCY MAY NOT PLACE AMOUNTS DUE THE EMPLOYEE IN A SUSPENSE ACCOUNT UNTIL CONCLUSION OF NEGOTIATIONS WITH THE SURETY UNDER THE AGREEMENT BUT MUST IMMEDIATELY SET OFF AGAINST THE DEBT ANY AMOUNTS DUE THE EMPLOYEE AND REQUEST THE CIVIL SERVICE COMMISSION TO SET OFF RETIREMENT FUNDS FOR ANY BALANCE UNLESS THE EMPLOYEE IS SUBJECT TO THE DEFERRED RETIREMENT PROVISIONS OF 5 U.S.C. 2258 REQUIRING AN ANNUITY ELECTION BY THE EMPLOYEE PRIOR TO SET-OFF.

TO THE SECRETARY OF AGRICULTURE, SEPTEMBER 17, 1959:

ON JULY 9, 1959, THE ADMINISTRATIVE ASSISTANT SECRETARY REQUESTED OUR DECISION ON CERTAIN QUESTIONS INVOLVING THE APPLICATION OF OUR DECISION OF MAY 18, 1948, B-75684, 27 COMP. GEN. 703, IN THE CASE OF EMPLOYEES COVERED BY POSITION SCHEDULE BONDS WHO PURCHASE, AT THEIR OWN EXPENSE, SUPPLEMENTAL AGREEMENTS FROM THE SURETY.

THE REFERRED-TO DECISION HOLDS AS FOLLOWS (QUOTING FROM THE SYLLABUS):

IN CONNECTION WITH AN INDEBTEDNESS DUE THE GOVERNMENT ARISING FROM A LOSS COVERED BY AN EMPLOYEE'S BOND, THE LOSS SHOULD BE REPORTED TO THE CIVIL STATE COMMISSION FOR SET-OFF AGAINST THE AMOUNT TO THE EMPLOYEE'S CREDIT IN THE RETIREMENT AND DISABILITY FUND WITHOUT AWAITING FINAL ADJUDICATION OF THE GOVERNMENT'S CLAIM AGAINST THE SURETY UNDER THE BOND, SO THAT IF SET-OFF IS ACTUALLY ACCOMPLISHED FROM IMMEDIATELY AVAILABLE FUNDS TO THE CREDIT OF THE EMPLOYEE, THE SUBSEQUENT COLLECTION FROM THE SURETY PROPERLY WOULD BE REDUCIBLE IN THE AMOUNT RECOVERED.

EMPLOYEES OF THE FARMERS HOME ADMINISTRATION WHO ARE ACCOUNTABLE FOR MONEY AND PROPERTY HAVE BEEN COVERED BY POSITION SCHEDULE BONDS PURCHASED BY THE AGENCY IN ACCORDANCE WITH 6 U.S.C. 14, AS AMENDED BY THE ACT OF AUGUST 9, 1955, 69 STAT. 618, 6 U.S.C. 14. PREVIOUSLY, THEY WERE COVERED BY FAITHFUL PERFORMANCE BONDS THE PREMIUMS FOR WHICH WERE PAID BY THE EMPLOYEES.

A "POSITION SCHEDULE BOND," AS DEFINED IN 31 C.F.R. 226.1 (H), COVERS, IN A SPECIFIED AMOUNT, EACH EMPLOYEE WHO HOLDS AN OFFICE OR POSITION THE TITLE OF WHICH IS LISTED IN A SCHEDULE ATTACHED TO THE BOND. IN IT THE SURETY AGREES TO INDEMNIFY THE UNITED STATES AGAINST ANY LOSS WHICH ANY INDIVIDUAL OCCUPYING A POSITION NAMED IN THE SCHEDULE MAY CAUSE THE UNITED STATES THROUGH THE FAILURE OF SUCH INDIVIDUAL WHILE FILLING SUCH POSITION TO EFFECT THE FAITHFUL PERFORMANCE OF THE DUTIES THEREOF. THE TERM "FAITHFUL PERFORMANCE OF THE DUTIES" IS DEFINED IN THE BOND IN ACCORDANCE WITH 6 U.S.C. 14 (A) AS INCLUDING THE PROPER ACCOUNTING FOR ALL FUNDS OR PROPERTY RECEIVED BY REASON OF THE POSITION OR EMPLOYMENT OF THE INDIVIDUALS BONDED AND ALL DUTIES AND RESPONSIBILITIES IMPOSED UPON SUCH INDIVIDUALS BY LAW OR BY REGULATION ISSUED PURSUANT TO LAW.

IT APPEARS THAT SHORTLY AFTER THE CHANGE TO THE POSITION SCHEDULE BOND, THE SURETY OFFERED TO BONDED EMPLOYEES SUPPLEMENTAL AGREEMENTS WHICH WERE PURCHASED BY SOME FARMERS HOME ADMINISTRATION EMPLOYEES. UNDER THE TERMS OF THE AGREEMENT, A COPY OF WHICH WAS TRANSMITTED HERE, THE SURETY AGREES, SUBJECT TO A MAXIMUM LIMITATION, TO PAY ANY SUMS WHICH THE EMPLOYEE HAS OBLIGATED HIMSELF TO PAY UNDER THE BOND BY REASON OF LIABILITY IMPOSED UPON HIM BY LAW AND TO WAIVE ANY RIGHTS TO BE INDEMNIFIED BY OR TO RECOVER FROM THE EMPLOYEE ANY SUMS PAID BY THE SURETY UNDER THE BOND. THE EMPLOYEE AGREES NOT TO VOLUNTARILY INCUR ANY EXPENSE OR SETTLE ANY CLAIM WITHOUT THE CONSENT OF THE SURETY. THE AGREEMENT SPECIFICALLY EXCLUDES COVERAGE FOR CLAIMS PREDICATED ON THE DISHONEST OR FRAUDULENT ACT OF THE EMPLOYEE OR HIS AGENTS.

THE ADMINISTRATIVE ASSISTANT SECRETARY IS OF THE VIEW THAT THE TERMS OF THE AGREEMENT IMPLY THAT THE SURETY DOES NOT PAY THE EMPLOYEE FOR ANY AMOUNTS HE PAYS FOR ACTS COVERED BY THE BOND, BUT ONLY WAIVES INDEMNIFICATION FROM THE EMPLOYEE FOR AMOUNTS IT, THE SURETY, PAYS FOR CERTAIN ACTS COVERED BY THE BOND. HE SAYS THAT PRIOR TO THE POSITION SCHEDULE BOND THERE WAS NO QUESTION OF THE NECESSITY FOR OFFSET OF ALL FUNDS IN THE CUSTODY OF THE GOVERNMENT DUE THE EMPLOYEE; THE AGENCY OFFSET ALL FINAL SALARY AND LUMP-SUM PAYMENTS DUE INDEBTED EMPLOYEES AND ALSO REQUESTED OFFSET OF ANY RETIREMENT MONIES DUE THEM IN ACCORDANCE WITH 27 COMP. GEN. 703. HOWEVER, THE LETTER STATES, IT APPEARS THAT THE AGREEMENT CHANGES THE PREFERRED POSITION THE SURETY HAS PREVIOUSLY OCCUPIED UNDER 27 COMP. GEN. 703, AND THAT THE EMPLOYEE COULD REASONABLY EXPECT THAT THE GOVERNMENT WOULD NOT INJECT ITSELF BETWEEN HIM AND HIS SURETY BY AN ACTION WHICH WOULD CAUSE HIM TO INVOLUNTARILY VIOLATE HIS AGREEMENT AND DENY HIM THE COVERAGE HE HAS PAID FOR.

IT IS PROPOSED THAT THE AGENCY PLACE SUMS DUE A SEPARATED EMPLOYEE IN ITS SUSPENSE ACCOUNT UNTIL NEGOTIATION WITH THE SURETY IS COMPLETED ON THE BASIS THAT THIS WOULD PROTECT THE GOVERNMENT'S INTERESTS AND, PRESUMABLY, WOULD NOT PRECLUDE THE EMPLOYEE FROM RECEIVING THE BENEFIT OF HIS COVERAGE.

IN CONSIDERATION OF THESE FACTORS OUR DECISION IS REQUESTED ON THE FOLLOWING QUESTIONS:

1. WHEN A DEBT IS ADMINISTRATIVELY ESTABLISHED AGAINST A TERMINATED EMPLOYEE WHO HAS THE SUPPLEMENTAL COVERAGE, MAY WE SUSPEND ANY FINAL PAYMENTS FOR MONEYS DUE HIM AND AWAIT THE CONCLUSION OF NEGOTIATIONS WITH THE SURETY, OR ARE WE REQUIRED TO IMMEDIATELY OFFSET ALL AMOUNTS AGAINST THE DEBT?

2. UNDER THE SAME CIRCUMSTANCES RELATED IN 1, IF THERE ARE INSUFFICIENT WITHHELD FUNDS TO LIQUIDATE THE DEBT, MAY WE WAIT UNTIL NEGOTIATIONS WITH THE SURETY ARE COMPLETED, OR ARE WE REQUIRED TO IMMEDIATELY REQUEST OFFSET OF RETIREMENT FUNDS?

WE SHOULD LIKE TO POINT OUT AT THE OUTSET THAT THE OFFERING OF SUPPLEMENTAL AGREEMENTS TO BONDED EMPLOYEES IS NOT A NEW DEVELOPMENT ARISING OUT OF THE ACT OF AUGUST 9, 1955, BUT WAS A PRACTICE OF SURETY COMPANIES PRIOR TO THE PASSAGE OF SUCH LEGISLATION. THOSE AGREEMENTS WERE SUBSTANTIALLY IDENTICAL TO THE ONE UNDER CONSIDERATION HERE.

AS STATED IN 27 COMP. GEN. 703, IT IS LEGAL AND PROPER FOR THE GOVERNMENT, THROUGH ADMINISTRATIVE OFFICERS, 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. THIS IS NECESSARY TO PROTECT THE GOVERNMENT'S INTEREST, LEST BY FAILURE TO DO SO, RECOURSE AGAINST THE SURETY MAY, TO THAT EXTENT, BE LOST. IN THIS CONNECTION SEE UNITED STATES V$ UNITED STATES FIDELITY AND GUARANTY CO., 35 F.1SUPP. 959, WHERE THE COURT HELD THAT A SURETY WAS DISCHARGED FROM LIABILITY TO THE EXTENT OF THE AMOUNT OF MONEY TO THE CREDIT OF A GOVERNMENT EMPLOYEE IN THE CIVIL SERVICE RETIREMENT FUND WHICH THE UNITED STATES HELD ON THE DATE OF THE EMPLOYEE'S DISMISSAL AND SUBSEQUENTLY PAID TO HIM.

WE SHOULD ALSO LIKE TO POINT OUT THAT SECTION 1766, REVISED STATUTES, 5 U.S.C. 82, PROVIDES IN PART AS FOLLOWS:

NO MONEY SHALL BE PAID TO ANY PERSON FOR HIS COMPENSATION WHO IS IN ARREARS TO THE UNITED STATES, UNTIL HE HAS ACCOUNTED FOR AND PAID INTO THE TREASURY ALL SUMS FOR WHICH HE MAY BE LIABLE.

THIS STATUTE IS MANDATORY, REQUIRES THE WITHHOLDING OF THE COMPENSATION OF SUCH AN ACCOUNTABLE OFFICER, AND MAY NOT BE WAIVED. 19 COMP. GEN. 312. THE STATUTE APPLIES TO PERSONS WHO HAVE BEEN ENTRUSTED WITH AND ARE REQUIRED TO ACCOUNT FOR PUBLIC FUNDS. MCCARL V. PENCE, 18 F.2D 809; 37 COMP. GEN. 344. IT WOULD THUS APPLY TO THOSE EMPLOYEES OF THE FARMERS HOME ADMINISTRATION WHO ARE ACCOUNTABLE FOR MONEY.

FURTHERMORE, SINCE UNDER THE AGREEMENT THE EMPLOYEE IS EXPRESSLY PRECLUDED ONLY FROM MAKING VOLUNTARY PAYMENTS AND THE SURETY AGREES TO PAY ANY SUMS WHICH THE EMPLOYEE IS OBLIGATED TO PAY UNDER THE BOND BY REASON IMPOSED UPON HIM BY LAW, IT IS NOT CLEAR THAT THE INVOLUNTARY PAYMENT IMPOSED BY A WITHHOLDING ACTION WOULD CAUSE THE EMPLOYEE TO LOSE, TO THAT EXTENT, THE PROTECTION OF THE AGREEMENT. EVEN IF SUCH WERE THE CASE, IT IS NOT APPARENT WHAT DIFFERENCE IT WOULD MAKE UNDER THE AGREEMENT, IF THE WITHHELD MONIES WERE PLACED IN A SUSPENSE ACCOUNT RATHER THAN IMMEDIATELY CREDITED AGAINST THE DEBT, SINCE ONLY A BOOKKEEPING TRANSACTION WOULD BE INVOLVED.

IN ANY EVENT IT IS THE VIEW OF THIS OFFICE THAT A DEPARTURE FROM THE PROCEDURES PRESCRIBED IN 27 COMP. GEN. 703 WOULD TEND TO LESSEN THE SENSE OF RESPONSIBILITY OF AND TO REDUCE THE DEGREE OF CARE EXERCISED BY BONDED EMPLOYEES IN ACCOUNTING FOR PUBLIC MONEY AND PROPERTY.

ACCORDINGLY, IN VIEW OF THE FOREGOING, WE CONCLUDE THAT WHEN A DEBT IS ADMINISTRATIVELY ESTABLISHED AGAINST A TERMINATED EMPLOYEE WHO HAS PURCHASED A SUPPLEMENTAL AGREEMENT YOU ARE REQUIRED (1) TO IMMEDIATELY OFFSET AGAINST THE DEBT ALL AMOUNTS OF MONEY DUE HIM, AND (2) TO IMMEDIATELY REQUEST OFFSET OF RETIREMENT FUNDS FOR ANY BALANCE OF SUCH DEBT.

OF COURSE, WHEN A FEDERAL EMPLOYEE SUBJECT TO THE CIVIL SERVICE RETIREMENT ACT, WHO HAS COMPLETED AT LEAST FIVE YEARS OF SERVICE LEAVES THE FEDERAL SERVICE PRIOR TO RETIREMENT AGE, HE HAS A VESTED RIGHT TO A FUTURE ANNUITY, 5 U.S.C. 2258, WITH AN OPTION OF CLAIMING AND DRAWING OUT THE AMOUNT TO HIS CREDIT IN THE RETIREMENT FUND, 5 U.S.C. 2261. THUS, THE AMOUNT TO HIS CREDIT IS REQUIRED BY LAW TO REMAIN IN THE FUND WHEN HE LEAVES THE FEDERAL SERVICE AND IS NOT DUE HIM UNLESS AND UNTIL HE EXERCISES HIS OPTION. UNDER SUCH CONDITIONS, THE AMOUNT TO HIS CREDIT IS NOT AVAILABLE FOR SETOFF AGAINST ANY INDEBTEDNESS TO THE GOVERNMENT IN THE ABSENCE OF A CLAIM FOR SUCH AMOUNT FROM THE FORMER EMPLOYEE, WHICH RENDERS THE SUM DUE AND HENCE SUSCEPTIBLE TO SETOFF.