B-155282, B-155346, NOV. 16, 1964

B-155282,B-155346: Nov 16, 1964

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OUR VIEWS WERE REQUESTED ON ACTION YOU PROPOSE TO TAKE IN CONNECTION WITH THE DISTRICT OF COLUMBIA'S IRREGULAR PROCUREMENT OF WEARING APPAREL FROM HARRY KAUFMAN. AN "ARRANGEMENT" WAS AGREED TO FOR PAYMENT OF THESE ARTICLES WHEREBY. SUCH FICTITIOUS PURCHASE ORDERS WERE ALLEGEDLY EQUAL TO THE VALUE OF THE GOODS PREVIOUSLY DELIVERED WITHOUT PURCHASE ORDERS. AN AUDIT STUDY WAS CONDUCTED AND A REPORT THEREON WAS DISCUSSED WITH OFFICIALS OF THE METROPOLITAN POLICE DEPARTMENT. A COPY OF THE REPORT WAS FURNISHED TO AND REVIEWED BY THE CHIEF ASSISTANT UNITED STATES ATTORNEY. THAT THERE IS NO EVIDENCE THAT EITHER "RECEIVED ANY UNLAWFUL GAIN FROM THE TRANSACTIONS IN QUESTION OR THAT EITHER HAD CRIMINAL MOTIVES FOR THEIR CONDUCT.'.

B-155282, B-155346, NOV. 16, 1964

TO THE HONORABLE WALTER N. TO BRINER, PRESIDENT, BOARD OF COMMISSIONERS OF THE DISTRICT OF COLUMBIA:

IN LETTER OF SEPTEMBER 17 AND OCTOBER 7, 1964, RESPECTIVELY, FROM THE ACTING PRESIDENT OF THE BOARD OF COMMISSIONERS, AND FROM YOU, OUR VIEWS WERE REQUESTED ON ACTION YOU PROPOSE TO TAKE IN CONNECTION WITH THE DISTRICT OF COLUMBIA'S IRREGULAR PROCUREMENT OF WEARING APPAREL FROM HARRY KAUFMAN, INC., AND D. LIPSITZ AND SONS.

THE ADMINISTRATIVE RECORD DISCLOSES THAT A SUPPLY OFFICER FOR THE DEPARTMENT OF PUBLIC WELFARE, CHILD WELFARE DIVISION, PERSUADED THE TWO NAMED FIRMS TO SUPPLY NEEDED CLOTHING ARTICLES UPON NO OTHER AUTHORITY THAN HER ORAL REQUESTS. AN "ARRANGEMENT" WAS AGREED TO FOR PAYMENT OF THESE ARTICLES WHEREBY, AFTER THE SUPPLY OFFICER'S ORAL REQUEST HAD BEEN FILLED, SHE WOULD SUBMIT A COPY OF A PURCHASE ORDER TO THE D.C. ACCOUNTING DIVISION SHOWING THE RECEIPT AND INSPECTION OF GOODS DIFFERING FROM THOSE WHICH IN FACT HAD BEEN DELIVERED, AND THE CONTRACTOR WOULD SUBMIT HIS INVOICE COPY OF THIS ORDER TO THE DIVISION FOR PAYMENT. THE AMOUNTS SHOWN ON, AND PAID PURSUANT TO, SUCH FICTITIOUS PURCHASE ORDERS WERE ALLEGEDLY EQUAL TO THE VALUE OF THE GOODS PREVIOUSLY DELIVERED WITHOUT PURCHASE ORDERS. THE SUPPLY OFFICER HAS ADVISED THAT SHE CONSIDERED IT NECESSARY TO CIRCUMVENT PROPER PROCUREMENT PROCEDURES IN THE FOREGOING MANNER IN ORDER TO TIMELY MEET THE CLOTHING DEMANDS OF WELFARE CHILDREN.

THE RECORD INDICATES THAT, UPON DISCOVERY OF SUCH TRANSACTIONS, AN AUDIT STUDY WAS CONDUCTED AND A REPORT THEREON WAS DISCUSSED WITH OFFICIALS OF THE METROPOLITAN POLICE DEPARTMENT. A COPY OF THE REPORT WAS FURNISHED TO AND REVIEWED BY THE CHIEF ASSISTANT UNITED STATES ATTORNEY, D.C. COURT OF GENERAL SESSIONS DIVISION, WHO CONCLUDED "THAT NO USEFUL PURPOSE WOULD BE SERVED BY THE INSTITUTION OF CRIMINAL PROCEEDINGS AGAINST EITHER" THE SUPPLY OFFICER OR KAUFMAN, AND THAT THERE IS NO EVIDENCE THAT EITHER "RECEIVED ANY UNLAWFUL GAIN FROM THE TRANSACTIONS IN QUESTION OR THAT EITHER HAD CRIMINAL MOTIVES FOR THEIR CONDUCT.' THE LIPSITZ TRANSACTIONS WERE SUBSEQUENTLY BROUGHT TO THE ATTENTION OF THESE OFFICIALS, AND THE ASSISTANT UNITED STATES ATTORNEY AGAIN DECLINED TO PROSECUTE.

WITH RESPECT TO KAUFMAN, YOU PROPOSE TO REFUSE PAYMENT OF $2,311.25 CLAIMED AS THE VALUE OF CLOTHING FURNISHED WITHOUT PURCHASE ORDERS, AND TO SETOFF $7,690.01 ALREADY PAID PURSUANT TO FICTITIOUS VOUCHERS AGAINST MONEY DUE KAUFMAN FOR DELIVERIES MADE UNDER VALID PURCHASE ORDERS. WITH RESPECT TO LIPSITZ, YOU PROPOSE TO SETOFF PART OF $18,882.06 ALREADY PAID PURSUANT TO FICTITIOUS VOUCHERS AGAINST APPROXIMATELY $1,100 DUE UNDER VALID PURCHASE ORDERS, AND TO DEMAND PAYMENT OF THE BALANCE.

WHILE THE RECORD LEAVES NO ROOM FOR DISPUTING THAT THE PAYMENTS MADE PURSUANT TO FALSELY CERTIFIED INVOICES WERE UNAUTHORIZED, IT IS ADMITTED THAT, AS A RESULT OF THE IMPROPER ,ARRANGEMENT, BETWEEN ITS SUPPLY OFFICER AND THE TWO FIRMS, THE DISTRICT HAS RECEIVED VALUABLE GOODS. IN CASES WHERE A CLAIMANT SEEKS RECOVERY OF A FULLY EXECUTED PAROL AGREEMENT IN WHICH THE GOVERNMENT RECEIVED THE BENEFITS CALLED FOR IN THE AGREEMENT, THE COURT OF CLAIMS HAS HELD THAT IT IS IMMATERIAL WHETHER THE CONTRACT WAS NEGOTIATED BY AN OFFICIAL HAVING AUTHORITY TO CONTRACT OR WHETHER THE CONTRACT WAS REDUCED TO WRITING, SINCE THE GOVERNMENT'S ACCEPTANCE OF BENEFITS UNDER THE AGREEMENT GIVES RISE TO AN OBLIGATION TO PAY THE VALUE OF THE SERVICES RENDERED OR GOODS RECEIVED. TIDEWATER COAL EXCHANGE V. UNITED STATES, 67 CT.CL. 590 (1929).

HOWEVER, WE HAVE HELD THAT IT IS THE PLAIN DUTY OF ADMINISTRATIVE, ACCOUNTING, AND AUDITING OFFICERS OF THE GOVERNMENT TO REFUSE APPROVAL AND TO PREVENT PAYMENT OF PUBLIC MONEYS UNDER ANY AGREEMENT ON BEHALF OF THE UNITED STATES AS TO WHICH THERE IS A REASONABLE SUSPICION OF IRREGULARITY, COLLUSION, OR FRAUD, THUS RESERVING THE MATTER FOR SCRUTINY IN THE COURTS WHERE THE FACTS MAY BE JUDICIALLY DETERMINED UPON SWORN TESTIMONY AND COMPETENT EVIDENCE. 17 COMP. GEN. 61, 71; AND CASES CITED THEREIN.

THE IRREGULARITY OF THE INSTANT PROCUREMENTS IS PLAIN. MOREOVER, SINCE MOST OR ALL OF THE GOODS ACTUALLY RECEIVED FROM THE TWO FIRMS HAVE ALREADY BEEN DISTRIBUTED TO WELFARE RECIPIENTS AND THE PRESENT RECORD DISCLOSES NO MEANS BY WHICH THE GOVERNMENT HAS BEEN ABLE TO ESTABLISH THAT THE QUALITY AND VALUE OF SUCH GOODS WERE COMMENSURATE WITH THEIR COST, WE CANNOT SAY THAT IT WOULD BE UNREASONABLE TO SUSPECT THAT THE PARTICIPATION BY EXPERIENCED CONTRACTORS IN THESE IRREGULARITIES MAY HAVE RESULTED IN FRAUDULENT OVERCHARGES TO THE DISTRICT.

IT FOLLOWS FROM THE FOREGOING THAT NO PAYMENT SHOULD BE MADE ON KAUFMAN'S OUTSTANDING CLAIM FOR $2,311.25, REPRESENTING THE ALLEGED VALUE OF DELIVERED ARTICLES FOR WHICH NO PURCHASE ORDERS HAD BEEN ISSUED.

HOWEVER, WHILE IT IS UNNECESSARY TO SHOW A PECUNIARY LOSS TO DEFEAT A FRAUDULENT CLAIM ON WHICH NO PAYMENT HAS BEEN MADE, IT IS NECESSARY TO SHOW A PECUNIARY LOSS WHERE A CLAIM HAS ALREADY BEEN PAID AND AN ACTION IS BROUGHT TO RECOVER THE AMOUNT PAID. F. B. GROVO, JR., AND CO. V. UNITED STATES, 100 CT.CL. 368, 271 (1943). IT THEREFORE FOLLOWS THAT THE AMOUNTS OF $7,690.01 AND $18,882.06 ALREADY PAID TO KAUFMAN AND LIPSITZ SHOULD NOT BE RECOVERED BY SETOFF OR OTHER MEANS, EXCEPT TO THE EXTENT THAT THE DISTRICT HAS OR CAN ADDUCE EVIDENCE WHICH INDICATES A PECUNIARY LOSS RESULTING FROM EITHER OVERPAYMENTS FOR, OR FROM NONRECEIPT OF, THE ARTICLES WHICH THE CONTRACTORS CLAIM THEY FURNISHED.

YOUR REPORT INDICATES THAT A PHYSICAL INVENTORY AND STUDY OF INVENTORY RECORDS CONFIRM THE GOVERNMENT'S RECEIPT OF THE NONVOUCHERED ARTICLES FROM KAUFMAN, FOR WHICH THAT FIRM WAS ABLE TO PRODUCE RECORDS SHOWING DELIVERY OF THE INDIVIDUAL ITEMS IT ALLEGES TO BE WORTH $7,690.01. APPARENTLY, NO EVIDENCE HAS BEEN DEVELOPED TO INDICATE ANY OVERCHARGES. ON THE OTHER HAND, THE DISTRICT AUDIT OF ITS INVENTORY RECORDS FROM OCTOBER 12, 1961, TO APRIL 17, 1964, CONFIRMS THE RECEIPT OF GOODS FROM LIPSITZ ONLY IN AN AMOUNT WHICH THAT FIRM PRICES AT $15,859.45. LIPSITZ CAN ACCOUNT FOR PART OF THE DIFFERENCE OF $3,022.61 BETWEEN THAT FIGURE AND THE AMOUNT PAID ONLY BY REFERENCE TO ITS FISCAL LEDGERS, WHICH APPARENTLY SHOW A BALANCE DUE IT FROM THE DISTRICT OF $2,408.10 AS OF OCTOBER 12, 1961. HOWEVER, LIPSITZ DOES NOT HAVE ANY RECORDS OF THE ALLEGED TRANSACTIONS ON WHICH THE $2,408.10 FIGURE IS BASED, WHICH RECORDS ARE AN ESSENTIAL PART OF ANY DETERMINATION FROM DISTRICT INVENTORIES AS TO WHAT ARTICLES, IF ANY, LIPSITZ MAY HAVE SUPPLIED WITHOUT PROPER VOUCHERS. SINCE THE ONLY USEFUL RECORDS OF PARTICULAR ITEMS RECEIVED BY THE DISTRICT FROM LIPSITZ SHOW A TOTAL QUANTITY VALUE BY THE CONTRACTOR AT $3,022.61 LESS THAN THE AMOUNT PAID TO IT UNDER FICTICIOUS VOUCHERS, WE BELIEVE SUCH RECORDS CONSTITUTE EVIDENCE OF A PECUNIARY LOSS SUFFICIENT TO WARRANT SETOFF AGAINST THE $1,000 OF WITHHELD PAYMENTS OTHERWISE DUE LIPSITZ, AND AN ADMINISTRATIVE DEMAND FOR $1,922.61, REPRESENTING THE BALANCE OF THE INDEBTEDNESS.