B-192479 September 27, 1978

B-192479 September 27, 1978

The Honorable Daniel K. Inouye, Chairman Foreign Operations Subcommittee Committee on Appropriations United States Senate

Dear Mr. Chairman:

You recently requested our legal opinion on whether the Federal Government is precluded by law from assessing either penalties or interest against those of its employees who are indebted to the United States but fail to make reimbursement in a timely manner.

For the reason discussed below, it is our view tht the Federal Government may not assess penalites against its debtors, but that even in the absence of a statute, it may assess interest against all its debtors, including its own employees. While not directly in point, we might note that our Division of Financial and General Management Studies issued a report on September 15, 1977 (FGMS-77-41, B-159687), copy enclosed, in which we recommended to the Chairman of the Civil Service Commission that it begin charging interest on Government claims against former employees at least when claims are collected through reduction of an employee's annuity.

There are no general statutory provisions authorizing the assessment of either penalties or interest against Government employees who fail to repay their debts to the United States. However, neither are these assessments specifically precluded by statute. As a consequence, we must rely on court-established rules as the basis for our response. In this regard, we see no distinction between the treatment of debtors who are Federal employees and those who are not.

It is been held that interest is actually compensation for the use of a creditor's money and is not intended to be a penalty exacted from the debtor. United States v. United Driff and Tool Corporation, 183, F.2d 998 (D.C. Cir. 1950). The courts generally consider the equities when awarding interest has not been established by either contract, statute, or judgement, courts may still allow interest as damages for the wrongful detention of money or property. Young v. Godbe, 82 U.S. (15 Wall) 562 (1823). Moreover, it has specifically been held that even in the absence of a statute, the Federal Government is entitled to the payment of interest on deliquent accounts based on principles of justic and equity. Billings v. United States, 232 U.S. 261 (1914).

From the foregoing, it is apparent that while Government agencies may have no specific statutory authority for assessing penalties, they do have a general authority, based on a creditor-debtor relationship, to charge interest on the deliquent accounts of their employees.

A penalty, on the other hand, is distinguished from interest in that it is considered a sum of money which the law exacts as a means of punishment for doing some act that is prohibited or omitting some act that is required. As a general rule penalties must be expressly imposed by statute and must be strictly construed. In the absence of a statute, therefore, the Government has no right to impose penalties even for agregious deliquencies. Miller v. Robertson, 266 U.S. 243 (1924).

The next concern is the rate of interst that agency can assess when an employee fails to repay a debt owned to the Government. As noted above, the nature of interest is compensatory rather than punitive or coercive. United States v. United Drill and Tool Corporation, supra. Thus as a general rule, courts will balance the equities in each case and set a rate which will fairly compensate the Government for the delay in payment-- often the legal rate of interest. Royal Indemnity Co. v. United States, 313 U.S. 289 (1941).

In the past, courts have not felt compelled to adopt a rate which has been established by a regulation lacking a statutory basis. E.G. United States v. Best, 212 F.2d 743 (1st Cir. 1954). However, on occasion, courts have deferred to an administratively set rats. See, United States v. Wisashickon Tool Works, 200 f.2d 936 (2d Cir. 1952).

In establishing an interest rate administratively, an agency may fix a rate which will both compensate the Government for the use of its money and provide for the administrative cost of collecting the amounts due, but it may not fix a rate which is intended to penalize or which is manifestly unfair to it debtors. moreover, before interest is assessed, an employee (or any other debtor) should be notified in writing that failure to reimburse the Government for the amount requested will result in the imposition of interest at a specified rate.

Our Financial and Management Studies Division is currently in the process of proeparing a report on the need of the Government to do a better job collecting the amounts owned it by the public. At this time, it is also expected that this report will discuss the Government's procedures for charging interest on delinquent accounts. We will be happy to provide the committee with copies when the report is issued.

We trust that our response will be helpful to you.

Sincerely yours,

R.R. KELLER Acting Comptroller General of the United States

Enclosure