B-215431; B-215432 January 2, 1985

B-215431; B-215432 January 2, 1985

Mr. Clyde E. Jeffcoat Principal Deputy Commander U.S. Army Finance and Accounting Center Indianapolis, Indiana 46249

Dear Mr. Jeffcoat:

This responds to your request of September 12, 1984, that we reconsider our decisions, B-215431, July 9, 1984, and B-215432, B-215435, B-215438, B-215496, B-215516, B-215518, B-215522, July 6, 1984, in which we denied relief under 31 U.S.C. Sec. 3527(c) to Colonel (COL) H.H. Gassie, Finance Corps, Finance and Accounting Center, Joint Uniform Military Pay System Army (JUMPS), Indianapolis, Indiana, for improper payments made from his account. All of these cases involve duplicate payments involving a financial institution as payee. We denied relief in all these cases in part, because there was no information in the original submissions as to why no collection action was taken against the financial institutions that had negotiated both the original and substitute checks. Also in B-215432 et al., supra, we denied relief because it appeared that the Army disbursing officer had accepted a claim of nonreceipt on the same day as the original check was issued. Your reconsideration request now provides us with your justification for these actions. However, for the reasons stated below, we must continue to deny relief until proper collection action is instituted.

As to the dating of the checks, you explain that the drafting of checks is based on the JUMPS office procedures. It appears that these procedures require the substitute check to be issued in an identical form to the original check. JUMPS disbursement personnel have interpreted that to mean that the substitute check bear the same date as the original even though they are not issued on the same day. According to your supplemental information, notification by an individual payee of nonreceipt of a check would be received no later than 3 days after the payday. As you explain the JUMPS procedures for handling duplicate checks and the Army regulations covering composite checks sent to financial institutions, the substitute checks were properly issued after a sufficient interval. See, AR 37-103, paragraphs 4-63 and 4-64 (1983).

According to your request, collection action is, in many cases, taken against financial institutions when payment is made under direct deposit procedures. However, it appears that the Army has determined that the best collection course to follow is to focus collection actions primarily against the service member or civilian employee. In most cases by the time collection action can be taken against the financial institution, the service member or civilian employee will have closed his or her account or substantially reduced the amount in the account so as to preclude the bank from recovering the duplicate payment. This time problem is given as the justification for not proceeding against the financial institutions in the cases at issue here.

We are not, however, persuaded by your explanation that adequate collection action has been pursued.- It appears that under your standard operating procedures, no collection effort is made against a financial institution if the service member or civilian employee has closed his account or if there has been a significant time lag between the issuance of the substitute check and receipt of a Debit Voucher from Treasury. In each of these cases the financial institution was the payee responsible for negotiating both the original and substitute checks.

When a financial institution receives a substitute check, a card is enclosed with the substitute instrument informing the institution that the substitute check should be returned if the original check has been cashed and that "under no circumstances should [the institution! cash both the original and substitute checks.. Thus, we conclude that the financial institution has notice that it is responsible to the Army for the refunding of the duplicate payments. Moreover, regardless of whether the depositor who ultimately benefited from having his account credited twice by the financial institution has withdrawn that account or significantly reduced it, the financial institution remains liable to the Army for the amount of the duplicate payment. The financial institution's ability to debit its depositors' accounts stems not from a delegation from Army, but rather from its own contract with its customers and the self-help remedies authorized by state law governing the relationship between financial organizations and their customers.

In an analogous situation, we note that Treasury has changed its regulations governing the direct deposit of Federal recurring benefit payments by means other than check (Electronic Fund Transfer (EFT)), 31 C.F.R. Part 210. See E final rule, 49 Fed. Reg. 32066, August 10, 1984. These changes specifically set forth the liability of a financial institution that credits benefit payments after the death or legal incapacity of a recipient or the death of a beneficiary Treasury explains:

* * * A financial institution is liable to Treasury as described in Sec. 210.9 without regard to the financial institution's ability to recover from any other party. The change to Sec. 210.9(a) explicitly states that Treasury does not authorize or direct the financial institution to debit the account of any customer under this Part. Any right a financial institution may have to recover from a customer in this situation would be based on state law or the financial institution's contract of deposit with the customer. " Id.

In informal discussions with Treasury staff, we were advised that in their view under the direct deposit program, the same basic principle would apply to the duplicate check situation. We agree. The recovery by the financial institution from the customer of the duplicate payment is independent from the financial institution's liability to Army for the duplicate payment. Therefore, the fact that a service member or civilian employee has or may have closed their account should have no impact on Army's collection procedure. Collection action against the financial institution is based on the institution's role as the payee who negotiated both the original and substitute check. Accordingly, we will continue to deny relief in these cases until collection action is undertaken against the financial institutions.

Sincerely yours,

Harry R. Van Cleve General Counsel