B-22235, DECEMBER 19, 1941, 21 COMP. GEN. 593

B-22235: Dec 19, 1941

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CONTRACTS - COST-PLUS - EVIDENCE IN SUPPORT OF PAYMENTS BY CHECK IN LIEU OF REQUIRING COST-PLUS-A-FIXED-FEE CONTRACTORS TO ESTABLISH THEIR RIGHTS TO REIMBURSEMENT BY FURNISHING RECEIPTS FROM PAYEES WHEN PAYMENT IS MADE BY CHECK. SUPPORTED BY A CERTIFICATION THAT THE PAYMENTS BY CHECK WERE WITNESSED BY A GOVERNMENT REPRESENTATIVE AND THAT THE PAYMENTS HAVE BEEN PROPERLY INCLUDED IN THE CONTRACTORS' COST AND EXPENDITURE ACCOUNTS. IT WILL NO LONGER BE NECESSARY TO SUBMIT TO THIS OFFICE RECONCILIATION STATEMENTS OF THE CONTRACTORS' DEPOSITORY ACCOUNTS UNLESS CALLED FOR IN A PARTICULAR CASE. 20 COMP. 1941: I HAVE YOUR LETTER OF NOVEMBER 28. AS FOLLOWS: A QUESTION HAS ARISEN IN THIS DEPARTMENT AS TO WHETHER A SEPARATE SIGNED RECEIPT MUST BE PROCURED FOR ALL PAYMENTS MADE BY A PRIME CONTRACTOR UNDER A COST-PLUS-A-FIXED-FEE CONTRACT FOR LABOR AND MATERIALS EVEN THOUGH SUCH PAYMENTS ARE MADE BY CHECK.

B-22235, DECEMBER 19, 1941, 21 COMP. GEN. 593

CONTRACTS - COST-PLUS - EVIDENCE IN SUPPORT OF PAYMENTS BY CHECK IN LIEU OF REQUIRING COST-PLUS-A-FIXED-FEE CONTRACTORS TO ESTABLISH THEIR RIGHTS TO REIMBURSEMENT BY FURNISHING RECEIPTS FROM PAYEES WHEN PAYMENT IS MADE BY CHECK, THERE MAY BE SHOWN ON THE CONTRACTORS' PAY ROLLS AND VENDORS' INVOICES THE DATE AND NUMBER OF THE CHECKS IN PAYMENT, SUPPORTED BY A CERTIFICATION THAT THE PAYMENTS BY CHECK WERE WITNESSED BY A GOVERNMENT REPRESENTATIVE AND THAT THE PAYMENTS HAVE BEEN PROPERLY INCLUDED IN THE CONTRACTORS' COST AND EXPENDITURE ACCOUNTS, AND IT WILL NO LONGER BE NECESSARY TO SUBMIT TO THIS OFFICE RECONCILIATION STATEMENTS OF THE CONTRACTORS' DEPOSITORY ACCOUNTS UNLESS CALLED FOR IN A PARTICULAR CASE. 20 COMP. GEN. 341, AMPLIFIED.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, DECEMBER 19, 1941:

I HAVE YOUR LETTER OF NOVEMBER 28, 1941, AS FOLLOWS:

A QUESTION HAS ARISEN IN THIS DEPARTMENT AS TO WHETHER A SEPARATE SIGNED RECEIPT MUST BE PROCURED FOR ALL PAYMENTS MADE BY A PRIME CONTRACTOR UNDER A COST-PLUS-A-FIXED-FEE CONTRACT FOR LABOR AND MATERIALS EVEN THOUGH SUCH PAYMENTS ARE MADE BY CHECK. IT HAS BEEN THE COMMERCIAL PRACTICE OF MANY PRIME CONTRACTORS TO MAKE PAYMENTS FOR LABOR AND MATERIALS BY NONBEARER CHECKS WITHOUT REQUIRING SIGNED RECEIPTS. IN SOME INSTANCES REIMBURSEMENT FOR LABOR HAS BEEN EFFECTED TO A PRIME CONTRACTOR FOR PAYMENTS MADE BY CHECK WITHOUT REQUIRING RECEIPTS FROM EMPLOYEES. IN SUCH CASES THE CONTRACTOR'S BANK ACCOUNT IS AUDITED BY A GOVERNMENT FIELD AUDITOR AND REFERENCE MADE TO THE CASHED CHECKS WHICH HAVE BEEN ENDORSED BY PAYEES IN ORDER TO RECONCILE PAYMENTS MADE FOR LABOR. THE RECONCILIATION STATEMENT IS FURNISHED YOUR OFFICE FOR FILING WITH APPLICABLE PAYMENT VOUCHER.

YOUR OFFICE HAS APPROVED REIMBURSEMENT FOR LABOR TO A PRIME CONTRACTOR UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WHERE PAYMENTS WERE MADE IN CASH TO EMPLOYEES WITHOUT REQUIRING SIGNED RECEIPTS. SEE 20 COMP. GEN. 477. SEE ALSO B-13879, DATED DECEMBER 17, 1940, WHERE PAYMENTS BY CHECK WERE APPROVED WITHOUT REQUIRING A SEPARATE RECEIPT.

THE REQUIREMENT THAT SIGNED RECEIPTS BE OBTAINED EVEN THOUGH PAYMENTS ARE MADE BY CHECK PLACES A HEAVY BURDEN ON THE CONTRACTOR'S PERSONNEL AND CAUSES CONSIDERABLE DELAY AND CONFUSION IN MAKING PAYMENT TO LABORERS DURING PAYOFF PERIOD. THIS INCREASES THE COST OF ADMINISTRATION TO THE PRIME CONTRACTOR WHICH, IN TURN, IS CHARGED TO THE GOVERNMENT. IN MANY INSTANCES WHERE THE PRIME CONTRACTOR'S EMPLOYEES ARE ENGAGED JOINTLY IN GOVERNMENT WORK AND ON THE CONTRACTOR'S COMMERCIAL WORK, SEPARATE SIGNED RECEIPTS ARE BURDENSOME AND OF LITTLE VALUE INASMUCH AS TOTAL EARNINGS ONLY ARE SHOWN ON THE RECEIPTS.

MANY MINOR ERRORS ARE MADE BY LABORERS IN SIGNING RECEIPTS WHICH RESULT IN DISCREPANCIES BETWEEN THE NAMES OF EMPLOYEES SHOWN ON THE PAY ROLLS AND THOSE SHOWN ON RECEIPTS FOR WAGES. ALSO, THE AUDITING AND FILING OF RECEIPTS ARE COSTLY AS TO TIME AND MONEY IN THAT THE PRIME CONTRACTOR, THE SERVICE INVOLVED, AND THE FINANCE DEPARTMENT ARE REQUIRED TO PERFORM THESE FUNCTIONS.

IF A BANK RECONCILIATION STATEMENT IS ACCEPTABLE TO YOUR OFFICE, THE GOVERNMENT FIELD AUDITOR WILL RECONCILE THE PRIME CONTRACTOR'S BANK ACCOUNT AT LEAST MONTHLY. REIMBURSEMENT VOUCHERS WILL BE CERTIFIED TO THE EFFECT THAT PAYMENTS WERE WITNESSED BY A GOVERNMENT REPRESENTATIVE AND THAT RECONCILIATION STATEMENT WILL BE FURNISHED WHEN THE PRIME CONTRACTOR'S BANK ACCOUNT IS RECONCILED. IF CERTAIN CHECKS HAVE NOT BEEN CASHED BY PAYEES, SUCH CHECKS WILL BE LISTED BY NUMBER, DATE, NAME OF PAYEE, AND AMOUNT. THE SUCCEEDING MONTH'S RECONCILIATION STATEMENT WILL EITHER CLEAR OR OTHERWISE DISPOSE OF CHECKS IN THIS CATEGORY.

IT IS THE VIEW OF THIS OFFICE THAT SIGNED RECEIPTS FOR LABOR AND MATERIALS COULD BE DISPENSED WITH IN THOSE CASES WHERE THE PRIME CONTRACTOR MAKES PAYMENT BY NONBEARER CHECK WITHOUT DISTURBING THE EXISTING ACCOUNTING FUNCTIONS OF THE GENERAL ACCOUNTING OFFICE. IT IS BELIEVED THAT THE GOVERNMENT'S INTERESTS WILL BE ADEQUATELY SAFEGUARDED BY SUCH PROCEDURE. THIS WILL EFFECT SAVINGS OF MUCH TIME AND MONEY IN THE NATIONAL DEFENSE PROGRAM THROUGHOUT THE WAR DEPARTMENT. CANCELED CHECKS COVERING SUCH PAYMENTS WILL BE AVAILABLE FOR EXAMINATION BY REPRESENTATIVES OF YOUR OFFICE AT ANY TIME.

IT IS PROPOSED THAT A GOVERNMENT REPRESENTATIVE WITNESS THE PAYOFF OF EMPLOYEES AND WITNESS THE PLACING IN THE MAIL OF CHECKS ADDRESSED TO MATERIAL VENDORS. FURTHERMORE, IT IS PROPOSED TO INSERT ON PAY ROLLS AND VENDORS' INVOICES THE PERTINENT CHECK NUMBERS. THEREFORE, REIMBURSEMENT WILL BE EFFECTED UPON ISSUANCE OF CHECKS BY THE PRIME CONTRACTOR AND A RECONCILIATION STATEMENT WILL BE FURNISHED YOUR OFFICE PERIODICALLY.

ACCORDINGLY, INFORMATION IS REQUESTED AS TO WHETHER YOUR OFFICE WILL ACCEPT A RECONCILIATION STATEMENT OF THE CONTRACTOR'S BANK ACCOUNT CERTIFIED TO BY A GOVERNMENT FIELD AUDITOR FOR ALL PAYMENTS MADE BY NONBEARER CHECK TO MATERIAL VENDORS AND LABORERS WITHOUT REQUIRING SEPARATE SIGNED RECEIPTS FOR SUCH PAYMENTS. INASMUCH AS THE INSTALLATION OF PROCEDURES AT SEVERAL PLANTS IS BEING HELD IN ABEYANCE PENDING YOUR DECISION, IT IS REQUESTED THAT THE MATTER BE EXPEDITED.

THE PRACTICE OF REQUIRING COST-PLUS-A-FIXED-FEE CONTRACTORS TO FURNISH RECEIPTS SIGNED BY PAYEES, WHERE PAYMENTS WERE MADE BY SAID CONTRACTORS TO VENDORS OF MATERIAL OR TO LABORERS BY CHECK, WAS CONSIDERED IN MY DECISION TO YOU OF JANUARY 2, 1941, B-14020, 20 COMP. GEN. 341. IT APPEARS THEREFROM THAT FOR USE IN CONNECTION WITH THE AUDIT OF VOUCHERS COVERING REIMBURSEMENTS TO COST-PLUS-A-FIXED-FEE CONTRACTORS, THE AUDIT DIVISION OF THIS OFFICE REQUESTED YOUR DEPARTMENT TO FURNISH, AMONG OTHER EVIDENCE, THE FOLLOWING:

H. IF PAYMENTS WERE MADE IN CASH, RECEIPTS SHOULD BE FURNISHED, OR, IF PAID BY CHECK, CITATIONS TO CHECKS BY DATES AND NUMBERS SHOULD BE FURNISHED.

I. IN ADDITION THERE SHOULD BE FURNISHED THE WAR DEPARTMENT AUDITOR'S RECONCILIATION STATEMENT OF THE CONTRACTOR'S DEPOSITORY ACCOUNT IF PAYMENTS ARE MADE BY CHECK.

IN YOUR LETTER OF DECEMBER 14, 1940, REPLYING TO SAID REQUEST OF THIS OFFICE, IT WAS STATED, IN PERTINENT PART, AS FOLLOWS:

ITEM H. IT APPEARS IN MANY INSTANCES THAT WHERE PAYMENTS BY A CONTRACTOR ARE MADE BY CHECK, RECEIPTS ARE OBTAINED AT THE SAME TIME. IN THIS EVENT, IT IS THE VIEW OF THE WAR DEPARTMENT THAT IF CHECK PAYMENTS ARE EVIDENCED BY A RECEIPT, CITATION TO THE CHECKS BY DATES AND NUMBERS NEED NOT BE FURNISHED. LIKEWISE, UNDER ITEM I, IT IS DEEMED UNNECESSARY TO FURNISH THE AUDITOR'S RECONCILIATION STATEMENT OF THE CONTRACTOR'S DEPOSITORY ACCOUNT WHEN RECEIPTS ARE OBTAINED FOR EITHER CASH OR CHECK PAYMENTS BY THE CONTRACTOR. YOUR DECISION IS REQUESTED AS TO WHETHER THE FOREGOING IS IN ACCORDANCE WITH YOUR AUDIT REQUIREMENTS.

ACCORDINGLY, IN MY DECISION OF JANUARY 2, 1941, YOU WERE ADVISED THAT IT WOULD BE SATISFACTORY TO THIS OFFICE IF PAYMENTS BY THE CONTRACTOR, EITHER BY CASH OR BY CHECK, WERE EVIDENCED BY A RECEIPT OF THE PAYEE, IN WHICH CASE CITATIONS TO CHECKS ISSUED BY THE CONTRACTOR IN PAYMENT OF INVOICES, TOGETHER WITH A RECONCILIATION OF THE CONTRACTOR'S DEPOSITORY ACCOUNT, NEED NOT BE FURNISHED. HENCE, IT APPEARS THAT THE PRACTICE OF REQUIRING COST-PLUS-A-FIXED-FEE CONTRACTORS TO FURNISH RECEIPTS FROM PAYEES WHEN PAYMENTS WERE MADE BY THE PRIME CONTRACTORS BY CHECK WAS THE RESULT OF THE RECOMMENDATION CONTAINED IN YOUR LETTER OF DECEMBER 14, 1940, THAT SAID RECEIPTS BE FURNISHED IN LIEU OF CITATIONS TO THE NUMBERS AND DATES OF THE CHECKS AND A GOVERNMENT AUDITOR'S RECONCILIATION STATEMENT OF THE CONTRACTOR'S DEPOSITORY ACCOUNT.

HOWEVER, IT IS NOW STATED BY YOU THAT THE PROCEDURE OF REQUIRING RECEIPTS FROM PAYEES WHEN PAYMENTS ARE MADE BY THE PRIME CONTRACTOR BY CHECK HAS NOT BEEN FOUND TO BE PRACTICABLE, AND YOU REQUEST THAT THERE BE SUBSTITUTED FOR SAID REQUIREMENT THE PRACTICE OUTLINED IN DETAIL IN SAID LETTER. IN OTHER WORDS, IN LIEU OF REQUIRING COST-PLUS-A-FIXED FEE CONTRACTORS TO FURNISH RECEIPTS FROM PAYEES WHEN PAYMENT IS MADE BY CHECK, IT IS PROPOSED IN SAID CASES TO INSERT ON THE CONTRACTORS' PAY ROLLS AND THE VENDORS' INVOICES THE DATE AND NUMBER OF THE CHECK BY WHICH PAYMENT WAS MADE, TOGETHER WITH A CERTIFICATION THAT SAID PAYMENTS BY CHECK WERE WITNESSED BY A GOVERNMENT REPRESENTATIVE, AND, SUBSEQUENTLY, TO FURNISH A MONTHLY RECONCILIATION STATEMENT OF THE CONTRACTORS' DEPOSITORY ACCOUNTS, CERTIFIED TO BY A GOVERNMENT FIELD AUDITOR.

SINCE YOU NOW PROPOSE IN THIS CLASS OF CASES TO HAVE A SHOWING MADE ON THE CONTRACTORS' PAY ROLLS AND THE VENDORS' INVOICES OF THE DATE AND NUMBER OF THE CHECKS IN PAYMENT, AND TO SUPPORT SUCH SHOWING WITH A CERTIFICATION THAT THE PAYMENTS BY CHECK WERE WITNESSED BY A GOVERNMENT REPRESENTATIVE, SAID EVIDENCE WILL BE ACCEPTABLE TO ESTABLISH THE CONTRACTOR'S RIGHT TO REIMBURSEMENT, IF OTHERWISE PROPER, AND IT WILL NO LONGER BE NECESSARY TO SUBMIT TO THIS OFFICE RECONCILIATION STATEMENTS OF CONTRACTORS' DEPOSITORY ACCOUNTS UNLESS CALLED FOR IN PARTICULAR CASES. HOWEVER, THE CERTIFICATION OF THE FIELD AUDITOR SHOULD CONTAIN A STATEMENT THAT SUCH PAYMENTS HAVE BEEN PROPERLY INCLUDED IN THE COST AND EXPENDITURE ACCOUNTS OF THE CONTRACTOR.