B-222864, JAN 8, 1987, 66 COMP.GEN. 192

B-222864, JAN 8, 1987, 66 COMP.GEN. 192

APPROPRIATION A/FINANCIAL MANAGEMENT - ACCOUNTABLE OFFICERS - DISBURSING OFFICERS - RELIEF - ILLEGAL/IMPROPER PAYMENTS - SUBSTITUTE CHECKS APPROPRIATIONS/ FINANCIAL MANAGEMENT - ACCOUNTABLE OFFICERS - DISBURSING OFFICERS - SUBSTITUTE CHECKS - ISSUANCE - AUTHORITY ARMY DISBURSING OFFICIAL, ASKED TO ISSUE NEW CHECKS TO PAYEE WHERE ORIGINAL CHECKS ARE HELD BY FORMER BUSINESS ASSOCIATE OF PAYEE, MAY ISSUE NEW CHECKS BUT WILL BE RESPONSIBLE FOR LOSS IF PAYEE REGAINS FIRST CHECKS AND CASHES OLD AND NEW CHECKS. THIS OFFICE MAY GRANT HIM RELIEF ONCE A LOSS OCCURS. IF PAYEE VOLUNTARILY PROVIDES INDEMNITY FOR SUCH A LOSS, DISBURSING OFFICIAL MAY ACCEPT. APPROPRIATIONS/FINANCIAL MANAGEMENT - ACCOUNTABLE OFFICES - DISBURSING OFFICERS - SUBSTITUTE CHECKS - ISSUANCE - AUTHORITY AUTHORITY OF SECRETARY OF TREASURY TO AUTHORIZE ISSUANCE OF SUBSTITUTE CHECKS APPLIES TO LOST, STOLEN, DESTROYED OR MUTILATED, NOT TO CIRCUMSTANCES WHERE LOCATION OF CHECKS IS KNOWN AND THEY HAVE NOT BEEN STOLEN.

U.S. ARMY ENGINEER DIVISION:

THIS RESPONDS TO THE APRIL 14, 1986, REQUEST OF LIEUTENANT COLONEL R.F. HAWLEY THAT WE ADVISE A DISBURSING OFFICER IN THE U.S. ARMY CORPS OF ENGINEERS, OHIO RIVER DIVISION, AS TO WHETHER RECERTIFIED PAYMENTS SHOULD BE MADE TO A CONTRACTOR. WE HOLD THAT THE DISBURSING OFFICER MAY ISSUE A SECOND CHECK TO THE CONTRACTOR, BUT THAT IN ORDER TO PROTECT HIMSELF FROM LIABILITY FOR A DUPLICATE PAYMENT WHICH MAY OCCUR, THE DISBURSING OFFICER SHOULD ACCEPT THE OFFER OF A VOLUNTARY INDEMNIFICATION FROM THE PAYEE.

THE NEED FOR THE REPLACEMENT CHECKS AROSE WHEN A CONTRACTOR SUBMITTED A REQUEST TO HAVE THE MAILING ADDRESS ON HIS CONTRACT CHANGED IN EARLY AUGUST 1985. THE ACTUAL MODIFICATION OF THE ADDRESS IN THE CONTRACT WAS NOT MADE UNTIL SEPTEMBER 17, 1985. IN THE INTERIM TWO CHECKS FOR A TOTAL OF $50,729.73 WERE SENT TO THE OLD ADDRESS BY THE DISBURSING OFFICER. THESE CHECKS ARE NOW IN THE POSSESSION OF A FORMER BUSINESS ASSOCIATE OF THE CONTRACTOR WHO REFUSES TO SURRENDER THE CHECKS. THE CONTRACTOR COMPLETED TWO DEPARTMENT OF ARMY STOP PAYMENT FORMS (DA FORM 3037), STATING THAT THE TWO CHECKS HAD NOT BEEN RECEIVED. ON THE BASIS OF THE INFORMATION SUBMITTED BY THE CONTRACTOR, THE DISBURSING OFFICER COMPLETED AND SENT TO THE TREASURY DEPARTMENT TWO STANDARD FORMS 1184, "UNAVAILABLE CHECK CANCELLATION." THE TREASURY DEPARTMENT LATER NOTIFIED THE DISBURSING OFFICER THAT THE TWO CHECKS HAD NOT BEEN CHASED AND ADVISED THE DISBURSING OFFICER THAT HE COULD RECERTIFY THE PAYMENTS AND ISSUE NEW CHECKS. THE DISBURSING OFFICER HAS DELAYED ISSUING NEW CHECKS UNTIL SEVERAL ISSUES CONCERNING HIS LIABILITY FOR THE POSSIBLE PRESENTATION AND PAYMENT OF BOTH THE ORIGINAL AND REPLACEMENT CHECKS ARE ADDRESSED BY THIS OFFICE.

THE INITIAL CONCERN OF THE DISBURSING OFFICIAL IS WHETHER HE HAS THE AUTHORITY TO ISSUE A REPLACEMENT CHECKS UNDER 31 U.S.C. 3331. INSTEAD OF REISSUING THE OLD CHECKS THE AGENCY INVOLVED NOW "RECERTIFIES" THE PAYMENT WHICH RESULTS IN THE ISSUANCE OF A NEW CHECK TO THE PAYEE. WE NOTE THAT TREASURY HAS CONSISTENTLY VIEWED CHECKS WHICH ARE NOT RECEIVED BY THEIR PAYEES AS WITHIN ITS AUTHORITY TO ISSUE SUBSTITUTE CHECKS UNDER 31 U.S.C. 3331. SEE, 31 C.F.R. 245.2. TREASURY'S NEW ADMINISTRATIVE SCHEME FOR HANDLING REPLACEMENT PAYMENTS ALSO COVERS CHECKS WHICH ARE NOT RECEIVED BY PAYEES. TREASURY FISCAL REQUIREMENTS MANUAL, BULLETIN NO. 83-28 (T.L. NO. 415).

THE SECOND CONCERN OF THE DISBURSING OFFICIAL IS WHETHER HE WILL BE HELD LIABLE FOR AN IMPROPER PAYMENT IF BOTH THE ORIGINAL AND REPLACEMENT CHECKS ARE PRESENTED FOR PAYMENT. 54 COMP.GEN. 112, 114 (1974). AN IMPROPER PAYMENT NORMALLY ARISES WHERE THERE IS PAYMENT OF BOTH AN ORIGINAL AND A SUBSTITUTE CHECK. SEE, E.G. B-222134 AND B-223139, JUNE 2, 1986. THIS IS BECAUSE IN THE ROUTINE SUBSTITUTE OR DUPLICATE CHECK SITUATION WHERE WE HAVE GRANTED RELIEF, WE ARE CONCERNED WITH A PAYEE WHO HAS CASHED BOTH CHECKS. IN THOSE CASES WE HAVE SAID THAT WHEN THE SECOND CHECKS. THOSE CASES WE HAVE SAID THAT WHEN THE SECOND CHECK IS CHASED, AN IMPROPER PAYMENT OCCURS. 62 COMP.GEN. 92 (1982). WE THINK THIS SITUATION CHANGES WHERE AN UNAUTHORIZED PERSON CHASES THE FIRST CHECK WITHOUT THE PAYEE BEING INVOLVED IN ANY WAS IN THE NEGOTIATION OF IT. IN SUCH CIRCUMSTANCES, THE SECOND CHECK, WHEN CASHED, IS NOT AN IMPROPER PAYMENT.

THE LOSS UNDER SUCH CIRCUMSTANCES RESULTS FROM THE FIRST CHECK SINCE THE CLAIM THAT WAS INTENDED TO SATISFY REMAINS OUTSTANDING. ALSO, SINCE THE FIRST CHECK WAS NOT ILLEGAL, IMPROPER OR INCORRECT, THE DISBURSING OFFICIAL WOULD NOT BE LIABLE FOR THE LOSS AND WOULD NOT NEED TO BE RELIEVED. INSTEAD, THE CHECK WOULD HAVE BEEN CHASED AS A RESULT OF A FORGED ENDORSEMENT. THE RISK TO THE DISBURSING OFFICIAL IS THAT THE ORIGINAL PAYEE MAY RECOVER THE FIRST CHECK AND, AS IN THE ROUTINE CASE NOTED ABOVE, NEGOTIATE BOTH CHECKS. UNDER SUCH CIRCUMSTANCES, THE SECOND CHECK WOULD RESULT IN A LOSS FOR WHICH THE DISBURSING OFFICIAL'S RISK IN THIS CASE IS LIMITED TO THE SITUATION, THAT APPEARS UNLIKELY HERE, WHERE THE PAYEE WILL CASH THE FIRST CHECK.

THE FINAL CONCERN OF THE DISBURSING OFFICER IS WHETHER HE WILL BE RELIEVED OF LIABILITY FOR A POSSIBLE DUPLICATE PAYMENT. UNDER 31 U.S.C. 3527(C) THIS OFFICE MAY GRANT RELIEF TO A DISBURSING OFFICIAL FOR A LOSS RESULTING FROM AN IMPROPER PAYMENT WHEN WE CONCLUDE THAT THE IMPROPER PAYMENT WAS NOT THE RESULT OF A LACK OF GOOD FAITH AND REASONABLE CARE.

ALTHOUGH THE REPLACEMENT CHECKS HERE WILL BE CATEGORIZED AS RECERTIFIED CHECKS IF ISSUED, THE APPLICABLE RELIEF STATUTE IN CASE OF A LOSS WOULD REMAIN 31 U.S.C. 3527(C). THE PROVISION GOVERNING LIABILITY AND RELIEF OF CERTIFYING OFFICIALS SPECIFICALLY DOES NOT APPLY TO ARMY DISBURSEMENTS SUCH AS THIS. 31 U.S.C. 3528(D). ACCORDINGLY, THE STANDARD FOR RELIEF AS DESCRIBED ABOVE IS ONE OF GOOD FAITH AND REASONABLE CARE, RATHER THAT THE DIFFERENT STANDARD UNDER SECTION 3528. SEE E.G., B-223372, NOVEMBER 12, 1986.

INHERENTLY UNDER A RELIEF STATUTE WE CANNOT GRANT RELIEF FOR A LOSS UNTIL IT OCCURS. IT DOES NOT APPEAR LIKELY THAT A LOSS FOR WHICH THE DISBURSING OFFICIAL WOULD BE LIABLE WILL OCCUR IN THIS CASE. HOWEVER, THE CARE HE HAS DEMONSTRATED TO DATE AS WELL AS THE STEPS HE TAKES HEREAFTER WILL BE REVIEWED CAREFULLY SHOULD A LOSS OCCUR FOR WHICH HE IS LIABLE.

WE HAVE LEARNED FROM AN ATTORNEY REPRESENTING THE PAYEE THAT THE PAYEE WILL VOLUNTARILY INDEMNIFY THE GOVERNMENT WITH A SECURITY ARRANGEMENT IN ORDER TO PROTECT THE DISBURSING OFFICIAL FROM ANY LOSS THAT MIGHT RESULT FROM THE PAYEE RECOVERING THE ORIGINAL CHECKS AND NEGOTIATING THEM. IF AN INDEMNITY ARRANGEMENT THAT IS SATISFACTORY TO THE DISBURSING OFFICIAL IS OBTAINED, WE THINK HE MAY SAFELY ISSUE THE NEW CHECKS. WE WOULD ALSO TAKE SUCH A STEP INTO ACCOUNT IN THE EVENT OF A LOSS REQUIRING RELIEF FROM THIS OFFICE.