B-232575, Nov 8, 1990, Office of General Counsel

B-232575: Nov 8, 1990

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Army officer is relieved of liability for the improper payments of checks on forged endorsements made by subordinate cashiers where the officer maintained and supervised an adequate system of procedures designed to prevent such improper payments. Are also relieved of liability. The bank on which the checks were drawn dishonored them due to insufficient funds. The Finance Office discovered that the checking account upon which the checks were written had been fraudulently established. Both the persons who made the improper payments and the person in whose name the account is officially held are liable as disbursing officials for the amount of the improper payments. Sec. 3527(c) to relieve a disbursing officer from liability for a deficiency resulting from an improper payment if we determine that the payment was not the result of bad faith or lack of reasonable care by the official.

B-232575, Nov 8, 1990, Office of General Counsel

APPROPRIATIONS/FINANCIAL MANAGEMENT - Accountable Officers - Cashiers - Relief - Illegal/improper payments - Forgeries DIGEST: U.S. Army officer is relieved of liability for the improper payments of checks on forged endorsements made by subordinate cashiers where the officer maintained and supervised an adequate system of procedures designed to prevent such improper payments. The cashiers, having complied with existing procedures, are also relieved of liability. The loss resulted from criminal activity over which the officer and cashiers had no control.

Colonel David H. Parrish

Chief of Staff:

This responds to your letter requesting that we grant relief to Maj. J.M. McWilliam, Finance Corps, Headquarters, U.S. Army Training Center, Fort Dix, New Jersey, and his cashiers, Mr. Robert Andariese, Ms. Doris Smith and Ms. Teresa Decker, for improper payments totaling $600. For the reasons stated below, we grant relief as requested.

According to your submission, the improper payments occurred on January 6 and 7, 1988, when an individual purporting to be Sgt. David L. Jones presented three personal checks for $200 each at the Finance and Accounting Office, Fort Dix. Each of the three cashiers identified above cashed one of the three checks. The bank on which the checks were drawn dishonored them due to insufficient funds. After the bank returned the checks to Fort Dix, the Finance Office discovered that the checking account upon which the checks were written had been fraudulently established. An investigation by the Military Police revealed that an unidentified male, using a false identification, had opened a checking account in the name of David L. Jones.

In cases such as this, both the persons who made the improper payments and the person in whose name the account is officially held are liable as disbursing officials for the amount of the improper payments. This Office has authority under 31 U.S.C. Sec. 3527(c) to relieve a disbursing officer from liability for a deficiency resulting from an improper payment if we determine that the payment was not the result of bad faith or lack of reasonable care by the official. B-229827, Jan. 14, 1988. Where subordinates of the finance officer actually disbursed the funds, we have granted relief to the finance officer upon a showing that the finance officer properly supervised his subordinates, maintained an adequate system of procedures and controls to safeguard the funds, and took steps to ensure the system's implementation and effectiveness. B-228859, Sept. 11, 1987. The good faith and reasonable care of the person who made the payment can be shown by evidence that the individual complied with these procedures and that nothing occurred which should have made that person suspicious of the fraud. B-229827, Jan. 14, 1988.

Documentation that you submitted substantiates your assertion that Maj. McWilliam had instituted an adequate system of procedures and controls to safeguard the funds in his care. The investigation subsequent to the improper payments concluded that cashiers Andariese, Smith, and Decker effectively followed these procedures. Nothing in the record suggests that the cashiers should have been suspicious of the fraudulent nature of the transactions. The investigation has been unable to establish the identity of the perpetrator, thus no collection has been possible.

The improper payments in this case appear largely the result of a skillfully executed criminal activity that even an adequate and effectively supervised system cannot always prevent. B-231505, June 13, 1988. Since there is no indication that the improper payments were the proximate result of bad faith or lack of reasonable care on their parts, relief is granted to Maj. McWilliam, Mr. Andariese, Ms. Smith and Ms. Decker.