B-234828, Nov 14, 1989, 69 Comp.Gen. 85

B-234828: Nov 14, 1989

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Sec. 3527. relief is to be granted. Disbursing officials can demonstrate due care by showing that the automated system made payments that were accurate and legal. Was reviewed at least annually to ensure its effectiveness. 3. Because the liability of disbursing officials for improper payments is governed by federal statutory provisions contained in 31 U.S.C. Although there is a narrow set of circumstances under which a disbursing officer may incur liability. Was reviewed at least annually to ensure its effectiveness. Treasury is concerned that errors incidental to the operation of the automated system may increase the incidence of liability faced by its disbursing officers. Although the system will increase the efficiency of the disbursing process and save the government millions of dollars yearly.

B-234828, Nov 14, 1989, 69 Comp.Gen. 85

APPROPRIATIONS/FINANCIAL MANAGEMENT - Accountable Officers - Disbursing officers - Records management - Computer software 1. The provisions of 31 U.S.C. Sec. 3528(a)(1) governing the responsibilities of a certifying official and 31 U.S.C. Sec. 3325(a) governing the responsibilities of a disbursing official would not preclude Treasury disbursing officials from using an automated software system to correct addresses and ZIP Codes contained in certified payment vouchers to qualify checks processed for mailing for reduced Postal Service rates. APPROPRIATIONS/FINANCIAL MANAGEMENT - Accountable Officers - Disbursing officers - Relief - Illegal/improper payments - Computer software 2. In the rare event that a disbursing official incurs liability for an improper payment that results from the use of a reliable automated address and ZIP Code correction software system, we may relieve a disbursing official from liability under the provisions of 31 U.S.C. Sec. 3527. relief is to be granted, the improper payment cannot result from bad faith or a lack of due care. Disbursing officials can demonstrate due care by showing that the automated system made payments that were accurate and legal, functioned properly, and was reviewed at least annually to ensure its effectiveness. 3. Because the liability of disbursing officials for improper payments is governed by federal statutory provisions contained in 31 U.S.C. Sec. 3325(a) and 31 U.S.C. Sec. 3527 a proposed memorandum of understanding between the Treasury and client agencies to shield Treasury disbursing officials from liability for improper payments would be ineffectual.

Improper Payments Resulting from the Use of an Automated Address Correction System:

By letter of March 13, 1989, the Acting Chief Disbursing Officer, Operations Group, Financial Management Service (FMS), Department of the Treasury, asked whether federal disbursing officers may independently implement the "ZIP + 4" postal savings system without incurring liability for errors incidental to use of the automated system. Although there is a narrow set of circumstances under which a disbursing officer may incur liability, such occasions should be rare. In the rare event that the disbursing officer incurs liability as a result of using the new system, we may relieve the disbursing officer from liability pursuant to 31 U.S.C. Sec. 3527(c) when the payment did not result from bad faith or a lack of due care, and the automated system made accurate and legal payments, functioned properly, and was reviewed at least annually to ensure its effectiveness.

BACKGROUND

The Department of the Treasury has asked whether its disbursing officers may independently implement the new "ZIP + 4" postal savings system. Treasury is concerned that errors incidental to the operation of the automated system may increase the incidence of liability faced by its disbursing officers. Although the system will increase the efficiency of the disbursing process and save the government millions of dollars yearly, it also is likely to cause a small number of disbursements to be misdelivered that otherwise would not be. The potential for liability associated with deliveries to persons other than the intended payees is the major issue raised by the Treasury request.

The Postal Service offers a half cent discount to mailers who provide presorted mail, 85 percent of which contains nine digit ZIP Codes. The Postal Service refers to this program as the "ZIP + 4" system. FMS proposes to implement "ZIP + 4" by means of computer software. After reading the address, the software will add four digits to a correct ZIP Code. The additional four digits make the ZIP Code more geographically descriptive, allowing mail to be sent closer to its final destination and sorted less frequently. If the ZIP Code does not match the street and house numbers for the addressed city and state, the software may modify the ZIP Code. In some situations, changing the ZIP Code may cause a deliverable check to become either undeliverable or delivered to the wrong address. /1/ Nevertheless, we understand that the instances in which this might occur are unavoidable given the current technology and will be so few as to be negligible when compared to the number of checks which will be correctly delivered as a result of the "ZIP + 4" system.

DISCUSSION

There are several statutory provisions relevant to FMS' authority to correct the address and ZIP Codes contained in duly certified payment vouchers. First, 31 U.S.C. Sec. 3528(a)(1) makes the certifying official responsible for the accuracy of the information stated in the certificate, voucher, and supporting records. However, we have not construed this provision to make the certifying official strictly liable for the accuracy of the addresses contained in the voucher and supporting records since addresses are frequently changed either by administrative action of the Postal Service or the municipality, or by the physical relocation of the addressee himself. Generally, the certifying official would not receive advance notice of these address changes. Nor is it feasible for the certifying official to physically verify the accuracy or currency of addresses contained in the voucher. For these reasons, we have construed section 3528(a)(1) to only make the certifying official responsible for insuring that the address information contained in the voucher is the most current payee address information reasonably available to the agency. Implicitly, 31 U.S.C. Sec. 3528 recognizes that some certified addresses may not be complete or correct.

The other relevant statutory provisions are 31 U.S.C. Secs. 3325(a)(2)(A) and 3325(a)(3). Section 3325(a)(2)(A) requires a disbursing official in the executive branch to examine a voucher and determine whether it is "in proper form" and section 3325(a)(3) holds him accountable for performing this and other functions. We interpret these provisions to require the disbursing official to review a voucher to insure it is properly prepared and correct on its face. In furtherance of these duties, a disbursing officer can review the address contained in the voucher to insure it is complete and correct to the extent feasible and practicable for him to do so. Should he find an incomplete or incorrect address, we think the disbursing officer may complete or correct the addresses based on reliable and reasonably accurate information available to him. Accordingly, we believe the provisions of 31 U.S.C. Secs. 3325(a)(2)(A) and 3325(a)(3) would not preclude FMS' use of a reliable automated software system to correct addresses and modify ZIP Codes contained in certified vouchers submitted to it for payment by other federal agencies.

FMS also asks whether its disbursing officials could be relieved from liability for improper payments that may result, should the address- correction function of the "ZIP + 4" software misdirect a check to an unauthorized recipient, who mistakenly or fraudulently negotiates it. Pursuant to 31 U.S.C. Sec. 3527(c), we may relieve a disbursing official from liability for an improper payment when we determine that the payment was not the result of bad faith or lack of reasonable care on the part of the disbursing official.

The instances in which the use of the "ZIP + 4" address-correcting software will cause an improper payment should be rare. The typical case involving an improper payment will occur where a check is sent to an incorrect address and is either mistakenly or illegally negotiated. However, simply because a check is incorrectly delivered does not make a disbursing official liable. Liability arises only upon a loss of funds. Although changes to the address or the ZIP Code may lead to an improper payment, an erroneous payment does not occur until the unauthorized recipient cashes or otherwise negotiates the check.

We addressed the problems of examination, certification, and disbursement of payments by automated systems in our report entitled: New Methods Needed for Checking Payments Made by Computer, GAO/FGMSD-76 82, Nov. 7, 1977. In that report we set forth certain criteria that an agency using automated payment systems should satisfy. We expressed the view that: (1) in automated systems, evidence that the payments are accurate and legal must relate to the system rather than to the individual transaction; (2) certifying and disbursing officials should be provided with information showing that the system on which they are largely compelled to rely is functioning properly; and (3) reviews should be made at least annually, supplemented by interim checks of major system changes, to determine that the automated system is operating effectively and can be relied on to make accurate and legal payment. Id. at 17-18. Thus, basic to any question of a certifying or disbursing official's liability under an automated system is the reasonableness of his reliance on the system to continually produce legal and accurate payments. B-178564, Jan. 27, 1978.

Under these criteria, FMS disbursing officials seeking relief from liability for improper payments stemming from the use of "ZIP + 4" software must demonstrate their exercise of reasonable care and lack of bad faith by showing that the software was generally reliable and functioned properly and that it was tested and reviewed periodically for accuracy. Of course, the traditional requirements that reasonable care be exercised in making the payments and that diligent efforts be made to recoup an improper payment will still be considered in any request for waiver of liability. 59 Comp.Gen. 597 (1980). Requests for relief of disbursing officials will be handled in accordance with these principles, and relief from liability normally can be expected when the criteria outlined above are satisfied.

Finally, FMS has asked us whether a Memorandum of Understanding (MOU) with its client certifying agencies, explicitly authorizing it to add "ZIP + 4" digits and make other address corrections, would be sufficient to shield its disbursing officials from any liabilities for improper payments that may result from the use of the automated address correction system.

We are of the opinion that such an MOU would not shield FMS disbursing officials from liability for improper payments. Since the duties and liabilities of disbursing officials are governed by statute, see 31 U.S.C. Sec. 3325(a) and Sec. 3527, an MOU that attempts by agreement to alter or shift these duties and liabilities is void and unenforceable. See 17 Am. Jur. 2d Contracts Sec. 165.

CONCLUSION

An automated "ZIP + 4" address-correction system effectively utilizes information accessible to the government for the purpose of improving and correcting addresses and ZIP Codes. A disbursing official's use of such information by means of a generally reliable software system is in the furtherance of his duty to deliver to the payee checks issued as payment for government obligations. 16 Comp.Gen. 840 (1937). There will only be rare occasions when the system may lead to an improper payment, and, under appropriate circumstances, disbursing officials exercising reasonable care and good faith can be relieved from any resulting liability.

/1/ For example, if an address contains the correct street name and number, city, and ZIP Code, but the wrong state, the software may change the ZIP Code to conform to the state. In such a case, there is a possibility that the check will be delivered to an incorrect address or eventually returned to the Treasury as undeliverable. If the ZIP Code were not changed, it is likely that the letter would be delivered to the correct address even though the name of the state was incorrectly given.