Department of the Navy--Settling Claims on Fraudulently Endorsed Checks and Claims on Checks Subject to Limited Payability Provisions of the Competitive Equality Banking Act of 1987 B-242666 August 31, 1993 72 Comp.Gen. 295

B-242666: Aug 31, 1993

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Appropriations/Financial Management Appropriation Availability Time availability Fiscal-year appropriation Substitute checks Department of the Treasury is responsible for the payment of settlement checks issued to replace checks paid over forged indorsements and such payments must be charged against the Check Forgery Insurance Fund (Fund). There is nothing either in the text or legislative history of the Competitive Equality Banking Act of 1987 that indicates that the Congress intended to eliminate the Fund or change the established process for issuing settlement checks to replace checks paid over forged indorsements. Sec. 1555 an appropriation account available for obligation for an indefinite period shall be closed if the head of an agency or the President determines that the purposes for which the appropriation was made have been carried out and no disbursement has been made against the account for two consecutive years.

Department of the Navy--Settling Claims on Fraudulently Endorsed Checks and Claims on Checks Subject to Limited Payability Provisions of the Competitive Equality Banking Act of 1987 B-242666 August 31, 1993 72 Comp.Gen. 295

Appropriations/Financial Management Appropriation Availability Time availability Fiscal-year appropriation Substitute checks Department of the Treasury is responsible for the payment of settlement checks issued to replace checks paid over forged indorsements and such payments must be charged against the Check Forgery Insurance Fund (Fund). There is nothing either in the text or legislative history of the Competitive Equality Banking Act of 1987 that indicates that the Congress intended to eliminate the Fund or change the established process for issuing settlement checks to replace checks paid over forged indorsements. Appropriations/Financial Management Budget Process Permanent/indefinite appropriation Under 31 U.S.C. Sec. 1555 an appropriation account available for obligation for an indefinite period shall be closed if the head of an agency or the President determines that the purposes for which the appropriation was made have been carried out and no disbursement has been made against the account for two consecutive years. The purposes for which appropriations were made for the Fund continue to exist and FMS has not shown sufficient justification for closing the account under 31 U.S.C. Sec. 1555. Treasury should restore balances in the Fund and charge all claims against the Fund or seek permanent indefinite appropriations or Congressional authority to repeal the Fund.

DECISION This decision is in response to a request for an advance decision from the Department of the Navy on the proper funding for payment on checks subject to the provisions of the Competitive Equality Banking Act of 1987 (Act), Pub. L. No. 100-86, 101 Stat. 657 (1987). For the reasons discussed below, we conclude that the Department of the Treasury is responsible for the payment of settlement checks issued to replace checks paid over forged indorsements and such payments must be charged against the Check Forgery Insurance Fund (Fund).

BACKGROUND

The Act made several changes to the law governing claims on and payment of Treasury checks. Section 1002 of the Act amended 31 U.S.C. Sec. 3328 to establish a one year limit for payments of most Treasury checks. Pub. L. No. 100-86, 101 Stat. at 658. Section 1003 of the Act amended 31 U.S.C. Sec. 3334(b) to provide that the Secretary of the Treasury shall cancel all checks issued before the effective date of the Act, October 1, 1989, that had not been presented for payment by October 1, 1990. Id. Further, section 1004(a) of the Act limits to one year the ability of the United States to bring reclamation actions against presenting banks or other indorsers on checks paid over a forged or unauthorized indorsement.

In response to the Navy request for investigations on forged check claims, the Treasury has informed the Navy that reclamation is no longer possible and that therefore it cannot issue settlement checks. Treasury has advised the Navy (and others) to recertify checks and charge them against agency appropriations. Navy thus asks whether agencies are financially responsible for settling claims on fraudulently endorsed checks when recovery from the banks is no longer possible. As explained in further detail below, we conclude that the Treasury is responsible for the payment of claims on fraudulently negotiated Treasury checks and that payment may only be made from the Check Forgery Insurance Fund.[4]

THE CHECK FORGERY INSURANCE FUND

In 1941, the Congress created the Check Forgery Insurance Fund (Fund). See 31 U.S.C. Sec. 3343. The purpose of the legislation was:

"[T]o relieve the inequitable condition arising when the payee or a special endorsee of a check drawn on the Treasurer of the United States, which has been improperly negotiated through no fault of the payee or special endorsee and paid upon a forgery of his endorsement, is deprived of the amount due him until such indeterminate future time as recovery has been effected from the forger or the bank or other party cashing the check by setting up a small revolving fund . . . . This bill in no way affects the duty of the Treasurer of the United States to reclaim, nor the liability of the parties who received the payment on the original check. When recoveries are made from the forger or subsequent transferees of the original check, the amount thereof is deposited back to the credit of the fund out of which the advance has been made." H.R. Rep. No. 1113, 77th Cong., 1st Sess. (1941).

The requirements for recovery from the Fund are that:

(1) the check was lost or stolen without the fault of the payee or a holder that is a special endorsee;

(2) the check was negotiated later and paid by the Secretary or a depositary on a forged endorsement of the payee's or special endorsee's name;

(3) the payee or special endorsee has not participated in any part of the proceeds of the negotiation or payment; and

(4) recovery from the forger, a transferee, or a party on the check after the forgery has been or may be delayed or unsuccessful.

See 31 U.S.C. Sec. 3343(b).

We requested the views of the Financial Management Service (FMS), Department of the Treasury, on the use of the Fund to cover forged checks. According to FMS, the Fund has received only limited use since 1960. FMS asserts the Fund is obsolete. Moreover, FMS advises that due to lack of funding and the inactivity of the Fund for the last 10 years, it formally closed the Fund's account on March 1, 1992, in accordance with 31 U.S.C. Sec. 1555.[5] FMS also maintains that when Congress enacted the Competitive Equality Banking Act, it vested the Treasury with rule making authority over Treasury checks which "have been canceled or for which a claim has been asserted or barred," and that, therefore, the Act impliedly repealed the Fund's authority. FMS attributes the failure of Congress to expressly repeal the statute establishing the Fund to "an administrative oversight on our part."

ANALYSIS

It is a cardinal principle of statutory construction that repeals by implication are not favored. United States v. United Continental Tuna, 425 U.S. 164, 168 (1976); Silver v. New York Stock Exchange, 373 U.S. 341, 357 (1963). This principle carries special weight when it is urged that a specific statute has been repealed by a more general one. United Continental Tuna, supra at 169; Morton v. Mancari, 417 U.S. 535, 550-551 (1973). Where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment. Morton, supra, 417 U.S. at 551; Bulova Watch Co. v. United States, 365 U.S. 753, 758 (1961). The Supreme Court also has held that agencies have no license to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective. See Morton, supra, at 551; Watts v. Alaska, 451 U.S. 259, 266-67 (1981).

In this case neither the text nor the legislative history of the Act reflect an intent by the Congress to eliminate the Fund. The statute governing the payment of forged checks is a specific provision of law, applying to a very specific set of circumstances. The Act, on the other hand, is a statute of general application, which does not address the payment of claims on forged checks. The Act is silent regarding the treatment of forged check claims. The only mention of forged checks in the Act is in the provision reducing the time the government has to recover from a presenting bank the amount of a check paid over a forged indorsement from 6 years to 1 year. There is also nothing in the Act that indicates that the provision giving Treasury rule making authority with regard to check recertifications was meant to shift the responsibility for forged check payments to program agencies. In light of these factors, we do not agree that Congress intended to eliminate the Fund.

FMS argues, in effect, that given the sheer volume of forged check claims filed, beginning in the 1980s and existing now, the Fund is obsolete. However, in our opinion, until Congress eliminates the Fund it is the only legally available source of payments in check forgery cases.[6] We have long held that an appropriation made for a specific purpose is available for that purpose to the exclusion of other more general appropriations that might also include that purpose. 64 Comp.Gen. 138, 140 (1984). Nor has Congress provided other appropriations with the authority to issue settlement checks for checks paid over forged indorsements. In fact, in 1981, we reported to Congress that Treasury had disbursed millions of dollars to individuals whose checks had been cashed on forged indorsements. GAO/AFMD-81-68, Oct. 1, 1981. We pointed out that Treasury had not charged payments to forgery victims to the Fund as required, thereby reducing Congress's ability to oversee these expenditures. Furthermore, in a contemporaneous legal opinion, we stated:

"[it] appears that the Congress intended that the payments in check forgery cases be made from the Fund and that any amount recovered through reclamation proceedings be deposited to the credit of the Fund. While the Congress has increased the amount of the Fund from $50,000 to $2 million, we are unaware of any authority for Treasury to issue settlement checks in excess of amounts available in the Fund. Thus, if the Fund is inadequate, Treasury should seek additional appropriations."

B-197876, Feb. 20, 1980.

Moreover, charging replacement checks to the Fund, rather than to the agency's appropriation, is consistent with the Act. Under the Act, with the one-time exception for pre-effective date checks (31 U.S.C. Sec. 3334(b)), when Treasury cancels a stale check the proceeds are returned to the agency's appropriation so that the agency can certify a replacement check without making a double payment. Under the procedure advocated by FMS, however, the agency's appropriation would necessarily be charged twice for the same payment.

Because, in our opinion, the purposes for which the appropriations in the Fund were made continue to exist, FMS does not have sufficient justification for closing the Fund's account under 31 U.S.C. Sec. 1555. Thus, Treasury should restore the balances in the Fund and charge all check forgery claims to the Fund. Once restored we urge that FMS seek sufficient appropriations to cover all check forgery claims or submit a request to Congress to provide the Fund with a permanent indefinite appropriation. Naturally, Treasury can ask Congress to repeal the Fund and to authorize agencies to recertify forged check claims from their own appropriations. However, Treasury's experience during the first 30 years of operation of the Fund suggests that if Treasury recovers either from the forger or from indorsees,[7] very little in the way of appropriations would be necessary to maintain the solvency of the Fund.[8]

4. The Navy also asked whether Treasury should return the proceeds of canceled pre-effective date checks to agencies to settle claims. As we discussed in B-239249, Apr. 15, 1991, the funds generated by the cancellations cannot be returned to the agencies because 31 U.S.C. Sec. 3334(b)(2) diverted them to other uses.

5. 31 U.S.C. Sec. 1555 provides that an appropriation account available for obligation for an indefinite period shall be closed if the head of the agency or the President determines that the purposes for which the appropriation was made have been carried out and no disbursement has been made against the account for 2 consecutive years.

6. FMS assertions notwithstanding, we have not authorized agencies to recertify payments in cases of nonreceipt involving forgery. As noted below, we have consistently taken the position that there is no independent authority for Treasury to issue settlement checks in excess of amounts available in the Fund.

7. Contrary to Treasury's assertion, we are aware of no reason why Treasury cannot ascertain that a check was negotiated over a forged endorsement and charge the amount back (i.e., reclaim) against the presenting bank within 1 year. The 1-year limitation on reclaiming a forged check from the presenting bank or other endorser contained in 31 U.S.C. Sec. 3712 should not materially affect Treasury's ability to recover the proceeds of forged checks.

8. For the first 30 years of the Fund's existence, although the Fund had paid out almost $9 million, actual losses charged to the fund, i.e., moneys which Treasury was not able to reclaim from prior indorsees, were only $55,000. Hearings before a Subcommittee of the Committee on Appropriations, House of Representatives, 92d Cong., 2d Sess. 409 (1972) (testimony of William T. Howell); H.R. Rep. No. 448, 93 Cong., 1st Sess. 8 (1973) (Statistics from Department of the Treasury showing fund activities from 1962-1973). According to the President's Budgets, the last disbursement from the Fund was apparently around 1980. See Budget of the United States Government, Fiscal Year 1982, App. IR-13 (1981). Thus, the Check Forgery Insurance Fund was a functioning revolving account at least through the late 1970s.