B-38384, DECEMBER 11, 1943, 23 COMP. GEN. 421

B-38384, DECEMBER 11, 1943, 23 COMP. GEN. 421

CONTRACTS - COST-PLUS - LOSS OR DAMAGE - PAY ROLL PADDING BY CONTRACTOR'S EMPLOYEE UNDER A COST-PLUS-A-FIXED-FEE CONTRACT WHICH PROVIDES THAT THE CONTRACTOR SHALL BE REIMBURSED FOR LOSSES AND EXPENSES "NOT COMPENSATED BY INSURANCE OR OTHERWISE" AND WHICH CONTEMPLATES THE EMPLOYMENT BY THE CONTRACTOR OF QUALIFIED, CAREFUL AND EFFICIENT WORKERS IN THE EXECUTION OF THE WORK, THE CONTRACTOR MAY NOT BE REIMBURSED FOR LOSSES RESULTING FROM THE FRAUDULENT ACTS OF ONE OF ITS EMPLOYEES IN INCLUDING ON THE PAY ROLL THE NAME OF A PROSPECTIVE EMPLOYEE WHO HAD PERFORMED NO SERVICES AND FORGING THE SAID EMPLOYEE'S NAME ON THE PAY RECEIPT ISSUED THEREUNDER.

ACTING COMPTROLLER GENERAL YATES TO MAJOR R. W. BARTLETT, U.S. ARMY, DECEMBER 11, 1943:

BY FIRST INDORSEMENT OF NOVEMBER 15, 1943, FROM THE FISCAL DIRECTOR, HEADQUARTERS, ARMY SERVICE FORCES, THERE WAS TRANSMITTED TO THIS OFFICE YOUR REQUEST OF AUGUST 12, 1943, FOR DECISION WHETHER PAYMENT IS AUTHORIZED ON A VOUCHER STATED IN FAVOR OF GEORGE F. DRISCOLL COMPANY AND WALSH CONSTRUCTION COMPANY IN THE SUM OF $124.47 CLAIMED UNDER CONTRACT W- 958-ENG-51, AS REIMBURSEMENT OF A LOSS ALLEGED TO HAVE BEEN DUE TO FORGERY COMMITTED BY ONE OF THE CONTRACTOR'S EMPLOYEES.

IN A LETTER DATED SEPTEMBER 21, 1942, TO THE AREA ENGINEER, NETHERLANDS WEST INDIES, THE CONTRACTOR EXPLAINS THE MANNER IN WHICH THE LOSS OCCURRED, AS FOLLOWS:

5. NO. 1644.

THE TIME POSTED ON THE PAYROLL FOR THIS EMPLOYEE, G. ARRINDEL, IS EVIDENTLY FICTITIOUS. IT APPEARS THAT G. ARRINDELL APPLIED FOR A POSITION AS CARPENTER ON JULY ST, AND WAS HIRED WITH THE PROVISION THAT HE SECURE HIS RELEASE FROM LAGO BEFORE REPORTING TO WORK FOR WALSH-DRISCOLL. HIS EMPLOYMENT CARD AND BADGE NO. 1644 WAS HELD ASIDE AND MARKED " PENDING.' ARRINDELL, HOWEVER, NEVER REPORTED BACK TO WALSH-DRISCOLL BUT CONTINUED TO WORK FOR LAGO. SOMEONE IN OUR OFFICE TOOK ADVANTAGE OF THE KNOWLEDGE THAT HIS CASE WAS PENDING AND INSERTED TIME ON THE PAYROLL AFTER IT HAD BEEN CLOSED, AND CHECKED FOR THE WEEK, AND THEN PROCEEDED TO COLLECT THE WAGES BY MEANS OF FORGING ARRINDELL'S SIGNATURE TO THE PAY RECEIPT. THE AMOUNT OF MONEY INVOLVED IN THE FRAUD WAS $124.47.

THIS SITUATION WAS BROUGHT TO LIGHT WHEN MR. MERRILL, IN CHECKING SIGNATURES TO THE EMPLOYMENT CARDS, FAILED TO FIND ONE FOR NO. 1644 IN THE ACTIVE FILE. CIRCUMSTANCES QUITE DEFINITELY POINT TO ONE NATIVE PAYROLL CLERK AS THE PERSON RESPONSIBLE FOR THIS FRAUD BUT HE DENIES ALL KNOWLEDGE OF THE FACTS. WE HAVE DISCHARGED THIS EMPLOYEE BUT INASMUCH AS WE DO NOT HAVE SUFFICIENT EVIDENCE TO INSURE CONVICTION, WE HAVE NOT INITIATED CRIMINAL ACTION.

THE LOSS FOR WHICH REIMBURSEMENT IS CLAIMED IS FOR CONSIDERATION UNDER ARTICLE II 1 (K) OF THE CONTRACT, WHICH PROVIDES THAT THE CONTRACTOR SHALL BE REIMBURSED FOR LOSSES AND EXPENSES "NOT COMPENSATED BY INSURANCE OR OTHERWISE.' A SIMILAR CONTRACT PROVISION WAS THE SUBJECT OF CONSIDERATION IN 21 COMP. GEN. 149, WHEREIN IT WAS HELD THAT, WHILE REIMBURSEMENT IS AUTHORIZED FOR LOSSES AND EXPENSES INCURRED UNDER A COST-PLUS-A-FIXED-FEE CONTRACT, INCLUDING LOSSES DUE TO THE NEGLIGENCE OF THE CONTRACTOR'S EMPLOYEES, A CONTRACTOR IS NOT ENTITLED TO REIMBURSEMENT FOR LOSSES PROXIMATELY CAUSED BY HIS FAILURE TO PERFORM THE DUTIES AND OBLIGATIONS IMPOSED UPON HIM BY THE CONTRACT.

ARTICLE I, PARAGRAPH 4, OF THE CONTRACT HERE INVOLVED PROVIDES THAT THE WORK SHALL BE "EXECUTED IN THE BEST AND MOST WORKMANLIKE MANNER BY QUALIFIED, CAREFUL AND EFFICIENT WORKERS, IN STRICT CONFORMITY WITH THE BEST STANDARD PRACTICE" AND ARTICLE V 1 (G) PROVIDES THAT THE CONTRACTOR SHALL ,AT ALL TIMES USE HIS BEST EFFORTS IN ALL ACTS HEREUNDER TO PROTECT AND SUBSERVE THE INTEREST OF THE GOVERNMENT.'

VIEWED IN THE LIGHT OF THE FOREGOING AND CONCEDING FOR PRESENT PURPOSES, THOUGH NOT ESTABLISHED AS REQUIRED, THAT THE LOSSES HERE INVOLVED WERE "NOT COMPENSATED BY INSURANCE OR OTHERWISE," THE FACTS APPEARING IN THE RECORD CLEARLY ESTABLISH THAT THE LOSS WAS THE DIRECT RESULT OF CARELESSNESS AND NEGLIGENCE ON THE PART OF THE CONTRACTOR, TANTAMOUNT TO A BREACH OF THE CONTRACT, FOR WHICH REIMBURSEMENT IS NOT AUTHORIZED. COMP. GEN. 149; 22 ID. 948. IT APPEARS THAT THE CONTRACTOR, BY ITS CARELESS AND NEGLIGENT CONDUCT, PERMITTED ONE OF ITS EMPLOYEES TO PERPETRATE UPON IT THE FRAUD WHICH RESULTED IN THE LOSS AND IT NOW CANNOT RECOUP THE LOSS BY PASSING THE BURDEN THEREOF TO THE GOVERNMENT. THE CONTRACTOR SET UP THE SYSTEM WHICH RESULTED IN THE LOSS AND EMPLOYED THE MAN WHO IS ALLEGED TO HAVE COMMITTED THE THEFT. IT WAS THE PLAIN DUTY OF THE CONTRACTOR TO OBSERVE DUE AND REASONABLE DILIGENCE TO PROTECT ITSELF AGAINST SUCH FRAUD AS IN FACT WAS PERPETRATED, EITHER BY SOME REASONABLE CHECK OF ITS EMPLOYEES, BY ADEQUATELY GUARDING THE PAY ROLLS AND TIME RECORDS, OR BY MAINTAINING AN ADEQUATE SYSTEM OF ACCOUNTING BY WHICH ANY SUCH LOSS AS THAT WHICH OCCURRED WOULD HAVE BEEN AVOIDED. SINCE THE FACTS OF RECORD FAIL TO SHOW A PROPER REGARD FOR THIS CONTRACTUAL OBLIGATION, IT FOLLOWS THAT, AS BETWEEN THE GOVERNMENT AND THE CONTRACTOR, THE LOSS JUSTLY MUST FALL ON THE CONTRACTOR, WHOSE ACTS AND OMISSIONS FACILITATED THE FRAUD AND PRIMARILY MADE POSSIBLE THE LOSS.

IN VIEW THEREFOF, PAYMENT ON THE INSTANT VOUCHER IS NOT AUTHORIZED.