B-40715, APRIL 29, 1944, 23 COMP. GEN. 818

B-40715, APRIL 29, 1944, 23 COMP. GEN. 818

CONTRACTS - COST-PLUS - PAY ROLL CHECK CASHING CHARGES WHERE A COST-PLUS-A-FIXED-FEE CONTRACT PROVIDES THAT "DISBURSEMENTS INCIDENT TO PAYMENT OF PAYROLLS" SHALL BE REIMBURSABLE AND THAT, IF EMPLOYEES ARE PAID BY CHECK, THE CONTRACTOR SHALL FURNISH FREE PAY ROLL CHECK CASHING FACILITIES FOR ITS EMPLOYEES FOR WHICH IT SHALL BE REIMBURSED, THE CONTRACTOR MAY BE REIMBURSED FOR CHARGES IMPOSED BY A LOCAL BANK ON ITS PAY ROLL CHECKING ACCOUNT BASED UPON THE NUMBER OF "PAY ROLL CHECKS" DEBITED AGAINST THE ACCOUNT AFTER SAID CHECKS HAVE BEEN HONORED BY THE BANK UPON BEING PRESENTED FOR PAYMENT BY THE EMPLOYEES IN PERSON OR BY OTHERS.

ACTING COMPTROLLER GENERAL YATES TO THE SECRETARY OF WAR, APRIL 29, 1944:

I HAVE YOUR LETTER OF MARCH 9, 1944, AS FOLLOWS:

IT HAS COME TO THE ATTENTION OF THIS DEPARTMENT THAT NUMEROUS INFORMAL (TAKEN BY LOCAL PROJECT GENERAL ACCOUNTING OFFICE AUDITORS) AND FORMAL ( STANDARD FORM NO. 1100--- REVISED) EXCEPTIONS HAVE BEEN TAKEN ON VOUCHERS COVERING REIMBURSEMENT TO COST-PLUS-A-FIXED-FEE CONTRACTORS FOR AMOUNTS PAID TO LOCAL BANKS FOR HANDLING THE PAYROLL ACCOUNTS OF THE CONTRACTORS.

TYPICAL OF SUCH EXCEPTIONS IS AN EXCEPTION DATED DECEMBER 6, 1943, TAKEN ON D.O. VOUCHER NO. 23864 ( BU. VOU. NO. S-634) PAID IN THE SEPTEMBER 1943 ACCOUNTS OF COLONEL GEORGE DOBERT, DISBURSING OFFICER, COVERING REIMBURSEMENT TO SUNBEAM ELECTRIC MANUFACTURING COMPANY ( CONTRACT NO. W- ORD-635) OF $174.45, PAID THE OLD NATIONAL BANK, EVANSVILLE, INDIANA, FOR PAYROLL CHECKS DEBITED AGAINST THE CONTRACTOR'S ACCOUNT. THE EXCEPTION READS AS FOLLOWS:

"THE ACTIVITY CHARGE INCURRED BY CLEARING CHECKS AS DISTINGUISHED FROM THAT OF CASHING CHECK DIRECTLY FOR EMPLOYEES IS NOT A PART OF THE COST OF THE WORK TO BE PERFORMED UNDER THE CONTRACT. REPLY DATED OCTOBER 25, 1943, TO INFORMAL INQUIRY DATED SEPTEMBER 20, 1943, HAS BEEN NOTED.'

REPLY TO THE EXCEPTION ( FORM 1100) READS:

"DEDUCTION MADE ON BUREAU VOUCHER NO. S-765, D.O. 62171, DECEMBER 1943, ACCOUNTS COLONEL GEORGE DOBERT.

(S) BYERS, GAO" TITLE III, ARTICLE III-A (1) OF CONTRACT W-ORD-635 PROVIDES:

"1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF ITS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT, AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, AND AS ARE INCLUDED IN BUT NOT LIMITED TO THE FOLLOWING ITEMS:

"O. DISBURSEMENTS INCIDENT TO PAYMENT OF PAYROLLS INCLUDING BUT NOT LIMITED TO, THE COST OF DISBURSING CASH, NECESSARY GUARDS, AND PAY MASTERS. IF PAYMENTS TO EMPLOYEES ARE MADE BY CHECK, FACILITIES FOR CASHING CHECKS MUST BE PROVIDED WITHOUT EXPENSE TO EMPLOYEES, AND THE CONTRACTOR SHALL BE REIMBURSED THEREFOR.' (ITALICS SUPPLIED).

THE CHARGE UPON WHICH EXCEPTION WAS TAKEN WAS MADE BY THE OLD NATIONAL BANK AND IS THEIR STANDARD CHARGE FOR HANDLING CHECKS FOR COMPANIES WHO DO NOT MAINTAIN A SUFFICIENT BANK BALANCE TO JUSTIFY THE BANK IN HANDLING THE EMPLOYEE'S PAYROLL CHECKS.

PRIOR TO THE MIDDLE OF JULY 1943, THE CONTRACTOR WAS PAYING ITS EMPLOYEES BY CASH. THIS METHOD OF PAYMENT INVOLVED QUITE A BIT OF RISK WHICH WAS PARTIALLY COVERED BY INSURANCE (AT GOVERNMENT EXPENSE). IT WAS ALSO NECESSARY TO ENGAGE THE SERVICES OF BRINKS, INC., (ALSO AT GOVERNMENT EXPENSE), WHO DELIVERED THE MONEY UNDER GUARD. IT WAS ALSO NECESSARY TO PREPARE CASH PAYROLLS, COMPUTE DENOMINATIONS, CHECK, AND "STUFF" THE PAY ENVELOPES. THESE DUTIES WERE PERFORMED BY CLERICAL EMPLOYEES, WHOSE SALARIES WERE REIMBURSABLE EXPENDITURES UNDER THE CONTRACT.

ON JULY 15, 1943, THE CONTRACTOR DECIDED THAT PAYMENT BY CHECK WOULD BE ADVISABLE. THE COMMANDING OFFICER AT EVANSVILLE ORDNANCE PLANT APPROVED IN WRITING THE PAYMENT TO THE BANK A FEE OF THREE CENTS (3 CENTS) FOR EACH PAYROLL CHECK DEBITED AGAINST THE ACCOUNT OF THE CONTRACTOR. THE FEE IS IN CONFORMITY WITH THE CHARGE MADE BY THE BANK ON SIMILAR ACCOUNTS AND IS CONSISTENT WITH THE CHARGE USED BY OTHER BANKS IN EVANSVILLE, INDIANA.

IT APPEARS TO THIS DEPARTMENT THAT PAYMENT BY CHECK RATHER THAN CASH IS THE MOST PRACTICAL AND LESS EXPENSIVE PROCEDURE TO BE FOLLOWED. IT HAS BEEN ESTIMATED BY THE CHRYSLER CORPORATION ( CONTRACT W-ORD-618, ALSO COST -PLUS-A-FIXED-FEE OPERATORS AT THE EVANSVILLE ORDNANCE PLANT WHOSE CONTRACT CONTAINS IDENTICAL PROVISIONS AS THE SUNBEAM CONTRACT, AND WHO IS CONFRONTED WITH THE SAME PROBLEM WITH RESPECT TO COSTS OF PAYMENTS BY CHECK), THAT IN ORDER TO PAY BY CASH FROM TEN TO TWELVE THOUSAND DOLLARS WORTH OF EQUIPMENT WILL BE REQUIRED AND THAT THE ADDITIONAL EXPENSE WILL BE BETWEEN $45,000 AND $50,000 PER YEAR, WHICH APPEARS TO THIS OFFICE TO BE UNWARRANTED.

DECISIONS B-15851 DATED JUNE 30, 1941; B-16272 DATED AUGUST 4, 1941; AND B-22816 DATED JANUARY 19, 1942 (21 COMP. GEN. 675), ON THE SUBJECT OF REIMBURSEMENT TO COST-PLUS-A-FIXED-FEE CONTRACTORS FOR EXPENDITURES MADE INCIDENT TO ACTIVITY AND CHECK CASHING CHARGES IMPOSED BY BANKS, HAVE BEEN REVIEWED BY THIS DEPARTMENT. WHILE IT IS AGREED THAT THE DECISIONS RENDERED ARE NOT DIRECTLY IN POINT WITH THE INSTANT QUESTION, IT WOULD APPEAR THAT, IF EXPENSES INCIDENT TO CASHING CHECKS ARE REIMBURSABLE, THE EXPENSES INCIDENT TO ISSUING CHECKS ARE LIKEWISE REIMBURSABLE EXPENDITURES. THIS VIEW IS STRENGTHENED DUE TO THE FACT THAT IF THE CONTRACTOR CHOSE TO PAY THE EMPLOYEES IN CASH AT THE PLANT SITE, EXPENDITURES INCIDENT THERETO CLEARLY WOULD BE REIMBURSABLE UNDER THE PROVISIONS OF THE CONTRACT, ASIDE FROM THE FACT THAT PAYMENT BY CASH INVOLVES A GREATER RISK THAN PAYMENT BY CHECK.

THE PROVISIONS OF PARAGRAPH "O," SUPRA, APPEAR TO DEFINITELY TIE-IN WITH THE COSTS INCIDENT TO CLEARING CHECKS THROUGH THE CONTRACTOR'S ACCOUNT. IN THE EVENT A CHARGE WAS NOT IMPOSED FOR CLEARING THE CHECKS THROUGH THE CONTRACTOR'S ACCOUNT, THE BANK MIGHT WELL HAVE MADE A CHARGE ON THE EMPLOYEES FOR CASHING THEIR CHECKS, WHICH WOULD HAVE BEEN IN VIOLATION OF THE PROVISIONS OF PARAGRAPH "O" OF THE CONTRACT, OR HAD THE CONTRACTOR PAID THE CHECK CASHING CHARGES, THE AMOUNT INVOLVED WOULD HAVE BEEN REIMBURSABLE EXPENDITURE UNDER THE PROVISIONS OF THE CONTRACT AND THE DECISIONS CITED ABOVE.

THERE IS ALSO FOR CONSIDERATION THE FACT THAT THE ACCOUNT MAINTAINED BY THE SUNBEAM ELECTRIC MANUFACTURING COMPANY WITH THE OLD NATIONAL BANK OF EVANSVILLE IS FOR THE PURPOSE OF PAYING WEEKLY WAGES TO EMPLOYEES OF THE CONTRACTOR BY CHECK IN LIEU OF BY CASH. THE ACCOUNT IS NOT THE CONTRACTOR'S MAIN OR PRINCIPAL BANK ACCOUNT BUT IS AN ACCOUNT CONNECTED WITH THE FULFILLMENT OF THE CONTRACTOR'S DUTIES UNDER THE REQUIREMENTS OF THE CONTRACT.

IN VIEW OF THE PROVISIONS OF THE CONTRACT, THE EXPENSES INCIDENT TO PAYING EMPLOYEES IN CASH AND THE RISK INVOLVED, AND DUE TO THE SPECIFIC APPROVAL OF THE CONTRACTING OFFICER'S REPRESENTATIVE OF THE FEE PAID TO THE BANK, THIS DEPARTMENT IS OF THE CONSIDERED OPINION THAT REIMBURSEMENT TO THE CONTRACTOR FOR PAYMENTS MADE TO LOCAL BANKS FOR HANDLING THE CONTRACTOR'S PAYROLL CHECKS AT THE EVANSVILLE ORDNANCE PLANT, WAS PROPER AND WITHIN THE SCOPE OF THE REIMBURSEMENT PROVISIONS OF THE CONTRACT.

YOUR EARLY AND FAVORABLE CONSIDERATION OF THIS QUESTION WILL BE GREATLY APPRECIATED.

IT APPEARS THAT BY LETTER OF JULY 2, 1943, THE OLD NATIONAL BANK, EVANSVILLE, INDIANA, ADVISED THE CONTRACTOR WITH REFERENCE TO THE MAINTENANCE OF AN ACCOUNT AT THE BANK FOR PAY ROLL PURPOSES, AS FOLLOWS:

CONSISTENT WITH OUR SEVERAL DISCUSSIONS RELATIVE TO THE PLAN OF YOUR COMPANY TO PAY WEEKLY WAGES IN PLANT NO. 2 BY CHECK IN LIEU OF BY CASH AS HERETOFORE, WE DESIRE TO SUBMIT THE FOLLOWING PROPOSAL FOR HANDLING THIS PAYROLL ACCOUNT:

1. IN VIEW OF OUR UNDERSTANDING THAT CANCELLED PAYROLL CHECKS CONSTITUTE VALUABLE RECORDS FOR USE IN PERMITTING YOUR COMPANY TO OBTAIN PROMPT REIMBURSEMENT AND FOR GENERAL AUDITING PURPOSES, WE WILL REQUIRE CAREFUL SCRUTINY OF PAYEE ENDORSEMENTS WHICH NECESSITATES THAT EACH CHECK RECEIVE INDIVIDUAL INSPECTION.

2. IN ORDER TO FACILITATE ACCOUNTING, WE WILL MAKE WEEKLY OR DAILY RECONCILEMENTS AS YOU MAY REQUIRE, RETURNING CANCELLED CHECKS AT THAT TIME.

3. WE WILL NOT REQUIRE THE MAINTENANCE OF COMPENSATING MINIMUM BALANCES AS IS USUAL IN CONNECTION WITH ALL CHECKING ACCOUNTS.

4. WE WILL MAINTAIN AN ACCURATE RECORD OF THE NUMBER OF CHECKS PAID ON THIS ACCOUNT DURING EACH MONTH AND WILL SUBMIT A REPORT AND AN INVOICE, FURNISHING AN ORIGINAL AND FOUR COPIES.

FOR THIS SERVICE WE WILL CHARGE THREE CENTS FOR EACH PAYROLL CHECK DEBITED AGAINST THE ACCOUNT. THIS CHARGE IS IN CONFORMITY WITH THE CHARGE MADE BY THIS BANK ON SEVERAL SIMILAR ACCOUNTS AND IS CONSISTENT WITH THE CHARGE USED BY OTHER BANKS IN EVANSVILLE.

PAYROLL CHECKS IN THE VOLUME WHICH YOU INTEND TO ISSUE EACH WEEK INCREASES THE POSSIBILITY FOR ERRORS SUCH AS LOST CHECKS, TRANSPOSITIONS, ETC. TO REDUCE THIS RISK TO A MINIMUM WE FIND IT ADVISABLE TO AUDIT EACH PAYROLL ONE TIME MORE THAN IS ORDINARILY REQUIRED, BEFORE RETURNING THE CANCELLED CHECKS TO YOU.

LIKEWISE, THE CASHING OF CHECKS FOR INDIVIDUAL EMPLOYEES REQUIRES EXPANSION OF OUR TELLER FORCE TO MAXIMUM CAPACITY IN ORDER TO HANDLE WEEKLY PEAK LOADS.

THE RECURRING LARGE DOLLAR VOLUME REQUIRES MAINTENANCE OF ABNORMALLY LARGE CURRENCY RESERVES. THIS IS NECESSARY NOT ONLY FOR OUR OWN USE BUT FOR THE USE OF MERCHANTS WHO CASH MANY PAY CHECKS AFTER BANKING HOURS.

PLEASE BE ASSURED OF OUR COMPLETE COOPERATION, AND SHOULD THERE BE ANY ADDITIONAL REQUIREMENTS THAT YOU WANT TO REQUEST WE WILL BE PLEASED TO INCORPORATE THESE WITHIN OUR SYSTEM.

ARTICLE III-A, PARAGRAPH O, OF THE CONTRACT EXPRESSLY PROVIDES THAT "DISBURSEMENTS INCIDENT TO PAYMENT OF PAYROLLS" WOULD BE REIMBURSABLE AND THAT, IF THE CONTRACTOR CHOSE TO PAY EMPLOYEES BY CHECK, FACILITIES FOR CASHING SAID CHECKS MUST BE PROVIDED WITHOUT COST TO THE EMPLOYEE AND "THE CONTRACTOR SHALL BE REIMBURSED THEREFOR.' THE ACCOUNT WHICH THE CONTRACTOR ESTABLISHED WITH THE OLD NATIONAL BANK, EVANSVILLE, INDIANA, IS SPECIFICALLY REFERRED TO AS A PAY ROLL CHECKING ACCOUNT AND THE CHARGE IMPOSED BY THE BANK THEREFOR IS SHOWN TO BE BASED UPON THE NUMBER OF "PAYROLL HECKS" DEBITED AGAINST THE ACCOUNT AFTER SAID CHECKS HAVE BEEN HONORED BY THE BANK UPON BEING PRESENTED FOR PAYMENT BY THE EMPLOYEES IN PERSON OR BY OTHERS. THUS, IT REASONABLY MAY BE SAID THAT THE ARRANGEMENT ENTERED INTO WITH THE BANK HAD THE EFFECT OF MAKING AVAILABLE TO EMPLOYEES ,FACILITIES" FOR CASHING CHECKS ISSUED IN PAYMENT OF WAGES AND THAT THE AMOUNT PAID TO THE BANK WAS FOR SERVICES PERFORMED ONLY IN CONNECTION WITH THE CASHING AND HANDLING OF PAY CHECKS. SEE 21 COMP. GEN. 675.

ACCORDINGLY, YOU ARE ADVISED THAT CHARGES MADE BY THE BANK UNDER CIRCUMSTANCES AS REPORTED IN YOUR LETTER PROPERLY MAY BE REGARDED AS REIMBURSABLE UNDER THE PROVISIONS OF THE CONTRACT.