B-8201 B-59149 January 18, 1972

B-8201: Jan 18, 1972

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You state that the Committee print is a revision of H.R. 8084. Particularly as to whether any existing bonding provisions may have been omitted. Entitled "Potential Savings To Government If Bonding Of Federal Employees Is Discontinued. Authorizing heads of executive agencies to obtain and pay the premiums for bonds for the civilian officers and employees and military personnel of such agencies who are required by law or administrative ruling to be bonded. Was introduced in connective with the recommendation in our 1962 report. No action was taken thereon. We understand that recoveries from sureties are infrequent. Executive branches of the Government amounted to about $4.2 million and the administrative costs of the bonding program were about $700.

B-8201 B-59149 January 18, 1972

Mr. Chairman

Dear Mr. Chairman:

Your letter of November 11, 1971, transmitted copies of Committee Print No. 2 of a bill entitled "A BILL to provide that the Federal Government shall assume the risks of its fidelity losses, and for other purposes, " which would repeal the provisions of law requiring the bonding of Federal civilian and military personnel.

You state that the Committee print is a revision of H.R. 8084, which contained a broad provision repealing all statues or parts of statutes providing for the bonding of civilian employees and military personnel of the Government, whereas the print lists in detail the statutes and parts of statutes to be repealed or amended. Your letter requests our comments on the Committee print, particularly as to whether any existing bonding provisions may have been omitted, and requests our view as to the propriety of including in the bill the repeal of several statutes pertaining to the bonding of personnel of wholly owned Government corporations.

The General Accounting Office for a number of years has advocated the elimination of all requirements for the fidelity bonding of personnel of the Government, either civilian or military. We submitted two reports to the Congress on the matter, B-8201, december 30, 1964, entitled "Potential Savings To Government If Bonding Of Federal Employees Is Discontinued," and B-8201, March 29, 1962, entitled "Review of Bonding Program for Employees of the Federal Government." These reports disclosed that since the enactment of the act of August 9, 1955, ch. 683, 69 Stat. 618, 6 U.S.C. 14, authorizing heads of executive agencies to obtain and pay the premiums for bonds for the civilian officers and employees and military personnel of such agencies who are required by law or administrative ruling to be bonded, the costs of such premiums had far exceeded the claims filed against the sureties. In both of these reports, we recommended that, in furtherance of the Government's general policy of assuming its own insurable risks, the Comgress enact legislation to repeal the mandatory requirements for fidelity bonding of Federal employees and require each agency to absorb any fidelity losses incurred. H.R. 11900, 87th Congress, was introduced in connective with the recommendation in our 1962 report, incorporating our suggested language, but no action was taken thereon, principally because of the belated opposition of the Post Office Department, which and orginally concurred with our view.

We do not normallly accumulate information showing the total amounts recovered from sureties or the expense of bonding premiums for accountable officers. We understand that recoveries from sureties are infrequent. The reports submitted to the Congress by the Secretary of the Treasury pursuant to 6 U.S.C. 14(c) show that, during the fourteen and one-half year period ended June 30, 1970, the premiums paid for fidelity bonds by the judicial, legislative, and executive branches of the Government amounted to about $4.2 million and the administrative costs of the bonding program were about $700,000, making a total cost of the program to the Government of about $4.9 million. This total cost exceeded the approximately $3 million of claims filed against the surety companies by about $1.9 million, or an average excess cost of about $130,000 per year.

We Strongly support enactment of H.R. 8084, as revised by Committee Print No. 2 (subject to the technical changes suggested in the attachment hereto). Assumption of its fidelity losses would be consistent with the Government's traditional policy of assuming its own insurable risks and, moreover, the reports submitted to the Congress by the Secretary of the Treasury indicate that a saving would result from such assumption. Also, the Post Office Department, which had the largest number of bonded employees of any Government department or agency and was the sole objector to prior proposed legislation eliminating fidelity bonding, and its successor, the Postal Service, discontinued the bonding of all postal officials and employees during calendar year 1971.

We concur with the view expressed in your letter that, for the purposes of the present legislation, wholly o wned Government corporations fall within the term "Federal Government" as that term is used in section 101 of the Committee print and that the bill as now written is applicable to such corporations. However, to obviate any question in the matter, we suggest that the following by inserted after the words "Federal Government" in section 101(a): "(which, for the purposes of this act, include wholly owned Government corporations)." Compare 5 U.S.C. 105, which provides that a Government corporation (defined by 5 U.S.C. 103 as a corporation owned or controlled by the Government of the United States) is an Executive agency for the purpose of title 5.

We are not aware of any bonding provisions contained in previously existing statutes which should be repealed but which have been omitted from the Committee print. We note, however, that the Committee print, in addition to the repeal of specific provision of law, contains a general repealer provision in section 250.

Pursuant to the verbal request of a member of your Committee staff, we examined that provisions of S. 1483 as proposed in Conference Report, House Report No. 92-679, which would continue several organization in the farmer-owned cooperative Farm Credit System and contains a number of provisions for the bonding of certain employees thereof. Both the Senate and the House of Representatives agreed to the Conference Report on December 10, 1971. S. 1483 was signed by the President on December 10, 1971, and is now Public Law 92-181. By its terms, it may be cited as the "Farm Credit Act of 1971."

Section 1.3 of Public Law 92-181 provides that the Federal land banks established pursuant to section 4 of the Federal Farm Loan Act, as amended, which are defined by 31 U.S.C. 856 as mixed-ownership Government corporations, shall continue as federally chartered instrumentalities of the United States. Section 1.4 provides that each Federal land bank shall be a body corporate and authorize each such bank among other things, to require surety bonds of its employees or make other provision againsta losses occasioned by employees. However, section 1.5(b) provides that voting stock shall be held only by the Federal land bank associations and direct borrowers and borrowers through agents who are farmers or ranchers. While section 1.5(d) authorizes inssuance of nonvoting stock to the Governor of the Farm Credit Administration, such issuance would render that banks at most mixed-ownership Government corporations. Hence, we do not believe such banks need be considered in connection with the Committee print.

Section 1.13 of Pub. L. 92-181 provides that each Federal land bank association chartered under section 7 of the Federal Farm Loan Act, as amended, shall continue as a federally chartered instrumentality of the United States, and that such an association may be organized by any group of ten or more persons desiring to borrow money from a Federal land bank. Section 1.15 provides that each such association shall be a body corporate and authorizes each such association, among other things, to require surety bonds from its employees or make othr provision against amoung other things, to require surety bonds from its employees or make other provision against losses occasioned by employees. However, section 1.16 provides that only borrowers form the bank shall become members and stockholders of the associations are privately owned and need not be considered in connection with the Committee print.

Section 2.0 of Pub. L. 92-181 provides that Federal intermediate credit banks established pursuant to section 201(a) of the Federal Farm Loan act, as amended, which are defined by 31 U.S.C. 856 as mixed ownership Government corporations, shall continue as federally chartered instrumentalities of the United States. Section 2.1 provides that each Federal intermediate credit bank shall be a body corporate and, among other things, authorizes each such bank to require surety bonds or make othr provision against losses occasioned by employee. However, section 2.2(b) provides that voting stock of each bank shall be held only by the production credit associations. While section 2.2(d) authorizes issuance of nonvoting stock to the Governor of the Farm Credit Administration, such issuance would render such banks at most mixed ownership Government corporations. Hence, we do not believe such banks need be considered in connection with the Committee print.

Section 2.10 of Pub. L. 92-181 provides that each production credit association chartered under section 20 of the Farm Credit Act of 1933, as amended, shall continue as a federally chartered instrumentality of the United States, and that such associations may be organized by ten or more farmers or ranchers or producers or harvesters of aquatic products desiring to borrow money under the provisions of title II of the act. Section 2.12 of the act provides that each production credit association shall be a body corporate, and authorize such associations, among other things, to require surety bonds or make other provisions against losses occasioned by employees. However, section 2.13(b) provides that voting stock may be purchased only be farmers and ranchers, or producers or harvesters of aquatic products, who are eligible to borrow from the association. While section 2.13(c) permits issuance of nonvoting stock to the Governor of the Farm Credit Adminstration and to other investors, issurance of such stock to the Governor would render such associations at most mixed-ownership Government corporations. As such, we do not believe such associations need be considered in connection with the Committee print.

Section 3.0 of Pub. L. 92-181 provides that the banks for coorperatives established pursuant to sections 2 and 30 of the Farm Credit Act of 1993, as amended (including both the central and the regional banks), which are defined by 31 U.S.C. 856 as mixed-ownership Government corporations, shall continue as federally cartered instrumentalities of the United States. Section 3.1 provides that each bank for coorperatives shall be a body corporate, and authorizes each bank, among other things, to require surety bonds or make othr provisions against losses occasioned by employees. However, section 3.3(c) provides that voting stock of the banks may be held only by cooperative associations eligible to borrow from the banks and other banks and other banks for cooperatives. While section 3.3(e) permits the Governor of the Farmy Credit Administration to hold nonvoting investment stock, the holding of such stock by the Governor would at most render the banks mixed-ownership Government corporations. Hence, we do not believe such banks need be considered in connection with the Committee print.

In this connection, section 4.0 of Pub. L. 92-181 authorizes the above-named institutions to issue stock which may be purchased by the Governor of the Farm Credit Administration on behalf of the United States as a temporary investment in the stock of the institution to help one or several of the banks or associations to meet emergency credit needs of borrowers. However, said section further provides that: "The ownership of such stock shall be deemed to not change the status of ownership of the banks or associations, but, during the time such stock is outstanding, the pertinent provisions of the GovernmentCorporation Control Act shall be applicable." This provision firmly supports the view expressed above that the named associations need not be considered in connection with the Committee print. See also section 4.4(c0, which provides that the United States shall not be liable or assume any liability directly or indirectly on any obligations of the banks of the system.

Section 5.7 of Pub. L. 92-181 provides that the Farm Credit Administration shall be an independent agency in the executive branch of the Government. Section 5.18(15) authorizes the Administration to: "Require surety bonds or other provision for protection of the assets of the institutions of the System against losses occasioned by employees." While the provision of section 5.7 would appear to bring the Administration within the meaning of "Federal Government" as that term is used in section 101(a) of the Committee print, it is our view that, inamuch as the bonds provided for in section 5.18(15) of Pub. L. 92-181 are for the protection of the "institutions of the System" which, as indicated above, are not within the meaning of "Federal Government" as used in the Committee print, repeal of section 5.18(15) is not necessary to sustain the purpose of the Committee print.

Attached are some suggested technical or editorial changes which we believe should be considered by your committee in connection with the Committee print.

Sincerely yours,

ELMER B. STAATS Comptroller General of the United States

Enclosure

The Honorable Thaddeus J. Dulaki, Chairman Committee on Post Office and Civil Services House of Representatives