Dishonored Checks Are a Drain on District of Columbia Resources

GGD-82-23: Published: Feb 12, 1982. Publicly Released: Feb 12, 1982.

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GAO evaluated the District of Columbia's efforts to bill, record, and collect accounts receivable.

During its review of the District's billing and collection procedures, GAO found that agencies were receiving large numbers of dishonored checks. During fiscal year 1981, these checks amounted to $3.5 million. According to District officials, only about 40 percent of the dishonored checks received are repaid. At that rate, GAO estimated that the District would lose $2.1 million in 1981. The actual 1981 losses could not be determined, because records were not available at the agency level. GAO compared this estimate with the experience of other local jurisdictions and discovered that the District's dishonored check problem is a major one. For example, Fairfax County, Virginia, with about the same population, received dishonored checks totaling $629,000 during the same period; and Baltimore, Maryland, with a population one-third larger than the District's, received dishonored checks amounting to $578,325. GAO believes that these jurisdictions have limited problems with dishonored checks, because strong collection measures are used. GAO examined the District's efforts to collect payment on dishonored checks and found that aggressive action is not being used to obtain repayment of bad checks. There is a lack of followup on outstanding accounts, and there are no penalties on agencies failing to collect payment for dishonored checks. GAO felt that the agencies' lengthy processing time delays collection efforts to a point which lessens the chance of repayment. District agencies also lacked logs to enable easy identification of accounts paid with bad checks.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Mayor of the District of Columbia should improve collections by assigning a high priority to collecting dishonored checks and emphasizing to District employees and citizens that such collection will be vigorously pursued.

    Agency Affected: District of Columbia

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Mayor of the District of Columbia should require the District Treasury to: (1) centrally control dishonored checks; (2) log each dishonored check in a log book; (3) assign a number to each check and write the number on the check and in the log book; (4) keep the checks under its physical control until repaid or officially disposed of; and (5) monitor agency collection efforts. The Mayor should also require the District Treasury to photocopy dishonored checks and return them to the agencies on the same day the banks return them to the district.

    Agency Affected: District of Columbia

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Mayor of the District of Columbia should: (1) establish check collection criteria for all agencies, specifying both the types of followup actions and when each action should be initiated; (2) instruct all agencies to maintain a log to identify incoming dishonored checks, collection efforts, and status of the checks; (3) require agencies to stop services, revoke licenses, or cancel permits when they are paid for with dishonored checks and retrieve the licenses and permits if checks are not repaid; (4) charge District agencies' operating budgets with the dishonored check fees; (5) instruct banks to deposit dishonored checks no more than two times. In addition, to provide better control over all checks the Mayor should: (1) instruct agencies to stamp the back of checks upon receipt and record information to identify the transaction; and (2) require the District treasurer to provide written procedures at cashier sites specifying the information needed on checks for each agency.

    Agency Affected: District of Columbia

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Mayor of the District of Columbia should: (1) have the District Treasury maintain a dishonored check list for monthly distribution to agencies; (2) prohibit agencies from accepting checks from individuals or businesses with two or more unpaid checks on file; (3) require agencies to accept cash only for over-the-counter purchases of less than $20; (4) prohibit District employees from cashing personal and business checks at District facilities unless they are paying District bills; (5) have the District Controller and the agencies formulate dishonored check letters that complement each other and describe a course of action that will be taken if payment is not received; and (6) instruct agencies to refer dishonored check cases to the Corporation Counsel and instruct the Corporation Counsel to take legal action to recover monies due the District and to deter future dishonored check writers.

    Agency Affected: District of Columbia

 

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