B-207224 September 20, 1982

B-207224 September 20, 1982

The Honorable Jack Brooks Chairman, Committee on Government Operations House of Representatives

Dear Mr. Chairman:

This is in response to your requests dated March 10, 1982 and May 28, 1982, for our comments on H.R. 5745 and H.R. 6412, both of the 97th Congress, identical bills which, if enacted, would provide that checks drawn on the Treasury must be presented for payment within six months after the date of issuance. For the reasons stated below, we recommend that the cost effectiveness of this proposed change be determined before any action is taken to implement it.

Currently, holders of Government-issued checks enjoy an unlimited period of time during which they must be honored when presented for payment. In contrast, holders on non-Government-issued checks generally enjoy only a 6-month period of time within which checks must be honored when presented for payment. (See the Uniform Commercial Code, section 4-404 which has been adopted in all the States, the District of Columbia and the Virgin Islands.) Thus, these bills would eliminate this difference.

We note that even though they impose a limitation on the payment of all Government checks, the purpose of these bills is to address problems caused by unpaid social security checks (which appear to account for a substantial portion of the unpaid checks). See remarks made by Congressman Les Aspin upon introducing H.R. 5745, Cong. Rec. (daily ea., March 10, 1982) E 865. We also note that the Congress is currently considering legislation to specifically address the problems resulting from unpaid social security checks. Section 2 of S. 2175, 97th Congress, 2d Sess., would amend section 201 of the Social Security Act to authorize the Secretary of the Treasury to credit on a monthly basis the amount of all benefit checks drawn on social security trust funds more than one year previously but not presented for payment. However, this change would not affect the period of time during which social security checks could be presented for payment.

Furthermore, the Congress recently enacted legislation to specifically address the problems resulting from unnegotiated Supplemental Security Income {SSI) checks. Failure to negotiate SSI checks had resulted in large amounts of State funds contributed towards benefit payments remaining tied-up indefinitely. /1/ Section 2343 of the Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, 95 Stat. 866, August 13, 1981, amended section 1631 of the Social Security Act, to authorize the Secretary of the Treasury to pay or credit each State the amount of State supplementary payments included in all benefit checks remaining unpaid for over 6 months. This change also did not affect the period of time during which SSI checks could be presented for payment.

If it is determined that the practical and economic benefits to the Government justify imposition of a fixed time period for payment of various Government-issued checks, then adoption of a single time period for payment of all Government-issued checks would seem warranted in order to prevent confusion and permit uniform handling by the public, banks and Government agencies.

We note that both of these bills relate only to the period of payability of Government-issued checks (and, in effect, their negotiability) and do not relate to the period of time for making a demand for payment upon the Government on a claim or entitlement that the stale check may have been issued to liquidate in the first place. Thus, persons otherwise entitled to payments from the Government whose checks have become stale would still be entitled to payments (provided that the statute of limitations for the underlying claim or entitlement has not run) and the procedures adopted to accomplish this most likely would require issuance of a new check.

This issuance of new checks for subsisting Government liabilities would strain Treasury's capability to handle the increased number of checks that would have to be issued if a relatively short period of payability were imposed.

Treasury uses equipment to issue checks some of which was installed as long as 37 years ago. This equipment has limited capabilities and increased usage of this equipment probably would produce increased maintenance problems to keep the old equipment operational. Treasury has studied the possibility of using paper checks so it can take advantage of more modern automated data processing capabilities available to deal with such checks. Any solution to the unpaid check problem should consider the practical impact it would have upon Treasury's check issuing capabilities

We also note that the Federal Government in many instances benefits when persons do not cash Government checks for extended periods because no money is disbursed until the checks are presented for payment. Since the Government must borrow money to pay its debts, the benefits are related to reduced interest payment costs, a cost reduction that is highly desirable at the present time.

Also it should be recognized that the Government has used the cash paid into trust funds (such as the one for the social security program) and allows . interest to be earned on amounts shown on Treasury's record to be borrowed from them. However, it does not show amounts needed for uncashed checks as amounts borrowed from the trust fund and does not pay interest on such amounts. Consequently, during the period of time between the issuance and the cashing of checks, the Government enjoys interest-free use of the cash that would be needed to liquidate the related Government liability. Although this results in some interest loss to the trust funds, it also results in a benefit to the Government in the form of reduced interest payments an its borrowings. Any consideration of the cost effectiveness of limiting the period of payability of Government-issued checks should include a determination of whether such a limitation will result in additional interest payments to trust funds, when considering all systems to properly handle the change.

Finally, the cost of any accounting or administrative changes necessary to implement a limited payment period for Government-issued checks should be identified and considered. These would include any costs related to expanding accounting systems to reflect the appropriation or fund against which checks are issued, identifying the date of their issuance, gathering information relating to unpaid checks which have become stale, providing this accounting |information to the appropriate agencies, and the making of the necessary adjustments. These costs would also include agency costs related to recertifying or denying recertification of check payments when the original or any subsequently issued checks have become stale.

We note that Treasury officials are conducting a study of the cost effectiveness of proposed changes in the Way the Government treats unpaid Government-issued checks. We recommend that the results of this study be obtained before implementing any changes in the current procedure. Furthermore, we suggest that the Treasury be asked to include in this study (if it has not already done so) the impact such changes would have upon the public in negotiating their checks.

Sincerely yours,

John D. Heller Acting Comptroller General of the United States

1. See our report to the Congress entitled "Action Needed to Resolve Problem of Outstanding Supplemental Security Income Checks," HRD 81-58, March 3, 1981, for a detailed discussion of this and other problems.