B-230250, Feb 16, 1990, 69 Comp.Gen. 260

B-230250, Feb 16, 1990, 69 Comp.Gen. 260

APPROPRIATIONS/FINANCIAL MANAGEMENT - Budget Process - Funds - Deposit - Miscellaneous revenues APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims By Government - False claims - Claim settlement - Funds - Deposit APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims By Government - False claims - Claim settlement - Interest The Federal Emergency Management Agency (FEMA) may deposit in the National Insurance Development Fund (Fund) that portion of a damage award or settlement obtained pursuant to the False Claims Act that would reimburse the Fund for losses suffered as a result of a policyholder's false claims. In addition to the principal amount of the false claims paid, the Fund may be reimbursed for interest on that amount plus any administrative expenses incurred in connection with the payment and recovery of these claims. However, FEMA must deposit any portion of an award or settlement that exceeds these amounts in the Treasury as miscellaneous receipts.

Federal Emergency Management Agency-- Disposition Of Monetary Award Under False Claims Act:

The General Counsel of the Federal Emergency Management Agency has requested our decision concerning FEMA's authority to deposit in the National Insurance Development Fund (Fund) any moneys it receives as a result of an action for damages and penalties under the False Claims Act against a federal crime insurance policyholder. We conclude that FEMA may deposit into the Fund that portion of any False Claims Act award or settlement that reimburses the Fund for losses suffered as a result of the false claims FEMA paid to the policyholder involved. In addition to the principal amount of the false claims paid, the Fund's losses would include interest on that amount plus any administrative expenses the Fund incurred in connection with the payment and recovery of the amount erroneously paid.

BACKGROUND

FEMA provides crime insurance under the Urban Property Protection and Reinsurance Act of 1968, as amended, 12 U.S.C. Secs. 1749bbb et seq., in areas in which crime insurance is not otherwise available at affordable rates. FEMA funds the federal crime insurance program out of the National Insurance Development Fund, a revolving fund operating "without fiscal year limitation." /1/ 12 U.S.C. Sec. 1749bbb-13. See H.R. Rep. No. 1585, 90th Cong., 2d Sess. (1968), reprinted in 1968 U.S. Code Cong. and Admin. News 2873, 2962. Under 12 U.S.C. Sec. 1749bbb 13(b), the Fund is authorized to receive funds from a variety of sources, including insurance premiums, fees and related charges, interest earned on investments, appropriations, borrowings, and "(5) receipts from any other source which may from time to time be credited to the fund."

On December 1, 1987, the United States filed a claim in federal district court for damages and penalties under the False Claims Act, 31 U.S.C. Secs. 3729-3731, against a federal crime insurance policyholder. The United States alleges that in the period from January 1980 through February 1987, the policyholder submitted at least 35 false insurance claims to FEMA resulting in overpayments of $179,196.34. Pursuant to the False Claims Act, 31 U.S.C. Sec. 3729, FEMA seeks treble damages and penalties totalling $887,589.02. FEMA recently advised us that the defendant has agreed to a settlement of the government's complaint.

ISSUE

FEMA requests our decision on the following question:

"Does authority exist in the enabling statutes of the Federal Crime Insurance Program to allow for the deposit of damages (including treble damages) and fines to the fund instead of to Miscellaneous Receipts for actions brought under the False Claims Act?"

ANALYSIS

In the absence of specific statutory authority, agencies ordinarily are required to deposit moneys they receive for the use of the United States in the general fund of the Treasury as miscellaneous receipts. 31 U.S.C. Sec. 3302. There are two generally recognized exceptions to this requirement. See 62 Comp.Gen. 71, 72 (1982).

First, if specifically authorized by statute, an agency can retain moneys it collects for deposit into an appropriation account or fund for subsequent obligation and expenditure. See 62 Comp.Gen. 678, 679 (1983). For example, when a program is funded out of a revolving fund, the enabling legislation ordinarily expressly authorizes the agency to deposit program income into the revolving fund. See 62 Comp.Gen. at 72. However, in this case, the statutory language in 12 U.S.C. Sec. 1749bbb-13(b)(5) does not specify what kinds of receipts from what sources may be credited to the Fund; nor does the legislative history of the provision explain the intended reach of the language in question. Our Office has held that if the legislation establishing a revolving fund does not expressly authorize an agency to deposit receipts of a particular type into the revolving fund and there is no other basis for doing so, those receipts-- even if related in some way to the programs the revolving fund supports-- must be deposited in the Treasury as miscellaneous receipts. See 40 Comp.Gen. 356 (1960); 23 Comp.Gen. 986 (1944); and 20 Comp.Gen. 280 (1940).

Accordingly, in the absence of any indication concerning the intended meaning and scope of the "receipts from any other source" provision, we turn to the second exception to the requirement that moneys agencies collect be deposited in the Treasury. We have consistently held that agencies can retain for subsequent obligation and expenditure receipts which qualify as "refunds to appropriations." See 65 Comp.Gen. 600, 602 (1986); 62 Comp.Gen. 678, 680 (1983); and 23 Comp.Gen. 652, 655 (1944). In this regard, we have defined refunds to include "refunds of advances, collections for overpayments made, adjustments for previous amounts disbursed, or recoveries of erroneous disbursements from appropriation or fund accounts that are directly related to, and reductions of, previously recorded payments from the accounts." See 7 GAO Policy and Procedures Manual for Guidance of Federal Agencies Sec. 12.2; and 67 Comp.Gen. 129, 130 (1987). Clearly, under the "refund" exception, FEMA may retain and credit to the Fund that portion of an award or settlement that represents a reimbursement of moneys erroneously disbursed out of the Fund.

FEMA also desires to reimburse the Fund for interest on the principal amount of false claims paid and the administrative expenses incurred by the Fund in connection with the payment and recovery of these claims. With respect to interest, 12 U.S.C. Sec. 1749bbb 13(a)(3) provides that the Fund may be used "to repay to the Secretary of the Treasury such sums, including interest thereon," that FEMA borrows to carry out the programs the Fund supports. Also, pursuant to 12 U.S.C. Sec. 1749bbb-13(b)(2), the Fund is credited with "interest which may be earned on investments of the fund." Therefore, whether the Fund was operating in a deficit condition or a surplus condition during the period in which these false claims were paid, the Fund presumably either would have incurred an increased interest expense on the additional funds it needed to borrow to pay these claims or would have "lost" interest it otherwise would have earned if the money used to pay the false claims had been retained in the Fund and invested. In either event, this additional interest expense or reduced interest income would have been a direct consequence of the false claims FEMA paid and would have increased the magnitude of the losses the Fund suffered as a result of paying those claims.

In addition, FEMA officials advise us that FEMA incurred significant administrative expenses in the course of investigating the validity of the false insurance claims submitted and in assisting in the preparation of this case for trial, all of which were paid from the Fund as authorized by 12 U.S.C. Sec. 1744bbb-13(a). Any administrative expenses that FEMA charged the Fund in connection with making or recovering these erroneous payments, like interest on the funds used to pay the false claims, were a direct consequence of the false claims FEMA paid and increased the magnitude of the Fund's resulting losses.

As explained below, we think that in addition to the principal amount of the false claims that FEMA paid, FEMA may credit to the Fund an amount that represents interest on the funds FEMA used to pay the false claims plus any administrative expenses FEMA incurred in connection with payment of these amounts. First, while 12 U.S.C. Sec. 1749bbb-13(b)(4) provides that the Fund may be credited with such appropriated amounts as may be necessary to reimburse the Fund for "losses and expenses (including administrative expenses)", officials at FEMA have advised us informally that the Fund does not receive any appropriations to cover its administrative expenses or losses. In practice, the losses the Fund suffers and the administrative costs FEMA incurs to administer the crime insurance and riot reinsurance programs are borne by program beneficiaries. In these circumstances, crediting the Fund with an amount that includes the total interest and administrative expenses the Fund incurred as a result of the claimant's fraudulent actions would not conflict with the prohibition against augmentation of appropriations that might otherwise apply. See 61 Comp.Gen. 419 (1982). Also, allowing the Fund to retain these amounts would be entirely consistent with the legislative history of this provision which suggests that Congress intended the Fund to be self supporting to the greatest extent possible. See H.R. Rep. No. 1585, 90th Cong., 2d Sess. (1968), reprinted in 1968 U.S. Code Cong. and Ad. News 2813, 2962.

Second, in 62 Comp.Gen. 678 (1983), the Department of Justice asked whether the Bureau of Prisons could use moneys recovered from a breaching contractor in excess of the amount paid the contractor under the contract (excess reprocurement funds) to fund a replacement contract without violating the prohibition against augmentation. We concluded that the Bureau of Prisons did not have to deposit the excess reprocurement funds in the Treasury as miscellaneous receipts, but could apply such funds to the extent necessary to cover the full cost of a replacement contract. Our decision hinged on the fact that the agency would be "made whole at no additional expense to the taxpayer." Id. at 682.

Similarly, only by allowing FEMA to credit the Fund with an amount that will cover all of its losses, including the principal amount of the false claims that were paid, interest on that amount, plus any administrative expenses that the Fund incurred in paying or recovering these amounts, will the Fund be "made whole" for its losses in this case.

The government also seeks treble damages and penalties that substantially exceed the losses the Fund suffered as a result of the erroneous payments. While our Office has never before considered the disposition of penalties collected under the False Claims Act, /2/ we have concluded in other contexts that moneys collected as a penalty could not be retained by the agency involved, but must be covered into the Treasury as a miscellaneous receipt. For example, in 39 Comp.Gen. 647 (1960), we held that the Department of Agriculture could retain refunds of "unearned" soil conservation payments that farm producers were required to repay to the Department because of their failure to satisfy their contractual obligations under the soil conservation program, but could not keep refunds of "earned" payments for practices which did benefit the program. We said that "such refunds are more in the nature of civil penalties and properly for deposit into the Treasury as miscellaneous receipts." Comp.Gen. at 649. The same rationale applies to amounts collected under the False Claims Act that exceed the agency's losses. Accordingly, since there is no specific statutory basis to allow FEMA to retain these additional amounts, FEMA must deposit into the Treasury as a miscellaneous receipt any portion of an award or settlement that exceeds the losses the Fund suffered as a result of the false claims.

For the foregoing reasons, we conclude that FEMA can reimburse the Fund for its direct losses plus the consequential interest and administrative expenses incurred in connection therewith, see B-166059, July 10, 1969, but must remit to the Treasury for deposit as miscellaneous receipts any portion of an award or settlement that exceeds the above losses to the Fund.

/1/ When the Fund was established in 1968, it was used to fund the riot reinsurance program. 12 U.S.C. Sec. 1749bbb-7.

/2/ See Housing and Urban Development Act of 1968, Pub.L. No. 90-448, Title XI, 82 Stat. 476, 564. In 1970, Congress established the federal crime insurance program and authorized the use of the Fund to pay claims arising under the crime insurance program as well as the riot reinsurance program. See Housing and Urban Development Act of 1970, Pub.L. No. 91-609, Title VI, 84 Stat. 1770, 1788.

Contrast the silence of the False Claims Act in this regard with the specific language in the Program Fraud Civil Remedies Act of 1986, 31 U.S.C. Secs. 3801-3812. The Program Fraud Civil Remedies Act of 1986 provides an administrative remedy for false claims and false statements under $150,000. Under 31 U.S.C. Sec. 3806(g), "any amount of penalty or assessment collected under the Program Fraud Civil Remedies Act ... shall be deposited as miscellaneous receipts in the Treasury of the United States," with certain exceptions not relevant here.