B-220765, MAY 12, 1986, OFFICE OF GENERAL COUNSEL

B-220765, MAY 12, 1986, OFFICE OF GENERAL COUNSEL

CHECKS - SUBSTITUTE - REPLACEMENT OF LOST OR STOLEN CHECKS DIGEST: IN DUPLICATE CHECK CASES, TREASURY WILL REVERSE THE CHARGES TO THE FINANCE AND ACCOUNTING OFFICER'S ACCOUNT, IF IT VERIFIES THE PAYEES CONTENTION THAT THE PAYEE ONLY NEGOTIATED ONE OF THE CHECKS. TREASURY FISCAL REQUIREMENTS MANUAL, PART 4, PARA. 7085.25. IN THIS CASE, THERE SEEMS TO BE NO QUESTION THAT THE DESIGNATED GUARDIAN OF TWO MINORS ONLY NEGOTIATED THE SUBSTITUTE INSTRUMENTS AND THAT THE ORIGINAL CHECKS WERE TAKEN BY THE MINOR'S OLDER BROTHER. THEREFORE, IT IS NOT NECESSARY FOR GAO TO GRANT RELIEF SINCE TREASURY SHOULD CLEAR THE DEBT FROM THE FINANCE AND ACCOUNTING OFFICER'S ACCOUNT.

MR. CLYDE E. JEFFCOAT:

PRINCIPAL DEPUTY COMMANDER

U.S. ARMY FINANCE AND ACCOUNTING CENTER

INDIANAPOLIS, INDIANA 46429

THIS RESPONDS TO YOUR REQUEST OF OCTOBER 3, 1985, THAT WE RELIEVE LIEUTENANT COLONEL (LTC) L. M. HACKER, FINANCE CORPS, FINANCE AND ACCOUNTING OFFICER, III CORPS AND FORT HOOD, FORT HOOD, TEXAS, AND HIS DEPUTY, MRS. JUNE MILLSAP UNDER 31 U.S.C. SEC. 3527(C) FOR TWO IMPROPER PAYMENTS IN THE TOTAL AMOUNT OF $1,857.23. FOR THE REASONS STATED BELOW, IT IS NOT NECESSARY FOR US TO GRANT RELIEF IN THIS CASE SINCE THE CHARGE TO THE ACCOUNT SHOULD BE REVERSED BY TREASURY. SEE, TREASURY FISCAL REQUIREMENTS MANUAL, PART 4, PARA. 7085.25 AND ARMY REGULATION 27-103, PARA. 4-149(A).

THE CHECKS IN THE AMOUNTS OF $928.61 AND $928.62 WERE ISSUED BY THE ARMY ON MAY 21, 1982 TO TWO MINORS, MICHAEL D. AND PATRICIA A. DANIEL, RESPECTIVELY, FOR ANNUAL LEAVE BENEFITS OF THEIR DECEASED FATHER, CLARENCE E. DANIEL. ON JULY 9, 1982, REPLACEMENT TREASURY CHECKS WERE ISSUED BY THE TREASURY TO MRS. BARBARA DANIEL AS THE GUARDIAN OF THE TWO MINORS ON THE BASIS OF HER REQUEST FOR STOP PAYMENT AND ALLEGATION THAT THE MINOR'S CHECK HAD BEEN TAKEN BY THEIR OLDER BROTHER. IT WAS LATER ESTABLISHED THAT ALL OF THE CHECKS WERE INDORSED AND PAID BY THE TREASURY.

THE ARMY-ISSUED INSTRUMENTS WERE MADE PAYABLE DIRECTLY TO EACH MINOR. APPEARS THAT THE OLDER BROTHER OF THE PAYEES, MR. LAWRENCE DANIEL, USED THESE CHECKS TO OPEN JOINT BAND ACCOUNTS IN THE NAME OF HIMSELF, HIS WIFE, AND EACH OF THE CHILDREN. THESE ACCOUNTS WERE LATER CASHED OUT AND CLOSED BY MR. DANIEL. THE TREASURY-ISSUED SUBSTITUTE CHECKS WERE INDORSED AND CASHED BY THE CHILDREN'S MOTHER AND GUARDIAN, MRS. DANIEL. THESE TREASURY CHECKS HAD BEEN DRAWN TO MRS. DANIEL AS DESIGNATED GUARDIAN FOR EACH CHILD.

IN A DUPLICATE CHECK SITUATION WHERE THE PAYEE DENIES NEGOTIATING ONE OF THE CHECKS, THE FINANCE AND ACCOUNTING OFFICER IS TO SEND A LETTER GIVING THE FACTS OF THE CASE AND ATTACHING LEGIBLE COPIES OF BOTH CHECKS TO TREASURY'S STOP PAY SECTION, DIVISION OF CHECK CLAIMS, BUREAU OF GOVERNMENT FINANCIAL OPERATIONS. ARMY REGULATION 37-103, PARA. 4-149(A). IF TREASURY SUSTAINS THE PAYEE'S ALLEGATION, THE CHARGE TO THE FINANCE OFFICER'S ACCOUNT WILL BE REVERSED. ID.

THE FINANCE OFFICER FOLLOWED THESE PROCEDURES HERE. AFTER RECEIVING THE DEBIT VOUCHER FROM TREASURY, A LETTER WITH APPROPRIATE DOCUMENTATION WAS SENT TO TREASURY'S DIVISION OF CHECK CLAIMS BY LTC W. H. HILL, LTC HACKER'S SUCCESSOR, REQUESTING THAT THE DEBT BE CLEARED FROM THE ACCOUNT. THE LETTER INDICATED THAT MRS. DANIEL HAD NEVER RECEIVED THE ORIGINAL CHECKS BUT THAT SHE HAD RECEIVED AND INDORSED THE SUBSTITUTE INSTRUMENTS.

TREASURY RESPONDED THAT SINCE THE ORIGINAL CHECKS HAD BEEN DRAWN DIRECTLY TO THE MINORS, THE TREASURY DEPARTMENT'S RIGHT OF RECOVERY FROM THE ENDORSER HAD BEEN COMPROMISED. THEREFORE, TREASURY DID NOT CREDIT THE ACCOUNT, BUT LEFT THE ADJUSTMENT TO THE ARMY.

IN VIEW OF TREASURY'S DECISION NOT TO CREDIT THE ACCOUNT, THE CASE WAS SENT, AFTER SOME DELAY TO USAFAC. USAFAC REFERRED THE CASE TO YOUR COLLECTION DIVISION AND A RELIEF REQUEST WAS SENT TO GAO.

THE TREASURY FISCAL REQUIREMENT MANUAL STATES THAT WHEN A PAYEE DENIES NEGOTIATION OF EITHER THE ORIGINAL OR SUBSTITUTE CHECK, "THE DIVISION OF CHECK CLAIMS WILL TAKE ACTION TO VERIFY THE PAYEE'S STATEMENT AND, IF UPHELD THROUGH INVESTIGATION, WILL REVERSE THE CHARGE (TO THE ACCOUNT) ***." TFRM PART 4, PARA. 7085.25B. IT DOES NOT APPEAR THAT TREASURY IS CHALLENGING MRS. DANIEL, THE DESIGNATED GUARDIAN OF THE PAYEES, THAT SHE ONLY NEGOTIATED THE TREASURY-ISSUED SUBSTITUTE CHECKS. RATHER, TREASURY REFUSED TO CLEAR THE DEBT FROM LTC HACKER'S ACCOUNT BECAUSE OF THE MANNER IN WHICH ARMY ISSUED THE ORIGINAL INSTRUMENTS.

WE ARE UNAWARE, HOWEVER, OF ANY REGULATION THAT WOULD REQUIRE THAT THE ARMY ISSUE CHECKS TO MINORS PAYABLE TO THE CHILD'S DESIGNATED GUARDIAN. WE, THEREFORE, CONTACTED TREASURY. THE TREASURY OFFICIAL WE SPOKE WITH AGREED THAT THE ARMY IS NOT REQUIRED TO ISSUE CHECKS TO MINORS PAYABLE TO THE CHILD'S DESIGNATED GUARDIAN. HOWEVER, THIS OFFICIAL STATED THAT TREASURY WILL NOT REVERSE THE CHARGE TO AN ACCOUNT UNLESS TREASURY HAS A LEGAL RIGHT TO RECOVERY OF THE FUNDS.

UNDER THE TREASURY REQUIREMENT, QUOTED ABOVE, THE CHARGE BACK TO THE ACCOUNT IS DEPENDENT ON THE VERIFICATION OF THE PAYEE'S CLAIM THAT HE OR SHE ONLY NEGOTIATED ONE CHECK AND NOT ON TREASURY'S LEGAL RIGHT OF RECOVERY. TFRM, PART 4, PARA. 7085.25B. SINCE THERE SEEMS TO BE NO QUESTION THAT MRS. DANIEL ONLY ENDORSED THE SUBSTITUTE CHECKS, TREASURY SHOULD CLEAR THE DEBT FROM LTC HACKER'S ACCOUNT, REGARDLESS OF WHETHER TREASURY RECOVERS THE FUNDS. IN VIEW OF THE FACT THAT THE CHARGE TO THE ACCOUNT SHOULD BE REVERSED, THERE IS NO NEED FOR US TO GRANT RELIEF.

IT IS OUR UNDERSTANDING THAT TREASURY HAS REOPENED THESE CASES AND IS ATTEMPTING RECLAMATION AGAINST THE SAVINGS AND LOAN ASSOCIATION WHERE THE ORIGINAL CHECKS WERE DEPOSITED IN JOINT ACCOUNTS. A COPY OF THIS DECISION IS BEING SENT TO TREASURY, ADVISING THE LTC HACKER'S ACCOUNT SHOULD BE CLEARED IMMEDIATELY.

FINALLY, ALTHOUGH THE ARMY CHECKS IN THIS CASE WERE PROPERLY ISSUED, TO AVOID SIMILAR PROBLEMS IN THE FUTURE, THE ARMY MAY WANT TO RECONSIDER HOW CHECKS TO MINORS ARE DRAWN. ISSUING THE CHECKS PAYABLE TO THE MINOR'S DESIGNATED GUARDIAN OR PLACING THE WORD "MINOR" AFTER THE PAYEE'S NAME MAY OFFER MORE PROTECTION SINCE A BANK WOULD ASK TO SEE PROOF OF GUARDIANSHIP BEFORE TURNING OVER THE PROCEEDS OF A MINOR'S CHECK TO AN ADULT.