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B-213720, OCT 2, 1984

B-213720 Oct 02, 1984
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THE PERTINENT FACTS ARE AS FOLLOWS. THIS NOTICE OF ASSIGNMENT WAS NOT ENTERED INTO THE CONTRACT FILE ***.". INSTRUCTIONS WERE GIVEN BY JAMES E. TO THE CHIEF OF THE EXAMINATION SECTION TO INSURE THAT A COPY OF THE CONTRACT WAS ATTACHED TO THE ASSIGNMENT ASSEMBLY. THE COPY OF THE CONTRACT WAS TO BE OBTAINED FROM THE PURCHASING OFFICE. THIS WAS NOT ACCOMPLISHED. A DELIVERY ORDER WAS ISSUED AGAINST THE CONTRACT IN JULY. 814 WAS PROCESSED BY MARGARET WILLIAMS. THE INVOICE WAS INSCRIBED AT THE BOTTOM. THE CHIEF OF THE EXAMINATION SECTION IS RESPONSIBLE FOR INSURING THAT ALL SUPPORTING DOCUMENTS ARE ATTACHED TO THE INVOICE. SHE TELEPHONED THE MEMPHIS DISTRICT'S PURCHASING AGENT WHO WAS RESPONSIBLE FOR ISSUING THE DELIVERY ORDER.

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B-213720, OCT 2, 1984

DISBURSING OFFICERS - LACK OF DUE CARE, ETC. - RELIEF DENIED DIGEST: RELIEF DENIED FOR U.S. ARMY CORPS OF ENGINEERS DISBURSING OFFICER WHO AUTHORIZED PAYMENT TO ASSIGNOR OF CONTRACT PROCEEDS. ALTHOUGH SUBORDINATE CROSSED OUT INVOICE INSTRUCTIONS DIRECTING PAYMENT TO ASSIGNEE BANK BASED ON ABSENCE OF ASSIGNMENT IN CONTRACTING OFFICER'S FILES, IN VIEW OF STRONG INFERENCE RAISED BY CONTRACTOR'S INSTRUCTION, DISBURSING OFFICER HAD DUTY TO FURTHER INQUIRE AS TO ASSIGNMENT. SEE CT. CASE & COMG.GEN. DEC. CITED. DISBURSING OFFICERS - LACK OF DUE CARE, ETC. - RELIEF DENIED DISBURSING OFFICER PERSONALLY ACKNOWLEDGED RECEIPT OF ASSIGNMENT OF CONTRACT PROCEEDS UNDER 31 U.S.C. 3527(C)(3)(1982). DISBURSING OFFICER HAD DUTY TO RETAIN COPY OF ASSIGNMENT UNDER HIS CUSTODY OR CONTROL, INDEPENDENT OF CONTRACTING OFFICER'S FILES. SEE COMG.GEN. DECS. CITED.

COLONEL TERRENCE J. CONNELL DIRECTOR OF RESOURCE MANAGEMENT U.S. ARMY CORPS OF ENGINEERS WASHINGTON, D.C. 20314

DEAR COLONEL CONNELL:

THIS RESPONDS TO YOUR REQUEST FOR RELIEF FROM LIABILITY FOR AN ERRONEOUS OR IMPROPER PAYMENT FOR DISBURSING OFFICER STANLEY N. WRENN, U.S. ARMY ENGINEER DISTRICT, MEMPHIS, TENNESSEE, IN THE AMOUNT OF $8,814. FOR THE REASONS EXPLAINED BELOW, WE DENY RELIEF UNDER 31 U.S.C. SEC. 3527(C) (1982).

THE PERTINENT FACTS ARE AS FOLLOWS. ON MARCH 11, 1981, JARNOCO OIL CO., INC., A FUEL SUPPLIER, EXECUTED AN ASSIGNMENT OF THE PROCEEDS OF ITS DEFENSE FUEL SUPPLY CENTER FUEL CONTRACT IN FAVOR OF CAHABA BANK AND TRUST CO., A FINANCING INSTITUTION. CAHABA PERFECTED ITS INTEREST IN THE PROCEEDS BY FILING BOTH A NOTICE OF ASSIGNMENT AND A TRUE COPY OF THE ASSIGNMENT WITH THE DEFENSE FUEL SUPPLY CENTER, CAMERON STATION, ALEXANDRIA, VIRGINIA. MR. WRENN THE CORPS' MEMPHIS DISTRICT OFFICE DISBURSING OFFICER, PERSONALLY ACKNOWLEDGED RECEIPT OF THE ASSIGNMENT ON MAY 21, 1981. HE FORWARDED THE ASSIGNMENT AND THE NOTICE OF ASSIGNMENT TO MAJOR MORIN, THE MEMPHIS DISTRICT OFFICE CONTRACTING OFFICER, WHO SIGNED BOTH DOCUMENTS IN ACKNOWLEDGMENT ON THE 21ST.

AT THIS POINT IN THE PROCESS, SOMETHING WENT WRONG. MR. WRENN HIMSELF HAS PROVIDED TWO ACCOUNTS OF WHAT HAPPENED. IN HIS AUGUST 11, 1983, REQUEST FOR RELIEF HE SAID THAT:

"(DUE TO A PROBLEM IN THE TRANSMISSION PROCESS FROM THE CONTRACTING OFFICER TO THE FINANCE AND ACCOUNTING SECTION, THIS NOTICE OF ASSIGNMENT WAS NOT ENTERED INTO THE CONTRACT FILE ***."

A SUPPLEMENTARY REPORT DATED MARCH 23, 1984, STATED THAT ON MAY 22, 1981, INSTRUCTIONS WERE GIVEN BY JAMES E. GARRETT, DEPUTY DISBURSING OFFICE, TO THE CHIEF OF THE EXAMINATION SECTION TO INSURE THAT A COPY OF THE CONTRACT WAS ATTACHED TO THE ASSIGNMENT ASSEMBLY. THE COPY OF THE CONTRACT WAS TO BE OBTAINED FROM THE PURCHASING OFFICE. HOWEVER, THIS WAS NOT ACCOMPLISHED.

A DELIVERY ORDER WAS ISSUED AGAINST THE CONTRACT IN JULY, AND JARNOCO'S INVOICE FOR $8,814 WAS PROCESSED BY MARGARET WILLIAMS, THE CHIEF OF THE EXAMINATION SECTION ON JULY 31, 1981. THE INVOICE WAS INSCRIBED AT THE BOTTOM, "PLEASE REMIT PAYMENT DIRECTLY TO: CAHABA BANK & TRUST."

THE CHIEF OF THE EXAMINATION SECTION IS RESPONSIBLE FOR INSURING THAT ALL SUPPORTING DOCUMENTS ARE ATTACHED TO THE INVOICE. READING THE PAYMENT INSTRUCTION, MS. WILLIAMS BECAME AWARE OF THE POSSIBILITY OF AN ASSIGNMENT OF THE CONTRACT PROCEEDS. IN ACCORDANCE WITH EXISTING PROCEDURES, TO DETERMINE THE EXISTENCE OF AN ASSIGNMENT, SHE TELEPHONED THE MEMPHIS DISTRICT'S PURCHASING AGENT WHO WAS RESPONSIBLE FOR ISSUING THE DELIVERY ORDER. SHE WAS ADVISED TO PAY JARNOCO. ACCORDING TO MR. WRENN, "THIS OCCURRED DUE TO THE FACT OF THE NOTICE OF ASSIGNMENT NOT APPEARING IN THE CONTRACT FILE." MS. WILLIAMS THEN LINED OUR JARNOCO'S PAYMENT INSTRUCTIONS, AND ENTERED THE NOTATION "SENT TO ABOVE" (MEANING JARNOCO).

JARNOCO RECEIVED THE TREASURY CHECK FOR $8,814 DATED AUGUST 13, 1981, AND CASHED IT. DESPITE THE FACT THAT IT WAS NOT ENTITLED TO THE PROCEEDS, JARNOCO EXPENDED THE FUNDS. IN JANUARY 1982, CAHABA CONTACTED MR. WRENN'S OFFICE TO DEMAND PAYMENT AS THE PROPER ASSIGNEE. IT WAS THEN THAT THE EARLIER PAYMENT TO JARNOCO WAS SHOWN TO BE ERRONEOUS. MR. WRENN BEGAN COLLECTION EFFORTS, SENDING THREE LETTERS AT 30-DAY INTERVALS.

IN FEBRUARY, JARNOCO'S ATTORNEY INFORMED MR. WRENN THAT JARNOCO RETAINED THE $8,814 TO OFFSET CERTAIN CLAIMS IT ASSERTED AGAINST CAHABA. FURTHER STATED THAT LITIGATION WITH CAHABA, COMMENCED IN OCTOBER 1981, HAD CAUSED JARNOCO TO SHUT DOWN OPERATIONS AND THAT THE MONEY, WHICH WAS EXPENDED, COULD NOT BE RETURNED.

THEREFORE, ON MARCH 18, 1982, A SECOND CHECK WAS DRAWN PAYABLE TO CAHABA FOR THE FULL AMOUNT WRONGLY PAID TO JARNOCO BEFORE. AT THIS TIME, MR. WRENN SUSTAINED A DEFICIENCY IN HIS ACCOUNT.

THE 30-DAY COLLECTION LETTERS WERE UNSUCCESSFUL AND THE FUNDS HAVE NOT BEEN RECOVERED FROM JARNOCO IN THE INTERIM. FURTHER COLLECTION EFFORTS WERE ABANDONED IN NOVEMBER 1982, BASED ON JARNOCO'S "APPARENT INSOLVENCY."

A DISBURSING OFFICER'S DUTY IN MAKING PAYMENTS ON BEHALF OF THE GOVERNMENT IS CLEAR. HE OR SHE MUST ACT IN GOOD FAITH AND EXERCISE REASONABLE CARE. IF THOSE TWO CRITERIA ARE MET HE OR SHE CAN BE RELIEVED OF THE PERSONAL LIABILITY WHICH AUTOMATICALLY ATTACHES WHENEVER AN ILLEGAL, IMPROPER OR INCORRECT PAYMENT IS MADE. 31 U.S.C. SEC. 3527(C). RECOGNIZING THE BURDEN THIS PLACES ON A FINANCE AND ACCOUNTING OFFICER, WHO IS RESPONSIBLE FOR BOTH THE CERTIFYING AND DISBURSING FUNCTIONS, WE HAVE GRANTED RELIEF IN CASES WHERE THE ERROR WAS SOLELY A SUBORDINATE'S, AND WHERE THE FINANCE AND ACCOUNTING OFFICER PRESIDED OVER AN EFFICIENT SYSTEM OF DISBURSEMENTS.

IN THIS CASE, WE THINK THE SERIES OF ERRORS INDICATES BOTH OF LACK OF REASONABLE CARE AND AN INEFFICIENT DISBURSEMENT SYSTEM.

ACCORDING TO BOTH THE ORIGINAL AND SUPPLEMENTARY SUBMISSIONS, THE DECISION TO PAY JARNOCO WAS MADE BY THE CHIEF OF THE EXAMINATION SECTION, MARGARET WILLIAMS. MR. WRENN STATED IN HIS SUPPLEMENTARY REPORT THAT MS. WILLIAMS WAS THE DESIGNATED CERTIFYING OFFICIAL. THERE IS NO DOUBT THAT THE ERRONEOUS PAYMENT TO JARNOCO RESULTED FROM MS. WILLIAMS' ACTION. MS. WILLIAMS, HOWEVER, IS NOT AN ACCOUNTABLE OFFICER ACCORDING TO DEPARTMENT OF THE ARMY REGULATION (AR)37-107.1-7.F.

THE PAYMENT INSTRUCTIONS ON THE INVOICE WERE CLEAR EVIDENCE OF A PROBABLE EXISTING ASSIGNMENT TO CAHABA. WE KNOW THAT MS. WILLIAMS SO CONSTRUED THESE INSTRUCTIONS, BECAUSE SHE CONTACTED THE PURCHASING AGENT TO CHECK WHETHER THE AGENT KNEW OF AN ASSIGNMENT. THE AGENT ORALLY ADVISED MS. WILLIAMS TO PAY JARNOCO, AND SHE SUSPENDED ANY FURTHER INQUIRY.

IT IS WELL-SETTLED THAT IF THE GOVERNMENT PAYS A PARTY OTHER THAN THE ASSIGNEE WHEN AN ASSIGNMENT HAS BEEN PROPERLY FILED, IT PAYS AT ITS PERIL. CENTRAL NATIONAL BANK OF RICHMOND, VIRGINIA V. UNITED STATES, 91 F. SUPP. 738 (CT. CL. 1950); 61 COMG.GEN. 53, 55 (1981). THE INVOICE ITSELF RAISED THE ISSUE AS TO WHETHER THERE WAS AN EXISTING ASSIGNMENT WHICH, FOR UNEXPLAINED REASONS, WAS NOT DOCUMENTED IN THE FILES. YET, DESPITE THE POTENTIAL CONSEQUENCE, MS. WILLIAMS DROPPED HER INQUIRY AFTER RECEIVING THE PURCHASING AGENT'S ADVICE TO PAY JARNOCO.

GIVEN THE CIRCUMSTANCES, THERE WAS, IN OUR VIEW, A DUTY TO CHECK FURTHER. A TELEPHONE CALL TO EITHER JARNOCO OR THE BANK WOULD HAVE CONFIRMED THE EXISTENCE OF THE ASSIGNMENT, AND THE BANK COULD HAVE PROVIDED A DUPLICATE ORIGINAL OF THE MISSING DOCUMENTATION.

THE SUBMISSION STATES THAT THE DECISION TO PAY JARNOCO WAS MADE IN THE EXERCISE OF REASONABLE CARE BECAUSE ESTABLISHED PROCEDURES WERE FOLLOWED. IT GOES ON TO STATE THAT THE PROCEDURAL PREREQUISITE TO PAY AN ASSIGNEE IS LACKING WHEN THE PURCHASING AGENT'S FILES DO NOT CONTAIN A NOTICE OF ASSIGNMENT. AS A MATTER OF PROCEDURE, THIS IS UNDOUBTEDLY TRUE. LEGALLY, HOWEVER, ONCE AN ASSIGNEE HAS PERFECTED ITS INTEREST BY PROPERLY FILING THE REQUIRED DOCUMENTS, THERE IS NO AUTHORITY TO PAY ANYONE ELSE. GIVEN THIS LATTER FACT AND CONSIDERING THAT THE PAYMENT INSTRUCTIONS ON THE INVOICE RAISED A STRONG INFERENCE OF AN OUTSTANDING ASSIGNMENT ERRONEOUSLY MISSING FROM THE FILES, WE THINK THAT THE EXERCISE OF REASONABLE CARE IN THIS CASE ENTAILED GOING BEYOND "NORMAL" PROCEDURES. IT REQUIRED CONTACTING THE BANK OR JARNOCO.

BOTH THE ORIGINAL AND SUPPLEMENTARY SUBMISSIONS STATE THAT THE DECISION TO PAY JARNOCO WAS THE SOLE RESPONSIBILITY OF THE CHIEF OF THE EXAMINATION SECTION, WHO IS ALSO THE DELEGATED CERTIFYING OFFICIAL. THE QUESTION RAISED BY THIS FACT IS WHETHER MR. WRENN IS RESPONSIBLE FOR HIS DELEGATEES' ERROR.

ALTHOUGH A DELEGATEE MAY BE FUNCTIONING AS A CERTIFYING OFFICIAL, THE FINANCE AND ACCOUNTING OFFICER IS STILL ULTIMATELY RESPONSIBLE FOR THE CORRECTNESS OF THE DELEGATEE'S CERTIFICATION. THE DELEGATEE IS ADMINISTRATIVELY LIABLE BUT PECUNIARY LIABILITY REMAINS WITH THE FINANCE AND ACCOUNTING OFFICER ACCORDING TO AR 37-107.1-7.F.

DEPARTMENT OF THE ARMY REGULATION (AR) 37-107.1.7.E PROVIDES THAT A DISBURSING OFFICER IS ENTITLED TO RELY ON A DESIGNATED CERTIFYING OFFICER'S CERTIFICATION "UNLESS HE HAS A REASONABLE DOUBT AS TO THE CORRECTNESS OF THE FACTS STATED ON OR ATTACHED TO THE VOUCHER." THE INFORMATION RAISING THE PRESUMPTION OF AN UNDISCLOSED ASSIGNMENT OF THE PROCEEDS TO CAHABA WAS ON THE FACE OF THE INVOICE, ALONG WITH THE CERTIFYING OFFICIAL'S NOTATION DIRECTING PAYMENT TO JARNOCO. WHEN PRESENTED WITH THESE DOCUMENTS, WE THINK MR. WRENN HAD EXACTLY THE SAME DUTY AS MS. WILLIAMS TO QUESTION AND VERIFY THE PROPER PAYEE. NEVERTHELESS HE SIGNED THE CHECK, APPARENTLY WITHOUT NOTICING THE POTENTIAL PROBLEM. FOR THIS REASON, WE THINK MR. WRENN DID NOT DISCHARGE HIS DUTY WITH REASONABLE CARE. HE IS THUS PERSONALLY RESPONSIBLE FOR THE ERRONEOUS PAYMENT TO JARNOCO AND INELIGIBLE FOR RELIEF UNDER 31 U.S.C. SEC. 3527(C).

IN SUPPORT OF HIS REQUEST FOR RELIEF, MR. WRENN REFERRED TO TWO INSTANCES IN WHICH THE COMPTROLLER GENERAL RELIEVED MILITARY DISBURSING OFFICERS FOR ERRORS RESULTING FROM SUBORDINATES' LACK OF DUE CARE ON THE GROUNDS THAT EACH OFFICER PRESIDED OVER AN EFFICIENT PAYMENT SYSTEM IN ACCORDANCE WITH OFFICIALLY PRESCRIBED PROCEDURES. B-141038-O.M., NOV. 17, 1959; B-128377- O.M., AUG. 1, 1956. CRUCIAL TO THE HOLDING IN EACH OF THOSE TWO DECISIONS WAS THE FACT THAT THE LACK OF DUE CARE WAS NOT PERSONALLY ATTRIBUTABLE TO EITHER DISBURSING OFFICER. IN THESE CASES THE DOCUMENTS PRESENTED TO THE DISBURSING OFFICER WERE NOT SUFFICIENT TO PUT THEM ON NOTICE OF A POSSIBLE IMPROPER PAYMENT. MR. WRENN FAILED IN HIS DUTY TO CAREFULLY REVIEW THE DOCUMENTS SUPPORTING PAYMENT, WHICH WOULD HAVE CAUSED A REASONABLY PRUDENT DISBURSING OFFICER TO MAKE FURTHER INQUIRY.

ADDITIONALLY, WE THINK THE SYSTEM WAS INADEQUATE TO PROTECT THE GOVERNMENT'S INTEREST. BY STATUTE, IN THE CIRCUMSTANCES BEFORE US, THE DISBURSING OFFICER MUST BE PROVIDED WITH BOTH A NOTICE OF ASSIGNMENT AND A TRUE COPY OF THE ASSIGNMENT ITSELF. 31 U.S.C. SEC. 3727(C)(3). MR. WRENN'S SIGNED ACKNOWLEDGEMENT OF RECEIPT OF THE ASSIGNMENT WAS NO MERE FORMALITY. THE STATUTORY REQUIREMENT TO INFORM THE DISBURSING OFFICER APPEARS INTENDED TO INSURE THAT THE PERSON RESPONSIBLE FOR PAYMENT HAS AT HIS OR HER DISPOSAL THE RECORDS NECESSARY TO ASCERTAIN WHO IS LEGALLY ENTITLED TO PAYMENT. AR 37-107.11-30 CONFIRMS THIS. IT REQUIRES THE FINANCE AND ACCOUNTING OFFICER TO RETAIN AT LEAST ONE COPY OF THE NOTICE OF ASSIGNMENT. WHILE THE CONTRACTING OFFICER'S FILES MAY BE AN APPROPRIATE BACK-UP SOURCE OF ASSIGNMENT INFORMATION, IT IS CLEARLY UNACCEPTABLE TO RELY EXCLUSIVELY ON THEM. UPON PERSONAL ACKNOWLEDGEMENT OF THE RECEIPT OF THE ASSIGNMENT THE DISBURSING OFFICER HAD THE DUTY TO RETAIN A COPY OF THE ASSIGNMENT IN HIS CUSTODY AND CONTROL, INDEPENDENT OF THE CONTRACTING OFFICER'S FILE. BECAUSE OF AN APPARENT FAILURE IN THE DISBURSING SYSTEM THIS WAS NOT DONE.

FOR THE FOREGOING REASONS WE DENY RELIEF TO DISBURSING OFFICER STANLEY N. WRENN FOR THE ERRONEOUS PAYMENT OF $8,814 TO JARNOCO OIL CO., INC.

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