B-106270, FEB. 11, 1966, 45 COMP. GEN. 493

B-106270, FEB. 11, 1966, 45 COMP. GEN. 493

FUNDS - FOREIGN - EXCHANGE RATE - LOSSES - DISBURSING FUNCTIONS V. APPROPRIATION ACTIVITIES THE LOSS RESULTING FROM A FOREIGN EXCHANGE RATE FLUCTUATION INCIDENT TO REFUNDING THE PAYMENT MADE FOR THE PURCHASE OF PROPERTY LOCATED IN A FOREIGN COUNTRY, THE SALES AGREEMENT HAVING FAILED OF EXECUTION, MAY NOT BE CHARGED TO THE ACCOUNT GAINS AND DEFICIENCIES ON EXCHANGE TRANSACTIONS, TREASURY, ESTABLISHED PURSUANT TO THE ACT OF DECEMBER 23, 1944, AS AMENDED, 31 U.S.C. 492A-C, TO RELIEVE DISBURSING OFFICERS OF ACCOUNTABILITY FOR LOSSES DUE TO EXCHANGE RATE FLUCTUATIONS INCURRED IN CARRYING OUT DISBURSING FUNCTIONS AND PROVIDING FOR DEPOSIT OF GAINS INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, AND THE EXCHANGE LOSS NOT HAVING ARISEN FROM A DISBURSING OFFICER FUNCTION, BUT RELATING TO AN APPROPRIATION PROGRAM ACTIVITY IS AN EXPENSE THAT MUST BE BORNE BY THE APPROPRIATION INITIALLY CHARGED.

TO THE SECRETARY OF STATE, FEBRUARY 11, 1966:

BY LETTER OF JANUARY 24, 1966, THE DEPUTY DIRECTOR, OFFICE OF OPERATIONS, REQUESTED OUR OPINION CONCERNING A CONTROVERSY WHICH HAS ARISEN BETWEEN YOUR DEPARTMENT AND THE DEPARTMENT OF THE TREASURY OVER ACCOUNTING FOR THE FOLLOWING FOREIGN CURRENCY TRANSACTION:

IN MAY OF 1962 THE EMBASSY AT CAIRO, UNITED ARAB REPUBLIC, MADE PAYMENT FOR A PARCEL OF PROPERTY IN THE AMOUNT OF 125,000 EGYPTIAN POUNDS AT AN EXCHANGE RATE OF L.E. 0.418696 TO $1 CONSTITUTING A CHARGE OF $298,545.96 TO THE APPROPRIATION INVOLVED. FOR REASONS STATED TO BE JUSTIFIABLE, THE UNDERLYING SALES AGREEMENT WAS NOT EXECUTED GIVING RISE IN FEBRUARY OF 1965 TO REFUND BY THE PAYEE OF THE L.E. 125,000 PREVIOUSLY RECEIVED BY HIM. AT THE TIME OF REFUND THE RATE OF EXCHANGE BETWEEN EGYPTIAN POUNDS AND UNITED STATES DOLLARS WAS STATED TO HAVE BEEN L.E. 0.435621 TO $1 AT WHICH RATE THE REFUND WAS STATED WOULD AMOUNT TO $288,076.85, RESULTING IN A LOSS OF $10,496.11 DUE TO EXCHANGE RATE FLUCTUATION. (AT THE GIVEN RATE OF EXCHANGE, L.E. 0.435621 TO $1, REFUND OF L.E. 125,000 WOULD, IN FACT, AMOUNT TO $286,946.68 FOR AN EXCHANGE LOSS OF $11,599.28.)

VOLUME IV, FOREIGN AFFAIRS MANUAL, PART V, SECTION 323.41 PROVIDES THAT:

COLLECTIONS IN FOREIGN CURRENCY OF AMOUNTS WHICH ARE DUE IN THE SAME CURRENCY (SEE SECTION 323.31) AND WHICH ARE FOR CREDIT TO AN ACCOUNT MAINTAINED IN U.S. DOLLARS, SHALL BE CONVERTED TO THEIR U.S. DOLLAR EQUIVALENTS AT THE SAME RATES AS THOSE USED FOR CONVERTING THE ORIGINAL FOREIGN CURRENCY PAYMENTS.

PURSUANT TO THIS PROVISION, YOUR DEPARTMENT CREDITED BACK TO THE APPROPRIATION INITIALLY CHARGED THE FULL AMOUNT OF $298,545.96 AND CHARGED $10,496.11 IN EXCHANGE LOSS SUFFERED TO THE ACCOUNT GAINS AND DEFICIENCIES ON EXCHANGE TRANSACTIONS, TREASURY, ESTABLISHED PURSUANT TO THE ACT OF DECEMBER 23, 1944, AS AMENDED, 31 U.S.C. 492A-C. THE TREASURY DEPARTMENT CONTENDS THAT SINCE THE INCURRED EXCHANGE LOSS RESULTED FROM AN ADMINISTRATIVE COLLECTION RATHER THAN FROM A DISBURSING OFFICER TRANSACTION, IT MUST BE BORNE BY THE APPLICABLE APPROPRIATION AND MAY NOT BE CHARGED TO THE GAINS AND DEFICIENCIES ACCOUNT.

IN SUPPORT OF THE QUOTED MANUAL PROVISION AND OF THE PROCEDURE FOLLOWED BY YOUR DEPARTMENT, THE DEPUTY DIRECTOR RELIES UPON OUR DECISIONS OF FEBRUARY 19 AND JUNE 27, 1952, B-106270, AND FEBRUARY 26, 1953, 32 COMP. GEN. 370. APPARENTLY, BECAUSE THESE DECISIONS ARE PHRASED, IN PART, IN TERMS OF THE AMOUNT OF CURRENCIES REQUIRED TO BE COLLECTED TO RESTORE APPROPRIATIONS WHERE OVERPAYMENTS HAVE BEEN MADE, YOUR DEPARTMENT HAS CONSTRUED THEM AS REQUIRING RECOVERIES AND CREDIT TO THE AFFECTED APPROPRIATIONS SO AS TO PLACE THE APPROPRIATIONS IN THE DOLLAR POSITION THEY WOULD HAVE BEEN IN HAD THE RELATED EXPENDITURES NOT BEEN MADE. HOWEVER, IN SPEAKING OF RESTORING APPROPRIATIONS, THE DECISIONS WERE CONCERNED WITH AMOUNTS REQUIRED TO BE COLLECTED TO RELIEVE ACCOUNTABLE OFFICERS OF LIABILITY FOR DEFICIENCIES IN THEIR ACCOUNTS RATHER THAN RESTORATION IN THE SENSE OF ESTABLISHING APPROPRIATION DOLLAR AMOUNTS IN THE STATUS QUO ANTE. THE FOLLOWING EXTRACT FROM THE DECISION OF FEBRUARY 19, 1952, MAKES THIS CLEAR:

* * * HOWEVER, IT SEEMS REASONABLE THAT WHERE THE UNITED STATES INCURS AN OBLIGATION TO BE LIQUIDATED IN FOREIGN CURRENCIES, THE UNITED STATES WOULD THEREBY ASSUME, IN THE ABSENCE OF FRAUD, ANY LOSS INCURRED IN THE MAKING OF AN OVERPAYMENT IN FOREIGN CURRENCIES AS A RESULT OF DEPRECIATION OF THAT CURRENCY BETWEEN THE DATE OF THE OVERPAYMENT AND THE DATE OF DEMAND FOR REFUND OF THE OVERPAYMENT. IN THAT CASE THE RECOVERY OF THE OVERPAYMENT IN FOREIGN CURRENCY IN THE KIND AND NUMBER OF UNITS ACTUALLY OVERPAID, OR THE RECOVERY IN U.S. DOLLARS OF AN AMOUNT SUFFICIENT TO PRODUCE, AT THE RATE OF EXCHANGE CURRENT WHEN DEMAND IS MADE, THE KIND AND NUMBER OF UNITS OVERPAID, WOULD FULLY RESTORE THE APPROPRIATION SO AS TO RELIEVE A CERTIFYING, OR DISBURSING, OFFICER OF FINANCIAL RESPONSIBILITY,

THE ACT OF DECEMBER 23, 1944, AS AMENDED, AUTHORIZED UNITED STATES DISBURSING OFFICERS FOR OFFICIAL PURPOSES AND FOR ACCOMMODATION OF CERTAIN CLASSES OF PERSONS TO CASH AND NEGOTIATE CHECKS, DRAFTS, BILLS OF EXCHANGE, AND OTHER INSTRUMENTS PAYABLE IN UNITED STATES AND FOREIGN CURRENCIES, AND TO CONDUCT EXCHANGE TRANSACTIONS INVOLVING UNITED STATES AND FOREIGN CURRENCY AND COIN, CHECKS, DRAFTS, BILLS OF EXCHANGE, AND OTHER INSTRUMENTS. NET GAINS IN THE ACCOUNTS OF DISBURSING OFFICERS RESULTING FROM SUCH OPERATIONS ARE REQUIRED TO BE PAID INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, AND APPROPRIATIONS ARE AUTHORIZED AS MAY BE NECESSARY TO ADJUST NET DEFICIENCIES IN THE ACCOUNTS OF DISBURSING OFFICERS RESULTING FROM SUCH OPERATIONS. THE REGULATIONS IMPLEMENTING THE ACT ARE CONTAINED IN TREASURY DEPARTMENT CIRCULAR 830, FISCAL SERVICE, FIRST REVISION, DECEMBER 17, 1953, AS SUPPLEMENTED. WE FIND NOTHING IN THE ACT OR THE REGULATIONS TO SUPPORT THE PROPOSITION THAT THE LOSS DUE TO EXCHANGE RATE FLUCTUATION IN THE INSTANT CASE MAY PROPERLY BE CHARGED TO THE GAINS AND DEFICIENCIES ACCOUNT. THIS ACCOUNT WAS ESTABLISHED AND AUTHORIZED SOLELY IN CONNECTION WITH RELIEVING DISBURSING OFFICERS OF ACCOUNTABILITY FOR LOSSES DUE TO EXCHANGE RATE FLUCTUATIONS INCURRED IN CARRYING OUT CERTAIN DISBURSING FUNCTIONS AND TO REQUIRE THAT GAINS FROM SUCH CAUSE BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. THE EXCHANGE LOSS IN QUESTION DID NOT ARISE AS A RESULT OF EXECUTING DISBURSING FUNCTION TRANSACTIONS BUT, RATHER, WAS DIRECTLY RELATED TO THE APPROPRIATION PROGRAM ACTIVITY BEING ADMINISTERED. IN COMPUTING THE DOLLAR VALUE OF THE FOREIGN CURRENCY RECOVERY MADE FOR CREDIT BACK TO THE APPROPRIATION, THERE WOULD NOT BE ANY BASIS FOR UTILIZING AN EXCHANGE RATE OTHER THAN THE ONE PREVAILING AT THE TIME OF RECOVERY. THE RESULTING EXCHANGE LOSS IS AS MUCH AN EXPENSE TO BE BORNE BY THE APPROPRIATION INITIALLY CHARGED AS WOULD HAVE BEEN THE CASE WITH RESPECT TO THE ENTIRE PAYMENT HAD NO RECOVERY BEEN MADE. SEE 37 COMP. GEN. 224. THE IMPORT OF OUR PRIOR DECISIONS, REFERRED TO BY THE DIRECTOR, IS SIMPLY TO STATE THE AMOUNT OF FOREIGN CURRENCY WHICH ACCOUNTABLE OFFICERS ARE RESPONSIBLE FOR COLLECTING IN THE VARIOUS FACTUAL CIRCUMSTANCES CONSIDERED. THE DECISIONS, IN EFFECT, DISTINGUISHED BETWEEN THOSE SITUATIONS IN WHICH RESTORATION OF APPROPRIATIONS FOR ACCOUNTABILITY PURPOSES WOULD BE JUDGED FROM THE FOREIGN CURRENCY SIDE RATHER THAN THE DOLLAR SIDE.

SECTION 323.41, QUOTED ABOVE, SHOULD BE REVISED TO ACCORD WITH THE FOREGOING.

THE QUESTION PRESENTED IS ANSWERED ACCORDINGLY. WE WOULD ADD THAT IN REACHING THE CONCLUSIONS STATED HEREIN, WE HAVE LIMITED OUR CONSIDERATION SOLELY TO THE QUESTION OF ACCOUNTING FOR THE EXCHANGE LOSS SUFFERED ON THE FACTS PRESENTED.

A COPY OF THIS DECISION IS BEING SENT TO THE SECRETARY OF THE TREASURY.