B-23888, FEBRUARY 20, 1942, 21 COMP. GEN. 788

B-23888, FEBRUARY 20, 1942, 21 COMP. GEN. 788

CONTRACTS - COST-PLUS - PAY ROLL DEDUCTIONS FOR DEFENSE BOND PURCHASES DEDUCTIONS, FOR THE PURPOSE OF PURCHASING DEFENSE SAVINGS BONDS, MADE FROM WAGES DUE AND PAYABLE TO A COST-PLUS-A-FIXED-FEE CONTRACTOR'S EMPLOYEES WHICH ARE DEPOSITED WITH A BANK IN A SPECIAL ACCOUNT SUBJECT TO WITHDRAWALS, EITHER FOR BOND PURCHASES OR FOR MAKING REFUNDS TO EMPLOYEES, ONLY BY CHECKS DRAWN BY THE CONTRACTOR AND COUNTERSIGNED BY THE CONTRACTING OFFICER OR HIS REPRESENTATIVE MAY BE REGARDED AS REIMBURSABLE EXPENDITURES BY THE CONTRACTOR AT THE TIME OF DEDUCTION, WITH THE UNDERSTANDING THAT THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY UNDISBURSED AMOUNTS REMAINING IN THE ACCOUNT UPON COMPLETION OF THE CONTRACT. ALSO, THE DECISION SETS FORTH THE EVIDENCE REQUIRED IN SUPPORT OF THE PAY ROLL DEDUCTIONS AND DEPOSITS, AND OF THE DISPOSITION OF BALANCES REMAINING IN THE ACCOUNT UPON COMPLETION OF THE CONTRACT.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, FEBRUARY 20, 1942:

I HAVE YOUR LETTER OF FEBRUARY 13, 1942, AS FOLLOWS:

AS YOU ARE WELL AWARE THE UNITED STATES TREASURY IS MAKING A GREAT EFFORT TO SELL NATIONAL DEFENSE BONDS.

IN CONFORMITY WITH ITS POLICY THE WAR DEPARTMENT AND ITS CONTRACTORS ARE MAKING EVERY EFFORT TO FURTHER THE SALE OF THESE BONDS. THERE IS GREAT ENTHUSIASM ON THE PART OF COST-PLUS-A-FIXED-FEE CONTRACTORS AND INNUMERABLE SALES ARE POSSIBLE TO THE HUNDREDS OF THOUSANDS OF EMPLOYEES ENGAGED IN DEFENSE WORK.

AFTER CONSIDERING THE PROBLEMS OF PAY ROLL DEDUCTIONS, AND THE RECORDS NECESSARY TO EFFECTUATE THE SYSTEM WHICH ARE BURDENSOME IN THEMSELVES, THE PROBLEM ARISES AS TO HOW THE COST-PLUS-A-FIXED-FEE CONTRACTORS WILL OBTAIN REIMBURSEMENT FOR DEDUCTIONS MADE FROM EMPLOYEES' WAGES.

A LITERAL INTERPRETATION OF YOUR DECISION B-17082, 2-/20) CG 865, JUNE 9, 1941, WOULD LEAD TO THE CONCLUSION THAT IF AN EMPLOYEE AUTHORIZED THE DEDUCTION OF A DOLLAR A WEEK FROM HIS SALARY FOR THE PURPOSE OF PURCHASING BONDS, 19 WEEKS OR MORE WOULD PASS BEFORE THE CONTRACTOR COULD OBTAIN REIMBURSEMENT FOR THE DEDUCTION. WHEN IT IS CONSIDERED THAT SOME OF THE DEFENSE PLANTS EMPLOY AS MANY AS EIGHT TO TWELVE THOUSAND EMPLOYEES NOT ONLY DURING THE CONSTRUCTION PERIOD BUT ALSO AFTER THE PLANTS ARE IN OPERATION, IT WILL READILY BE SEEN THAT MILLIONS OF DOLLARS OF THE CONTRACTORS' FUNDS MAY BE TIED UP FOR LONG PERIODS OF TIME.

IN ORDER TO OBVIATE THE NECESSITY OF WAITING FOR REIMBURSEMENT UNTIL THE WITHHELD FUNDS ARE ACTUALLY EXPENDED BY THE CONTRACTOR FOR THE PURCHASE OF BONDS IN THE EMPLOYEES' NAMES, THE FOLLOWING METHOD OF PROCEDURE IS PROPOSED FOR YOUR CONSIDERATION:

THE CONTRACTOR WILL WITHHOLD FROM EACH WEEK'S PAY ROLL THE AMOUNTS AUTHORIZED BY THE RESPECTIVE EMPLOYEES. THE AMOUNT WITHHELD WILL BE DEPOSITED IMMEDIATELY IN A FEDERAL DEPOSITORY BANK IN A SEPARATE ACCOUNT IN THE NAME OF THE CONTRACTOR, ENTITLED " ACCOUNT FOR THE PURCHASE OF NATIONAL DEFENSE BONDS.' BY ARRANGEMENT WITH THE DEPOSITORY BANK, CHECKS DRAWN ON THIS ACCOUNT BY THE CONTRACTOR WILL BE MADE SUBJECT TO THE COUNTER-SIGNATURE OF THE CONTRACTING OFFICER, OR SOME OFFICER DESIGNATED BY HIM. CHECKS WILL BE DRAWN ONLY IN FAVOR OF A FEDERAL RESERVE BANK, FOR THE PURCHASE OF NATIONAL DEFENSE BONDS, OR IN FAVOR OF EMPLOYEES FOR REFUNDS OF THEIR CONTRIBUTIONS. THE COUNTER-SIGNATURE OF THE CONTRACTING OFFICER, OR THE OFFICER DESIGNATED BY HIM, ON CHECKS DRAWN ON THE ACCOUNT IN QUESTION, SHOULD BE SUFFICIENT TO SATISFY YOUR REQUIREMENT THAT THE EXPENDITURE BE BEYOND THE CONTROL OF CONTRACTORS, AND HENCE THE CONTRACTOR SHOULD BE ABLE TO CLAIM REIMBURSEMENT IMMEDIATELY. IT IS PROPOSED THAT A DUPLICATE DEPOSIT SLIP BE SIGNED BY AN OFFICIAL OF THE BANK AND BE ATTACHED TO THE PAY ROLL FROM WHICH THE DEDUCTIONS WERE MADE, THUS ELIMINATING THE NECESSITY OF NUMEROUS CROSS REFERENCES TO PAY ROLLS AND TO REIMBURSEMENT VOUCHERS.

WHEN AN EMPLOYEE HAS ACCUMULATED TO HIS CREDIT IN THE ACCOUNT IN QUESTION SUFFICIENT FUNDS TO PURCHASE THE DESIRED BOND, HIS NAME WILL BE PLACED ON A LIST BY THE CONTRACTOR AND THIS LIST WILL BE FORWARDED TO THE CONTRACTING OFFICER, OR THE OFFICER DESIGNATED BY HIM, TOGETHER WITH A CHECK FOR COUNTER-SIGNATURE, SUFFICIENT TO COVER THE PURCHASE OF THE LISTED BONDS. THE CONTRACTING OFFICER, OR THE OFFICER DESIGNATED BY HIM, WILL COUNTERSIGN THE CHECK AND FORWARD IT TO THE FEDERAL RESERVE BANK ON WHICH IT IS DRAWN. THE FEDERAL RESERVE BANK WILL HANDLE THE ACTUAL PURCHASE OF THE BONDS AND WILL FORWARD THE BONDS TO THE EMPLOYEE AT THE ADDRESS INDICATED ON THE LIST. A COMMUNICATION FROM THE TREASURY DEPARTMENT INFORMS ME THAT THE FEDERAL RESERVE BANK WILL HANDLE THESE BONDS BY REGISTERED MAIL, WITHOUT EXPENSE TO THE CONTRACTOR OR EMPLOYEE.

INASMUCH AS THERE IS CONSIDERABLE DEMAND THROUGHOUT THE COUNTRY FOR THE INSTITUTION OF THIS PLAN, IT IS REQUESTED THAT AT THE EARLIEST POSSIBLE DATE YOU INDICATE WHETHER THE COURSE DESCRIBED WILL PERMIT IMMEDIATE REIMBURSEMENT OF THE CONTRACTOR AS SOON AS THE PAY-ROLL DEDUCTIONS ARE DEPOSITED AS ABOVE SET FORTH.

IT WAS HELD IN THE DECISION OF JUNE 9, 1941 (20 COMP. GEN. 865), IN PERTINENT PART, QUOTING FROM THE SYLLABUS, AS FOLLOWS:

ACTUAL CONTRIBUTIONS BY A COST-PLUS-A-FIXED-FEE CONTRACTOR TO A VOLUNTARY RETIREMENT FUND FOR ITS EMPLOYEES--- AS DISTINGUISHED FROM MERE BOOK ENTRIES AS AN ACCRUED LIABILITY--- MAY BE REGARDED AS A REIMBURSABLE ITEM OF COST WITHIN THE MEANING OF TREASURY DECISION 5,000 CONTROLLING AMOUNTS PAYABLE UNDER THE CONTRACT, WITH THE UNDERSTANDING THAT, IF THE RETIREMENT PLAN IS DISCONTINUED BY AN EMPLOYEE, THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY REFUNDS TO THE CONTRACTOR OF CONTRIBUTIONS FOR WHICH THE GOVERNMENT HAD PREVIOUSLY REIMBURSED THE CONTRACTOR.

SUCH HOLDING WAS MADE FOR THE REASON THAT UNDER THE TERMS OF THE COST- PLUS-A-FIXED-FEE CONTRACT INVOLVED, AS WELL AS UNDER THE TERMS OF THE APPROVED STANDARD FORMS OF OTHER COST-PLUS-A-FIXED-FEE CONTRACTS, IT WAS CONTEMPLATED THAT REIMBURSEMENT WOULD BE MADE BY THE GOVERNMENT TO THE CONTRACTOR FOR ONLY ACTUAL EXPENDITURES IN CONNECTION WITH THE PERFORMANCE OF WORK THEREUNDER, AS DISTINGUISHED FROM ANTICIPATED OR ACCRUED LIABILITIES. THE AMOUNT CLAIMED ON THE VOUCHER CONSIDERED IN SAID DECISION REPRESENTED REIMBURSEMENT FOR ACCRUED MONTHLY CONTRIBUTIONS WHICH WERE MADE BY THE CONTRACTOR TO THE RETIREMENT FUND OF ITS EMPLOYEES, AND IT APPEARED THAT WHILE THE CONTRIBUTIONS ACCRUED ON A MONTHLY BASIS ACTUAL PAYMENT THEREOF WAS MADE BY THE CONTRACTOR ON A QUARTERLY BASIS.

HOWEVER, UNDER THE PLAN AS DESCRIBED IN YOUR LETTER OF FEBRUARY 13, 1942, SUPRA, WHICH HAS BEEN DESIGNED FOR THE PURPOSE OF ENABLING THE EMPLOYEES OF COST-PLUS-A-FIXED-FEE CONTRACTORS TO PARTICIPATE IN THE PURCHASE OF NATIONAL DEFENSE BONDS, IT APPEARS THAT EACH EMPLOYEE IS TO AUTHORIZE THE DEDUCTION OF A CERTAIN AMOUNT FROM HIS WEEKLY WAGES, WHICH WILL OTHERWISE BE DUE AND PAYABLE TO HIM BY THE CONTRACTOR. IT FURTHER APPEARS THAT THE AMOUNT THUS DEDUCTED IS TO BE DEPOSITED IMMEDIATELY BY THE CONTRACTOR INTO A SPECIAL ACCOUNT FROM WHICH ACCOUNT WITHDRAWALS ARE TO BE PERMITTED ONLY BY CHECKS DRAWN BY THE CONTRACTOR AND COUNTERSIGNED BY THE CONTRACTING OFFICER, OR HIS AUTHORIZED REPRESENTATIVE, AND ONLY FOR THE PURPOSE OF PURCHASING DEFENSE BONDS FOR THOSE EMPLOYEES TO WHOSE CREDIT AN AMOUNT SUFFICIENT FOR THE PURCHASE OF A BOND HAS ACCRUED, OR FOR THE PURPOSE OF REFUNDING SUCH DEDUCTIONS TO EMPLOYEES ENTITLED THERETO. CONSEQUENTLY, WHILE UNDER SUCH PLAN THE CONTRACTOR MAY NOT MAKE FULL PAYMENTS TO THE EMPLOYEES THEMSELVES OF THE TOTAL AMOUNT OF THE ACCRUED WEEKLY WAGES DUE TO EACH, THE CONTRACTOR IS TO MAKE AN ACTUAL EXPENDITURE OF THE FULL AMOUNT OF THE WAGES SHOWN ON THE PAY ROLLS IN THAT THE AMOUNT WITHHELD FROM PAYMENTS TO THE EMPLOYEES IS TO BE DEPOSITED BY THE CONTRACTOR INTO THE SPECIAL ACCOUNT, WHICH IS TO BE SUBJECT TO CONTROL BY THE CONTRACTING OFFICER. HENCE TO ALL INTENTS AND PURPOSES THE DEPOSIT WILL CONSTITUTE AN ACTUAL PAYMENT TO THE EMPLOYEES INSOFAR AS THE CONTRACTOR IS CONCERNED. THEREFORE, THE PLAN AS DESCRIBED IN YOUR LETTER OF FEBRUARY 13, 1942, SUPRA, IS CLEARLY DISTINGUISHABLE FROM THE SITUATION WHICH WAS PRESENT IN THE CASE CONSIDERED IN 20 COMP. GEN. 865, SUPRA, IN THAT IN THE LATTER CASE WHILE CONTRIBUTIONS TO THE RETIREMENT FUND ACCRUED ON A MONTHLY BASIS NO ACTUAL PAYMENTS WERE MADE BY THE CONTRACTOR, EITHER TO THE RETIREMENT FUND OR OTHERWISE, UNTIL THE EXPIRATION OF EACH QUARTER.

ACCORDINGLY, I HAVE TO ADVISE THAT, IN ORDER TO PERMIT THE INSTITUTION OF THE PLAN DESCRIBED IN YOUR LETTER, THIS OFFICE WILL NOT OBJECT TO THE REIMBURSEMENT OF COST-PLUS-A-FIXED-FEE CONTRACTORS OF THE FULL AMOUNT OF WAGES DUE AND PAYABLE TO THEIR EMPLOYEES AT THE TIME THE PAY ROLL DEDUCTIONS FOR THE PURCHASE OF DEFENSE BONDS ARE MADE AND DEPOSITED, PROVIDED, AS SUGGESTED IN YOUR LETTER, THERE BE ATTACHED TO EACH PAY ROLL INVOLVED A DEPOSIT SLIP SIGNED BY AN OFFICIAL OF THE BANK IN WHICH THE DEPOSITS HAVE BEEN MADE SHOWING THAT THE AMOUNT DEDUCTED HAS BEEN CREDITED IN THE CONTRACTOR'S " ACCOUNT FOR THE PURCHASE OF NATIONAL DEFENSE BONDS.' HOWEVER, THE PAY ROLLS SHOULD CONTAIN, ALSO, A STATEMENT OF THE CONTRACTING OFFICER, OR HIS DULY AUTHORIZED REPRESENTATIVE, THAT DEPOSIT OF THE DEDUCTIONS HAS BEEN VERIFIED. FURTHERMORE, IT IS TO BE UNDERSTOOD THAT NECESSARY STEPS WILL BE TAKEN BY YOUR DEPARTMENT TO INSURE THAT THE GOVERNMENT WILL RECEIVE THE BENEFIT OF ANY AMOUNTS REMAINING IN THE SPECIAL ACCOUNT WHICH HAVE NOT BEEN USED EITHER FOR THE PURCHASE OF DEFENSE BONDS OR FOR MAKING REFUNDS TO THE EMPLOYEES, AND THAT, UPON COMPLETION OF EACH CONTRACT, THERE WILL BE FURNISHED A STATEMENT SHOWING WHAT DISPOSITION WAS MADE OF ANY SUCH UNEXPENDED BALANCE WHICH REMAINED IN THE SPECIAL ACCOUNT. SEE 20 COMP. GEN. 865, SUPRA. ..END :