BNUMBER: B-257905
DATE: December 26, 1995
TITLE: Appropriation Accounting-Refunds and
Uncollectibles
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Matter of:Appropriation Accounting-Refunds and Uncollectibles
File: B-257905
Date: December 26, 1995
DIGEST
1. Recoveries of amounts paid under a fraudulent contract constitute
"refunds" that may be deposited to the credit of the appropriation
charged with the payments until the appropriation account is closed.
Once the account is closed, recoveries should be deposited to the
general fund of the Treasury to the credit of the appropriate receipt
account. 31 U.S.C. 1552(b) (1994).
2. A loss in an accountable official's account should be adjusted in
accordance with the requirements of the laws governing the adjustments
of their accounts. Thus the appropriation current at the time relief
is granted to the accountable official, or if relief is not granted,
current at the time the debt is determined to be uncollectible, should
be charged with the loss.
DECISION
This decision is in response to questions from the Central
Intelligence Agency's (CIA) Office of General Counsel about (1)
whether the CIA may deposit the amounts recovered from an embezzler to
the credit of the appropriation against which the improper payments
were initially charged under a fraudulent contract, and (2) whether
the CIA is required to charge the amount of any unrecovered payments
against current appropriations at the time it writes off the debt.
The debt arose as a result of payments to a former employee on a
fraudulent contract that was obligated against a prior year
appropriation. After discovering the fraud, the CIA sought to recover
the payments from the former employee. It may not be possible to
recover the entire debt and some portion of the receivable may have to
be written off as uncollectible. The CIA has also advised this Office
that the fraudulent contract payments remain a charge against the
prior year appropriation.
For the reasons given below, the CIA may deposit recoveries of
fraudulent payments to the credit of the appropriation charged with
the payments unless that appropriation account has been closed. If
the appropriation has been closed, any recoveries should be deposited
to the general fund of the Treasury to the credit of the appropriate
receipt account. 31 U.S.C. 1552(b) (1994). To the extent the debt
is written off as uncollectible and an adjustment is made to restore
the account from which the fraudulent payment was made, an
appropriation current at the time of the adjustment should be charged.
31 U.S.C. 3527(d) (1994).
Background
Article 1, sec. 9, cl. 7 of the Constitution provides that "No Money
shall be drawn from the Treasury, But in Consequence of Appropriations
made by law. . . ." This provision was intended as a restriction on
the disbursing authority of the executive branch, Cincinnati Soap Co.
v. United States, 301 U.S. 321 (1936), that is, to preclude
expenditures of funds from the Treasury except as authorized by the
Congress. This authorization is provided through various legislative
enactments denoted as "appropriations". Once an appropriation is
enacted, it is usually made available to the agency to spend through
the apportionment and allotment process.[1]
Generally, accounting for the use of appropriations occurs in a
sequential order. Apportionments authorized by the Office of
Management and Budget (for executive branch agencies) are charged to
related appropriations. Authorized allotments are charged to the
apportionment and obligations are charged to the related
allotments.[2] Obligations, such as purchase orders tendered or
contracts entered into, constitute a formal charge for which an agency
expects to expend funds. Recording the obligation reduces the
unobligated portion of the allotment that is available for incurring
obligations. As a contract is performed and payments made, the
obligation is liquidated without effecting the charges to the
allotment. Payments are generally intended to equal the related
obligation. However, when payments total either more or less than the
amount obligated, the allotment is adjusted. The allotment balance is
increased if the total payment is less than the amount obligated and
is reduced if the total payment is more than amount obligated.[3] The
allotment balance should reflect the actual amount of payments charged
to the allotment, and thus also charged to the appropriation. These
budgetary accounting procedures are intended to ensure that government
agencies and officials comply with the limits on their authority to
spend funds as set forth in appropriation acts.[4]
Appropriations are available only for the objects or purposes for
which they are made, 31 U.S.C. 1301(a) (1994), which means that they
are available for all expenses reasonably necessary to accomplish
those objects or purposes. (58 Comp. Gen. 667 (1979)). The fact that
money is paid out of the Treasury does not mean that the expenditure
is a proper charge against an appropriation. When it is discovered
that improper payments are made under a recorded obligation, agencies
will institute actions to recover the improper payments from the
recipient. The questions presented here concern the proper accounting
for amounts recovered, or determined to be uncollectible, by the
agency.
Deposit Requirements
As a general rule all funds received for the use of the United States
must be deposited in the general fund of the Treasury to the credit of
the appropriate receipt account,[5] unless deposit to the credit of an
appropriation or other fund account is authorized by law. 31 U.S.C.
3302 (1994). One exception to this rule is that an agency may retain
receipts that qualify as "refunds". Refunds may be deposited to the
credit of the appropriation against which the payment was charged
rather than to a general fund receipt account. If the appropriation
account charged with the payment has expired, but has not yet closed,
the refund is deposited to the credit of the expired account where it
is available for recording or adjusting obligations properly incurred
before the appropriation expired. 71 Comp. Gen. 502, 504-507 (1992);
B-217913.2, Feb. 19, 1993.[6] Once the appropriation account has been
closed, refunds should be deposited to the general fund of the
Treasury to the credit of the appropriate miscellaneous receipt
account. 31 U.S.C. 1552(b) (1994).[7] Thus, in theory, the
unobligated balance of the appropriation account after the refund
should be what it would have been had the amount of the obligation
covered by the refund not been improperly paid.
"Refunds" are returns of advances, collections for over payment made,
adjustments for previous amounts disbursed, or recovery of erroneous
disbursements from appropriation or fund accounts that are directly
related to, and are reductions of, previously recorded payments from
the accounts. See, GAO, Policy and Procedures Manual for Guidance of
Federal Agencies (GAO-PPM), title 7, 5.4, (TS 7-43, May 18,
1993), 31 U.S.C. 1552(b).[8] Recoveries of payments made under a
fraudulent contract that have been, and remain, charged to an
allotment/appropriation account under the CIA's accounting records,
constitute "refunds." The recovered payments may be deposited to the
credit of the allotment/appropriation against which the payments
previously were charged since they are recoveries of improper
disbursements that are directly related to a previously recorded
payment from the allotment/appropriation account.
Accounting for Receivable Write Off
If recovery cannot be made from an individual who has received an
"overpayment," the responsible certifying, disbursing or other
accountable official of the government is personally liable for
repayment unless relieved of liability under one of several provisions
of law. See, e.g., 31 U.S.C. 3527, 3528 (1994).[9] If relief is
granted, adjustments are made to restore any shortage in an account or
fund by charging appropriations current at the time the adjustment is
made and not the fiscal year in which the loss occurred. 31 U.S.C.
3527(d), 10 U.S.C. 2777(b) (1994).[10] However, if relief is
inappropriate because the loss is the result of the fault or
negligence of the accountable official or agent, and the head of the
agency determines that the debt is uncollectible, the appropriation or
fund currently available for the expense of the accountable function
is charged with the amount necessary to adjust the account. 31 U.S.C.
3530(a) (1994).[11] Thus, regardless of when the debts are written
off as uncollectible, an adjustment to restore a shortage in an
account or fund should be made by charging an appropriation current at
the time of the adjustment.
/s/Robert P. Murphy
for Comptroller General
of the United States
1. 31 U.S.C. 1512, 1514, 1517 (1994). See also Office of
Management and Budget Circular No. A-34, Revised, August 1985.
2. 31 U.S.C. 1501 (1994) sets forth the criteria for recording
obligations against appropriations.
3. Allotments are also adjusted to reflect upward or downward
adjustments to obligations prior to payment when the amount of changes
are known prior to payment.
4. The discussion in this decision focuses primarily on the budgetary
aspects of accounting. Agencies are required to record all
transactions in the United States Government Standard General Ledger
(SGL). See GAO, Policy and Procedures Manual for Guidance of Federal
Agencies, Title 2 , Appendix III, chapter 2 (TS 2-25, August 1987) and
Office of Management And Budget Circular No. A-127 (Revised), (July
23, 1993). The SGL contains two complete and separate, but
integrated, self-balancing sets of accounts-budgetary and proprietary.
Budgetary accounts are used to recognize and track budget approval and
execution, whereas proprietary accounts are used to recognize and
track assets, liabilities, revenues, and expenses.
5. See Volume I Treasury Financial Manual (TFM) 2-1500 and the
supplement to I TFM entitled "Federal Account Symbols and Titles",
Part I-Receipt Account Symbols and Titles, for a listing of various
general fund receipt accounts for accounting purposes.
6. Of course, should the agency for reasons of economy choose not to
deposit the refund to the credit of the appropriation, then it must be
deposited to the general fund of the Treasury to the credit of the
appropriate receipt account. 73 Comp. Gen. 210 (1994).
7. See 73 Comp. Gen. 338 (1994); 72 Comp. Gen. 343, 346-347 (1993),
regarding the adjustment of records relating to closed accounts.
8. 7 GAO-PPM 5.4 is based on the Treasury Department-General
Accounting Office Joint Regulation No. 1, September 22, 1950 that is
set forth in Appendix II of 7 GAO-PPM. Examples of excess payments
that qualify as "refunds" set forth in earlier versions of title 7
include collections for (1) payments in error, (2) over payment, (3)
recoveries on suspension or disallowances made as a result of audits,
and (4) any amounts collected in excess of what is actually due under
contracts as adjusted for final settlement. See, 7 GAO-PPM
3050.30b. (TS 7-7, October 15, 1958).
9. Relief from liability for the physical loss or deficiency in the
account of an accountable official or agent are authorized under 31
U.S.C. 3527(a). We note that cases of fraud or embezzlement are
normally treated as physical losses for purpose of the relief
statutes. B-202074, July 21, 1983.
10. In cases where agencies are authorized to grant relief without the
involvement of this Office, they may exercise the restoration
authority without our involvement. 7 GAO-PPM 8.14.C.
11. Assuming the statutory conditions are met, adjustments under 31
U.S.C. 3530 are made directly by the agency with no need for
specific authorization or concurrence from GAO. 7 GAO-PPM 8.14.D.
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