Appropriation Accounting-Refunds and Uncollectibles

B-257905 Dec 26, 1995 Jump To VIEW DECISION DOWNLOADS RELATED PAGES GAO CONTACTS Highlights The Central Intelligence Agency (CIA) requested a decision on whether it: (1) may deposit amounts recovered from an embezzler to the credit of the appropriation charged with the improper payments under a fraudulent contract; and (2) is required to charge the amount of any unrecovered payments against current appropriations at the time it writes off the debt. GAO held that: (1) refunds of fraudulent payments may be deposited to the credit of the appropriation charged with the improper payments until the appropriation account is closed; (2) once the appropriation is closed, CIA should deposit recoveries of fraudulent payments to the general Treasury fund to the credit of the appropriate receipt account; and (3) CIA should charge unrecovered payments against the appropriation current at the time that adjustments are made or the debt is determined to be uncollectible. View Decision Matter of: Appropriation Accounting-Refunds and Uncollectibles File: B-257905 Date: December 26, 1995 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. Sec. 1552(b) (1994). 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. Sec. 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. Sec. 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.