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.