Regulations Governing FedSelect Checks

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 247

RIN 1510-AA44

Regulations Governing FedSelect Checks

AGENCY: Treasury, Fiscal, Financial Management Service.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This rulemaking proposes new regulatory text for 31 CFR Part

247 to govern the use of FedSelect checks, a new payment instrument for

use by Federal agencies in paying Federal obligations. This rulemaking

sets forth procedural instructions for using FedSelect checks, and

defines the rights and liabilities of the Federal Government, Federal

Reserve Banks, and depositary institutions in connection with FedSelect

checks.

DATES: Comments must be received on or before November 21, 1994.

ADDRESSES: All comments on this proposed rule should be addressed to

Mr. John Galligan, Director, Cash Management Policy and Planning

Division, Financial Management Service, 401 14th Street, SW, Room 511,

Washington, D.C. 20227.

FOR FURTHER INFORMATION CONTACT: Mr. John Galligan, Director, Cash

Management Policy and Planning Division, 202-874-6935; or Mr. Brad

Ipema, Principal Attorney, 202-874-6680.

SUPPLEMENTARY INFORMATION: The Financial Management Service, U.S.

Department of the Treasury (FMS), currently offers Federal agencies two

payment mechanisms for paying Federal obligations. A Federal agency may

either request the issuance of a Treasury check or the initiation of an

electronic funds transfer. However, the FMS will soon be making

available to Federal agencies a third payment option called FedSelect,

a new check instrument to be used with imprest fund transactions and

other ``on-demand'' payment needs. The preferred method of payment is

electronic. However, FedSelect is the FMS's response to customer needs

for a new paper instrument and is to be used only when checks are

deemed appropriate and consistent with FMS policy.

Federal agencies that use the new payment instrument will be given

a supply of FedSelect checks, on Federal Reserve Bank check stock,

which are drawn on a Federal Reserve Bank in its banking capacity,

rather than the United States Treasury. Federal agencies will be able

to issue the FedSelect checks on site in payment for United States

obligations.

These proposed regulations set forth procedural instructions for

using FedSelect checks, and define the rights, responsibilities, and

liabilities of the Federal Government, Federal Reserve Banks, and

financial institutions in connection with FedSelect checks. These rules

for FedSelect checks differ from those applying to Treasury checks in

three important ways. First, FedSelect checks will be negotiable for 90

or 120 days, whereas Treasury checks are payable for 1 year after

issuance. Second, Federal agencies can at their own discretion stop

payment on a FedSelect check. Stop payment orders generally are not

available on Treasury checks. Third, the regulations governing Treasury

checks are inapplicable to FedSelect checks, unless otherwise provided

by statute or this proposed rule. In all matters not addressed by these

proposed regulations, FedSelect checks will be governed by the Uniform

Commercial Code, as drafted by the National Conference of Commissioners

on Uniform State Laws, and by Regulation J (12 CFR Part 210) and

Regulation CC (12 CFR Part 229) of the Board of Governors of the

Federal Reserve.

FMS invites comments regarding the possibility of referencing

within either this regulation or the Treasury Financial Manual a

standard dollar limit of $10,000, with $25,000 exceptions by permission

of FMS, above which a FedSelect check could not be issued by an agency.

This limit is being considered to be consistent with FMS's electronic

payment policies as contained within 31 CFR Part 206 and to minimize

losses to agencies arising from negligence, forgeries, counterfeiting,

and alterations. FMS requests that comments on this matter include any

foreseen (positive or negative) effects of limiting the dollar amount

of FedSelect checks, including whether a dollar limit would encourage

an agency to participate in the FedSelect check program.

Rulemaking Analysis

It has been determined that this regulation is not a significant

regulatory action as defined in E.O. 12866. Therefore, a regulatory

assessment is not required. It is hereby certified that this regulation

will not have a significant economic impact on a substantial number of

small entities. A regulatory flexibility analysis is not required. It

is anticipated that FedSelect checks will not negatively affect a

substantial number of small entities because of the relatively low

volume of checks to be issued in comparison to the use of other payment

mechanisms by Federal agencies.

Notice and Comment

Public comment is solicited on all aspects of this proposed rule.

The FMS will consider all comments made on the substance of this

proposed rule, but does not intend to hold hearings on it.

List of Subjects in 31 CFR Part 247

Banks, Banking, Checks, Federal Reserve System.

Issuance

For the reasons set forth in the preamble, it is proposed to add 31

CFR part 247 to read as follows:

PART 247--REGULATIONS GOVERNING FEDSELECT CHECKS

Sec.

247.1 Applicability.

247.2 Governing law.

247.3 Definitions.

247.4 Federal Reserve Banks.

247.5 Federal agencies and termination of services.

247.6 Depositary institutions and presenting banks.

247.7 Certification and internal agency control.

247.8 Presentment.

247.9 Presentment warranties.

247.10 Notice and replacement--non-receipt, theft, loss or

destruction; late presentment.

247.11 Losses and accountability.

247.12 Debt collection.

247.13 Funds for losses.

247.14 Additional requirements.

247.15 Waiver of regulations.

247.16 Supplements, amendments or revisions.

Authority: 12 U.S.C. 391; 31 U.S.C. Chapter 33.

Sec. 247.1 Applicability.

The regulations in this Part prescribe the rights and liabilities

of the United States, the Federal Reserve Banks, depositary

institutions, and others on FedSelect checks. These regulations apply

to FedSelect checks issued on behalf of the United States for payments

in connection with United States obligations. FedSelect checks are

issued by Federal agencies on Federal Reserve Bank check stock.

FedSelect checks are drawn on the payor Federal Reserve Bank in its

banking capacity. The drawer of a FedSelect check is the United States;

the drawee is a Federal Reserve Bank. Therefore, a FedSelect check

shall not be deemed to be drawn on the United States nor shall the

Federal Reserve Bank be deemed its drawer.

Sec. 247.2 Governing law.

Except as otherwise provided by statute or this Part, the

regulations governing checks drawn on the United States or on

designated depositaries of the United States (e.g., 31 CFR Parts 235,

240, 245, and 248) are inapplicable to FedSelect checks. As to

definitions and other matters not specifically covered in this Part,

FedSelect checks are governed by Regulation J of the Board of Governors

of the Federal Reserve System, 12 CFR Part 210 (``Regulation J''),

Regulation CC of the Board of Governors of the Federal Reserve System,

12 CFR Part 229 (``Regulation CC''), and to the extent not otherwise

inconsistent with these regulations, Regulation J, and Regulation CC,

the Uniform Commercial Code (``U.C.C.''), as drafted by the National

Conference of Commissioners on Uniform State Laws, as all three may

from time to time be revised. Such matters include, but are not limited

to, rules regarding general presentment and transfer warranties (as

modified herein), indorsement, and final payment.

Sec. 247.3 Definitions.

For the purpose of this Part:

Agency means a department, agency, or instrumentality in the

executive branch of the United States Government.

Bank means a depositary institution.

Department means the United States Department of the Treasury.

Depositary institution means an entity described in section 19(b)

of the Federal Reserve Act (12 U.S.C. 461(b)) as a ``Depository

institution,'' as may be amended from time to time.

FedSelect check means a check drawn upon a Reserve Bank with the

designation ``FedSelect'' printed on the check.

Payee means the person to whom a FedSelect check is payable.

Payor Reserve Bank means the Reserve Bank on which a FedSelect

check is drawn.

Presenting bank means a depositary institution which sends a

FedSelect check directly to a Reserve Bank for payment or collection.

Reserve Bank or Federal Reserve Bank means any Federal Reserve Bank

or any branch of a Federal Reserve Bank.

Sec. 247.4 Federal Reserve Banks.

(a) Where FedSelect checks are issued on Reserve Bank check stock

and drawn on the payor Reserve Bank in its banking capacity, the payor

Reserve Bank shall perform certain functions as fiscal agent of the

United States in the issuing, processing and final payment of FedSelect

checks. A payor Reserve Bank shall act as fiscal agent of the United

States on FedSelect checks only when authorized to do so by a

Memorandum of Understanding between the Financial Management Service,

U.S. Department of the Treasury (FMS), and the payor Reserve Bank.

(b) The payor Reserve Bank shall perform functions related to

FedSelect checks as described in the Treasury Financial Manual (TFM),

Volume II, Chapter 5000, entitled ``Payment And Processing of FedSelect

Checks by Federal Reserve Banks,'' as issued by the FMS. Copies of the

TFM are available free to Government agencies. Others who are

interested in ordering a copy may call (202) 874-9940 or write the

Directives Management Branch, Financial Management Service, Room 5C16,

3700 East-West Highway, Hyattsville, Maryland 20782 for further

information. Revisions to the TFM are issued as Bulletins and/or

Transmittal Letters and are mailed to subscribers.

(c) As authorized by a Memorandum of Understanding between a payor

Reserve Bank and the FMS and in accordance with this Part and

instructions in the Treasury Financial Manual, the payor Reserve Bank

shall pay to presenting banks amounts specified in a FedSelect check

upon presentment of the FedSelect check through normal banking

channels. Each payor Reserve Bank may issue operating circulars,

letters or bulletins not inconsistent with this Part governing details

of its handling of payments under this Part.

Sec. 247.5 Federal agencies and termination of services.

(a) Agencies may issue FedSelect checks in payment for United

States obligations.

(b) Issuance of a FedSelect check by an agency in payment of an

obligation shall constitute an agreement between the issuing agency and

the FMS. The issuing agency shall adhere to the terms of the agreement,

including those relating to fees for services provided by the FMS, as

expressed in this Part and in the Treasury Financial Manual, Volume I,

Part 4, Chapter 3500 (I TFM 4-3500), entitled ``Issuance Of FedSelect

Checks By Federal Agencies.''

(c) In addition to the provisions of this Part, agencies issuing

FedSelect checks shall adhere to instructions, contained in I TFM 4-

3500, regarding items such as procedures for opening and closing

FedSelect accounts with the FMS, procedures for the adjustment of

agency FedSelect accounts where losses are the responsibility of the

agency, procedures for the adjustment of agency FedSelect accounts in

cases of termination of FedSelect services by the FMS, and performance

requirements in the issuance of FedSelect checks.

(d) When an agency fails to adhere to the provisions of this Part

or to the instructions contained in I TFM 4-3500, the FMS, at its

discretion, may terminate the services of FedSelect checks. The FMS

shall provide the agency with prior notification of the date on which

services will be terminated.

Sec. 247.6 Depositary institutions and presenting banks.

(a) A depositary institution's acceptance of a FedSelect check

issued pursuant to this Part shall constitute its agreement to the

provisions of this Part.

(b) Each depositary institution by its action of handling a

FedSelect check shall be deemed to warrant to the Federal Government

that it has handled the FedSelect check in accordance with the

requirements of the Uniform Commercial Code (UCC) and this part,

including the presentment warranties described in Sec. 247.9.

Sec. 247.7 Certification and internal agency control.

(a) A FedSelect check is not a check drawn on the United States

Treasury. However, where the drawer of a FedSelect check is the United

States, the requirements and procedures for disbursing and certifying

activities under 31 U.S.C. 3321 apply to agency accountable officers

issuing FedSelect checks.

(b) FedSelect checks shall be drawn by an individual who is duly

authorized by the agency, and shall be certified by a certifying

officer.

(c) When an agency issues a FedSelect check in payment of a United

States obligation, such agency certifies the issuance of the payment

contemporaneous to the issuance of the FedSelect check. Therefore,

where FedSelect checks are issued through an automated system,

certification occurs through the on-line data transfer between the

agency issuing a FedSelect check and the FMS.

(d) Agencies shall ensure that there are proper internal controls

over the issuance of FedSelect checks, including payment authorization,

check issuance, and reconciliations. Payment authorization is the

process by which vouchers or invoices are approved for payment by

individuals designated to do so by the head of the agency, or their

designees. Check issuance is the physical issuance of a FedSelect check

in payment of a duly approved voucher or invoice. Reconciliation is the

process by which amounts authorized for payment are verified against

amounts of checks issued.

Sec. 247.8 Presentment.

(a) Presentment of FedSelect checks must be made to the payor

Reserve Bank. FedSelect checks must be presented through normal banking

channels.

(b) FedSelect checks may have different periods of payability

depending on the agencies' requirements. The standard period of

payability will be 90 days. However, at the request of an agency to the

FMS, the payability of a FedSelect check may be increased to 120 days.

(c) FedSelect checks shall bear a pre-printed legend, ``Void After

90 Days,'' or ``Void After 120 Days.''

(d) When an outstanding FedSelect check reaches its stale-date, a

cancellation indicator will be placed against it and its status

reflected as canceled due to stale-dating. A payor Reserve Bank will

refuse to pay a FedSelect check presented to the bank of first

presentment more than the number of days stated on the FedSelect check.

A FedSelect check not timely presented should be surrendered by the

holder to the payor Reserve Bank as a non-cash item. The issuance of

another FedSelect check to replace a lost, stolen, or destroyed

FedSelect check must be made in accordance with Sec. 247.10.

Sec. 247.9 Presentment warranties.

(a) Presenting banks and indorsers of the FedSelect check are

deemed to guarantee that all prior indorsements are genuine, whether or

not an express guaranty is placed on the FedSelect check. When the

first indorsement has been made by one other than the payee personally,

the presenting bank and the indorsers are deemed to guarantee, in

addition to other warranties, that the person who so indorsed had

unqualified capacity and authority to indorse the check on behalf of

the payee.

(b) A presenting bank makes the warranties required of a sender

under Subpart A of 12 CFR part 210 (Regulation J). This section does

not limit any warranty by a presenter or other party arising under

State law. Neither the Department, an agency nor a Reserve Bank is

barred from recovering on a breach of warranty solely because:

(1) The negligence of the Department, an agency or of a Reserve

Bank, as fiscal agent, had contributed to a fraudulent indorsement or

material alteration;

(2) The Department, an agency or a Reserve Bank, as fiscal agent,

had failed to discover promptly an unauthorized signature or

alteration;

(3) An imposter had fraudulently caused the issuance of a FedSelect

check in the name of any existing payee or fictitious payee; or

(4) An employee of the Department, an agency or a Reserve Bank, as

fiscal agent, had caused the fraudulent issuance of a FedSelect check

in the name of any existing payee or fictitious payee.

(c) In the event of a breach of warranty, the payor Reserve Bank

may either return the item to the presenting bank or send to the

presenting bank notice of the breach. If, upon receipt of the returned

check or notice of the breach, the presenting bank does not make prompt

restitution, the Department, an agency or the payor Reserve Bank may

begin appropriate collection procedures.

Sec. 247.10 Notice and replacement--non-receipt, theft, loss or

destruction; late presentment.

(a) If an agency has notice that a FedSelect check is not received

by the payee within a reasonable time after a payment is due, or that a

FedSelect check is lost, stolen or destroyed, the agency must request

to the FMS that a stop payment order be placed on that item. The notice

may be given by telephone or facsimile, but if it is given by

telephone, such notice must be confirmed in writing before another

payment is issued. The notification must contain sufficient information

to identify the account and/or the obligation to which the payment is

related. Payment on a FedSelect check is stopped if the notice of non-

receipt, loss, theft, or destruction is received from the agency at

such time and in such manner as to afford the payor Reserve Bank and

the FMS a reasonable opportunity to act on it prior to final payment,

as provided by applicable law. Once a stop payment order has been

placed against an outstanding FedSelect check, such stop payment order

will not be removed.

(b) The agency that issued the FedSelect check will issue another

FedSelect check to replace a lost, stolen or destroyed FedSelect check,

or other form of payment, at its discretion. Items an agency may

require before issuing another FedSelect check include:

(1) Written confirmation that the original FedSelect check was

lost, stolen, or destroyed;

(2) Confirmation from the FMS that the original FedSelect check is

unpaid;

(3) A determination that recovery of the original FedSelect check

is unlikely; and

(4) An indemnification agreement executed by the payee and/or

indorsee.

(c) If a payor Reserve Bank refuses payment on a FedSelect check

solely as a result of Sec. 247.8(c), the agency that issued the

original FedSelect check may issue, at its discretion, another

FedSelect check, or other form of payment, to a payee or holder upon

surrender of the original FedSelect check and execution of such

indemnification agreement as may be required by the agency.

(d) Upon verification of the existence of a forged or unauthorized

indorsement on a FedSelect check which has been finally paid, the

agency that issued the original FedSelect check may issue, at its

discretion, another FedSelect check or other form of payment to the

person entitled. Disputes as to any continuing obligations for payment

remain between the agency that issued the payment and the payee. Prior

to the issuance of another FedSelect check, the payee or indorsee of

the original FedSelect check may be required to execute an affidavit

asserting that the payee or indorsee was in no way involved in the

fraudulent or unauthorized indorsement of the original FedSelect check,

in addition to any indemnification agreement required by the agency.

(e) In the case of a FedSelect check payable to the order of two or

more persons, the requirements of this section apply to all designated

payees.

Sec. 247.11 Losses and accountability.

(a) Agencies will be accountable for all losses arising out of

agency activity related to the issuance of FedSelect checks. Such

activities include negligence, fraud perpetrated by an employee or

agent of the agency, and fraud perpetrated by a service-provider or

vendor receiving a FedSelect check as payment.

(b) If an agency had notice that a FedSelect check was not received

by the payee within a reasonable time after a payment is due, or that a

FedSelect check is lost, stolen or destroyed, and the agency failed to

request to the FMS that a stop payment order be placed on that item

pursuant to Sec. 247.10(a), the agency will be accountable for any loss

occurring as a result of the failure to request stop payment in a

timely fashion.

(c) Losses caused by the fault or negligence of the FMS will be the

accountability of the FMS. Such losses include failure to adhere to a

request by an agency to place a stop payment order on an item in

accordance with Sec. 247.10(a).

(d) The FMS will be accountable for losses caused by third-parties,

including losses caused by alteration, counterfeit and forgery of the

payee indorsement, unless such losses occur as described in paragraphs

(a) and (b) of this section.

Sec. 247.12 Debt collection.

(a) Agencies are responsible for collection procedures on all

improperly paid items arising under the circumstances described in

paragraphs (a) and (b) of Sec. 247.11. However, excepting cases of

fraud, an agency should write off a debt and refer it to the FMS for

collection if it is not resolved within 90 days after the item was

paid. When the FMS collects on the debt, the funds will be returned to

the agency minus an administrative fee for the collection, in

accordance with rules set forth in I TFM 4-3500. Accountability for a

debt remains with the agency in accordance with Sec. 247.11.

(b) The FMS is responsible for collection procedures on all

improperly paid items arising under the circumstances described in

paragraphs (c) and (d) of Sec. 247.11. With all such items, the FMS

will make an initial demand for refund of the amount of a check payment

to the presenting bank or any other debtor. This demand shall advise

the presenting bank or debtor of the amount demanded and the reason for

the demand. All delinquent debts will be subject to interest, penalties

and administrative fees in accordance with the Federal Claims

Collections Standards. Any discrepancies should be brought to the

attention of the FMS.

Sec. 247.13 Funds for losses.

(a) If collection efforts by the FMS for debts arising under

paragraphs (c) and (d) of Sec. 247.11 are unsuccessful, sources of

funds for the payment of such losses include FMS appropriations, to the

extent available, funds collected from reimbursement fees for services

provided by the FMS pursuant to Sec. 247.5(b), and other available

sources.

(b) Reimbursement fees paid by agencies to the FMS for FedSelect

check services will be retained for payment of uncollectible losses,

consistent with all applicable laws.

Sec. 247.14 Additional requirements.

In any case or any class of cases arising under these regulations,

the FMS or the agency that issued the FedSelect check may require such

additional evidence of loss, improper indorsement or entitlement to

another payment may be necessary for the protection of the interests of

the United States.

Sec. 247.15 Waiver of regulations.

The FMS reserves the right to waive any provision(s) of these

regulations in any case or class of cases for the convenience of the

United States or in order to relieve any person(s) of unnecessary

hardship, if such action is not inconsistent with law, does not impair

any existing rights, and the FMS is satisfied that such action will not

subject the United States to any substantial expense or liability.

Sec. 247.16 Supplements, amendments or revisions.

The FMS may, at any time, prescribe supplemental, amendatory, or

revised regulations or revoke the regulations in this Part.

Dated: August 5, 1994.

Michael T. Smokovich,

Acting Commissioner.

[FR Doc. 94-25780 Filed 10-20-94; 8:45 am]

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