Regulations Governing FedSelect Checks

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 247

RIN 1510-AA44

Regulations Governing FedSelect Checks

AGENCY: Financial Management Service, Fiscal Service, Treasury.

ACTION: Final rule.

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SUMMARY: The Financial Management Service, U.S. Department of the

Treasury, is issuing a final rule to govern FedSelect checks, a new

payment instrument for use by Federal agencies in paying Federal

obligations. This final rule sets forth procedural instructions for

using FedSelect checks, and defines the rights and liabilities of the

Federal Government, Federal Reserve Banks, and banks in connection with

FedSelect checks.

EFFECTIVE DATE: June 15, 1995.

FOR FURTHER INFORMATION CONTACT: Gary Garner, Program Analyst, Cash

Management Policy and Planning, 202-874-6751; or Brad Ipema, Principal

Attorney, 202-874-6680.

SUPPLEMENTARY INFORMATION: This portion of the preamble discusses the

basis and purpose of 31 CFR part 247. It also responds to comments on

the Financial Management Service's (FMS) notice of proposed rulemaking

(NPRM) on this subject issued October 21, 1994 (59 FR 53125). A notice

to extend the comment period for the notice of proposed rulemaking to

December 21, 1994 was issued November 28, 1994 (59 FR 60739).

The 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 is 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 as contained in 31 CFR part 206.

General Comments and Responses on the NPRM

The Department received eight written comments on the NPRM from

Federal agency officials and the financial community. One organization

expressed concern that the Government proposes direct competition to

the current third party draft industry. The Report of the National

Performance Review (NPR), September 1993, FM08, stated that since third

party drafts are like checks, agencies essentially pay someone else to

have a bank account for them. It was recommended that the Secretary of

the Treasury eliminate the use of third party drafts and allow the use

of commercial checking accounts. FedSelect grew out of this NPR

recommendation, with an FMS desire to offer an alternative to third

party drafts and improve customer services.

Several questions were raised regarding the operation of FedSelect.

One organization and one bank wanted to know whether existing Federal

Reserve bank routing numbers will be utilized on FedSelect checks.

FedSelect checks will be drawn on the Federal Reserve Bank of Chicago

and will bear that Reserve Bank routing number.

One organization requested identification of the types of

transactions for which FedSelect checks will be used. FedSelect checks

potentially may be used to pay all Government financial obligations;

e.g., benefit and vendor payments.

Two organizations wanted to know how many FedSelect checks will be

issued for each type of payment. It is undetermined at this time how

many checks will be issued for each type of payment.

One organization requested to know the types of persons and

entities that will be payees of such instrument. All types of persons

and entities doing business with the Government will be payees of such

instrument.

One organization wanted to know the start-up date of FedSelect. The

start-up date for FedSelect will be July through October 1995.

Two organizations requested that the FMS provide banks with sample

FedSelect checks so that their personnel can become familiar with them.

It will be recommended that area banks be provided sample FedSelect

checks by Federal agencies utilizing FedSelect checks in their

respective locale. This will allow bank personnel to become familiar

with the FedSelect checks.

Several organizations requested that the FMS describe plans to

prevent fraud losses due to counterfeiting, forgery and

[[Page 25991]] alterations. FedSelect checks will be fraud-evident

checks with built-in security features such as:

Chemical-sensitive paper that reveals attempts to alter

checks with solvents and ink eradicators.

Watermark paper that is visible when held to a light

source, and impossible to reproduce with a photocopier or scanner.

Micro-print signature line: Tiny type, visible when viewed

through a magnifying glass, which appears as a dotted line when

reproduced.

One organization recommended that the FMS initiate a nationwide

educational program to lessen the potential for confusion and

facilitate acceptance of FedSelect checks by banks. It will be

recommended that area banks be provided sample FedSelect checks by

Federal agencies utilizing FedSelect checks in their respective locale.

This will allow bank personnel to become familiar with FedSelect

checks. A nationwide educational program will not be provided at this

time.

One organization suggested that the FMS establish a FedSelect

``hotline'' to address banker concerns and/or questions regarding

FedSelect checks. A dedicated telephone number is provided on the face

of each FedSelect check to facilitate verification of FedSelect checks.

One organization recommended that a $5,000 standard dollar limit be

placed on FedSelect checks to minimize potential losses to banks, and

that the amount should be preprinted on the FedSelect check. FedSelect

checks will have a dollar limit of $10,000, which will be preprinted on

the FedSelect check. Federal agencies can request waivers for higher

amounts if their circumstances justify an increase above the $10,000

limit.

Section-by-Section Comments and Responses

Section 247.2

One organization requested changes in the language of this section

for purposes of clarity.

The words ``these regulations'' in Sec. 247.2 are changed to ``this

Part'' and other words are added for clarity. In addition, FedSelect

checks will not be governed by the Uniform Commercial Code (UCC), as

drafted by the National Conference of Commissioners on Uniform State

Laws, but will be governed by the UCC, as adopted by Illinois, and as

amended from time to time.

Section 247.3

One organization recommended that the term ``bank'' be used, as

defined in Regulation J of the Federal Reserve System, 12 CFR 210.2(b),

instead of ``depositary institution'' in order to achieve consistency

with the commercial law governing checks, (Regulation CC of the Federal

Reserve System, 12 CFR part 229; Regulation J of the Federal Reserve

System, 12 CFR part 210 and the UCC). The term ``bank'' is now used

instead of ``depositary institution.'' However, ``bank'' is defined as

it is defined in Regulation CC of the Federal Reserve System, 12 CFR

229.2(e).

In the definition of Reserve Bank, the phrase ``or any branch of a

Federal Reserve Bank'' was deleted and language was added clarifying

that ``Reserve Bank'' is limited to one of the twelve Reserve Banks in

order to conform with the manner of presentment identified in

Regulation CC, 12 CFR 229.36(b). Accordingly, FedSelect checks will not

be considered presented to the paying bank until they are presented to

the paying bank identified by the routing number placed on the

FedSelect check, which is currently the Federal Reserve Bank of

Chicago.

Section 247.4

One organization raised a concern regarding the clarity of the

relationship between the FMS and the Federal Reserve bank upon which

FedSelect checks are drawn. As referenced in Sec. 247.4, the FMS has

established a Memorandum of Understanding (MOU) between the Federal

Reserve Bank of Chicago (Reserve Bank) and the FMS which further

establishes the role and functions of the payor Reserve Bank on

FedSelect checks. Treasury Financial Manual, Volume II, Part 8, Chapter

5000, entitled ``Payment And Processing of FedSelect Checks By Federal

Reserve Banks'' will not be issued as the above referenced MOU provides

sufficient detail. Therefore, reference to that Treasury Financial

Manual chapter is deleted.

One organization suggested replacing the word ``settle'' in

Sec. 247.4(b) with the word ``pay'' for clarity and consistency with

Regulation J of the Federal Reserve System, 12 CFR 210.9. After review

of the cited law, the FMS agrees that the word ``settle'' more

accurately describes the role of the paying bank. Therefore, changes

were made to Sec. 247.4(b) which clarify that the Reserve Bank settles

for items, reserving the right to return the item, after which payment

becomes final.

One organization recommended that language be inserted stating that

Federal Reserve banks shall not be expected to cash FedSelect checks

presented directly to them by the general public. The FMS believes that

this subject is sufficiently covered under Sec. 247.8(a), which

provides for the presentment of FedSelect checks through normal banking

channels.

Section 247.6

One organization questioned the purpose of the ``warranty''

provision in Sec. 247.6(b). The warranty language in Sec. 247.6(b) was

derived from Regulation J of the Federal Reserve System, 12 CFR 210.5,

under which banks warrant good title to an item and warrant that the

item has not been materially altered. Specifically, however, the FMS

inserted the warranty language in Sec. 247.6, which is addressed to

``Banks'' in order to make clear that banks handling FedSelect checks

do so in accordance with commercial law (the UCC, Regulation J of the

Federal Reserve System and Regulation CC of the Federal Reserve System)

as opposed to the rules governing standard Treasury checks (i.e., 31

CFR part 240). Therefore, the warranty language was not taken out.

However, reference to the UCC was removed. As a result, by handling

FedSelect checks, a bank agrees to the provisions of ``this Part,''

which, in accordance with Sec. 247.2, makes clear that FedSelect checks

are governed by the UCC, Regulation J of the Federal Reserve System and

Regulation CC of the Federal Reserve System.

Section 247.8

In reference to the limited payability provisions of Sec. 247.8,

one bank stated that banks will be exposed to greater liability for

losses because banks will invariably accept for deposit checks that are

``stale'' (negotiated more than the number of days stated on the face

of the FedSelect check) and for which they will not receive payment

from the Government. The bank stated further that the practice will

inconvenience the bank's customers as they will have to petition the

Government for reissuance of the check, and the bank will bear the loss

where the bank's customer withdraws the proceeds of the check

immediately and disappears. One organization stated that it understood

the payability of an item to be determined based on the date of deposit

in the bank of first presentment (depositary bank), not the date the

check is presented to the payor Reserve Bank.

In general, the exposure of banks to liability for losses in

connection with FedSelect checks is no greater than a

[[Page 25992]] bank's current liability for losses in connection with

third party drafts in use today by Federal agencies. In addition, the

FMS has decided to limit the payability of all FedSelect checks to 90

days.

At the request of one organization, words in 31 CFR 247.8(d) were

changed as follows: ``refuse to pay'' was changed to ``return unpaid'';

``presented to'' was changed to ``negotiated to''; and ``bank of first

presentment'' was changed to ``depositary bank.'' Therefore, the

Reserve Bank generally will return unpaid a FedSelect check negotiated

to the depositary bank more than 90 days after it was issued. The

periods of payability written on the face of FedSelect checks are

instructions to the Government to return those checks unpaid, if it so

determines. The FMS, after contacting the Federal agency that issued

the FedSelect check, may pay the check even though it was negotiated to

the depositary bank after the period of payability. Therefore, not all

``stale'' FedSelect checks will be returned to the depositary bank.

This procedure is very similar to the manner in which banks may treat

checks more than six months old under the UCC. Section 4-404 of the UCC

provides that a bank is under no obligation to pay a check more than

six months old. However, as discussed in the UCC commentary following

Sec. 4-404, the bank may, after contacting the drawer, decide to pay

the item.

Regarding the bank's increased risk of loss because a customer

might withdraw funds and disappear immediately after a ``stale''

FedSelect check is negotiated, but just before the Reserve Bank has

returned the check, the return of the ``stale'' FedSelect check is no

different than that of the return of a standard commercial check; all

returns must comply with the midnight deadline in the UCC, Sec. 4-301,

and Regulation CC of the Federal Reserve System, 12 CFR 229.30, 229.31.

In addition, where depositary institutions face this risk of doing

business, Regulation CC of the Federal Reserve System, 12 CFR

229.10(c)(1)(iii)(A) makes clear that in order for the requirement of

next day availability to be applied, the check must be deposited in

person by the payee to an employee of the depositary bank, thereby

affording the depositary bank an opportunity to review the FedSelect

check for ``staleness.'' Regulation CC of the Federal Reserve System,

12 CFR 229.13(e), provides that the depositary bank may delay next day

availability when there is reasonable cause to doubt collectibility.

Furthermore, as made clear in Regulation CC of the Federal Reserve

System, 12 CFR 229.19(c)(2)(ii), as well as the official commentary

following that provision, the depositary bank's credit to its customer

may be provisional; the depositary bank may charge back against the

customer's account. Section 4-212(1) of the UCC would govern the

depositary bank's right of recovery of the provisional credit.

The FMS is of the opinion that the words ``more than the number of

days'' in the second sentence of Sec. 247.8(d), which is in reference

to the manner of determining stale-dated items, is sufficiently clear.

Nonetheless, the words ``after the date on which the FedSelect check

was issued'' are added in order to further clarify that FedSelect

checks generally will be returned unpaid if they are negotiated to a

depositary bank more than the number of days stated on the face of the

check after the date the check was issued (more than 90 days after the

date on which the check was issued).

One organization stated that noncash items were no longer handled

by Federal Reserve banks. In response, the third sentence of

Sec. 247.8(d) was changed to state that stale FedSelect checks should

be marked ``void'' on the face of the check and sent to the issuing

agency or the FMS.

Section 247.9

Comments were received from several organizations regarding the

warranty provisions in Sec. 247.9, stating that the warranty provisions

unfairly shifted the burden of loss to banks.

The warranty provisions of Sec. 247.9 were drafted in an attempt to

provide additional protection for public funds. However, after

reviewing the comments arguing that such provisions are unnecessary,

unfair to banks and inconsistent with commercial law (the UCC,

Regulation J of the Federal Reserve System and Regulation CC of the

Federal Reserve System), the FMS has decided to delete this section.

Section 247.10 (Now Section 247.9)

Two banks expressed a concern that a bank will not learn that a

FedSelect check with a stop payment order placed against it is being

returned until two to four days after the funds deposited must be made

available to the customer under Regulation CC of the Federal Reserve

System, thereby placing the depositary bank at significant risk. The

banks argued that the depositary bank is at risk of losing the funds

which must be made available by the next day if the Reserve Bank

returns a ``stopped'' FedSelect check.

The FedSelect proposed rule states that Federal agencies are to

request stop payment orders when the agency has notice that a FedSelect

check has not been received by the payee, or that a FedSelect check is

lost, stolen or destroyed. Stop payment orders protect both the

Government and the payee from loss. In addition, early detection of

potential fraud protects banks from loss.

As discussed under Sec. 247.8 above, while Regulation CC of the

Federal Reserve System requires next day availability for certain

checks, 12 CFR 229.10(c)(1)(iii)(A) makes clear that the check must be

deposited in person by the payee to an employee of the depositary bank,

thereby affording the depositary bank an opportunity to review the

FedSelect check. In addition, Regulation CC, 12 CFR 229.33(a), requires

that the paying bank provide notice of return to the depositary bank

for items of $2,500 or more. If the depositary bank is concerned about

potential loss, it can call the number stated on the face of the

FedSelect check. If the depositary bank receives an indication from the

Reserve Bank or the FMS that a stop payment order might be placed

against a FedSelect check, the depositary bank may delay next day

availability because there is reasonable cause to doubt collectibility

under 12 CFR 229.13(e). In addition, as made clear in Regulation CC of

the Federal Reserve System, 12 CFR 229.19(c)(2)(ii), as well as the

official commentary to that provision, the depositary bank's credit to

its customer may be provisional; the depositary bank may charge back

against the customer's account if a check is returned by reason of a

stop payment order. Section 4-212(1) of the UCC continues to govern the

depositary bank's right of recovery of a provisional credit against the

customer.

The word ``replacement'' has been deleted from the title of

Sec. 247.9 in order to avoid confusion; while agencies may issue

another FedSelect check or other form of payment to fulfill an

obligation, no ``replacement'' FedSelect checks will be issued.

Per the recommendation of one organization, the FMS changed the

words ``refuses payment on'' in the first sentence of Sec. 247.9(c) to

``returns unpaid'' in order to conform with terminology in Regulation J

of the Federal Reserve System, 12 CFR 210.9, and Regulation CC of the

Federal Reserve System, 12 CFR 229.30, which discuss the return of

unpaid items. In addition, the reference to ``Sec. 247.8(c)'' in the

first sentence of Sec. 247.9(c) was changed to Sec. 247.8(d).

[[Page 25993]]

One organization was confused regarding the intention of the second

sentence of Sec. 247.10(d). The second sentence of Sec. 247.10(d) was

drafted with the intention of clarifying for Federal agencies using the

services of FedSelect that any obligations for payment are the

responsibility of the issuing agency, not the FMS. Therefore, claims by

payees for any continuing obligations should be addressed to the agency

that issued the FedSelect check that was subsequently lost, stolen or

altered.

Section 247.11 (now Section 247.10)

One bank expressed a concern that this section does not

sufficiently detail the circumstances under which the Government would

be liable for fraud claims. While the FMS believes that sufficient

detail is provided, the purpose of this section is to allocate

accountability between the FMS and the issuing agencies.

Section 247.12 (now Section 247.11)

In response to a comment by an organization, currently the Reserve

Bank will not be involved in demanding refunds from presenting banks or

other debtors. However, contrary to the understanding of the

organization, the opportunity for the Reserve Bank to be involved in

such collection efforts is not precluded by Sec. 247.11(b).

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.

List of Subjects in 31 CFR Part 247

Banks, Banking, Checks, Federal Reserve System.

Authority and Issuance

For the reasons set out in the preamble, title 31, part 247 of the

Code of Federal Regulations is added 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 Banks.

247.7 Certification and internal agency control.

247.8 Presentment.

247.9 Notice, non-receipt, theft, loss or destruction; late

presentment.

247.10 Losses and accountability.

247.11 Debt collection.

247.12 Funds for losses.

247.13 Additional requirements.

247.14 Waiver of regulations.

247.15 Supplements, amendments or revisions.

Authority: 31 U.S.C. 3321, 3325 and 3327; 12 U.S.C. 391.

Sec. 247.1 Applicability.

The regulations in this part prescribe the rights and liabilities

of the United States, the Federal Reserve Banks, banks, 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 this part, with Regulation J, and with Regulation CC,

FedSelect checks will be governed by the Uniform Commercial Code, as

adopted by Illinois (``UCC''), 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, 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 an entity described in Regulation CC of the Federal

Reserve System, 12 CFR 229.2(e), as may be amended from time to time.

Department means the United States Department of the Treasury.

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 bank which sends a FedSelect check directly

to a Reserve Bank for payment or collection.

Reserve Bank or Federal Reserve Bank means any one of the twelve

Federal Reserve Banks.

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) As authorized by a Memorandum of Understanding between a payor

Reserve Bank and the FMS and in accordance with this part, the payor

Reserve Bank shall settle with a presenting bank for the amount

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

[[Page 25994]] 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 Banks.

(a) A bank's acceptance of a FedSelect check issued pursuant to

this part shall constitute its agreement to the provisions of this

part.

(b) Each bank 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 this part.

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, 3527 and 3528 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 will have a standard period of payability of

90 days.

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

90 Days.''

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

cancellation indicator will be placed against it and its status

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

return unpaid a FedSelect check negotiated to the depositary bank more

than the number of days stated on the FedSelect check after the date on

which the FedSelect check was issued. A FedSelect check which has

reached its stale-date before being negotiated to a depositary bank

should be marked ``void'' on the face of the check and sent to the

issuing agency or the FMS. The issuance of another FedSelect check or

other form of payment, to replace a lost, stolen, or destroyed

FedSelect check must be made in accordance with Sec. 247.9.

Sec. 247.9 Notice, 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 returns unpaid a FedSelect check solely

as a result of Sec. 247.8(d), 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. 247.10 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. [[Page 25995]]

(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. 247.9(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. 247.9(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. 247.11 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. 247.10. 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. 247.10.

(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. 247.10. 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. 247.12 Funds for losses.

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

paragraphs (c) and (d) of Sec. 247.10 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. 247.13 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 a

replacement as may be necessary for the protection of the interests of

the United States.

Sec. 247.14 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. 247.15 Supplements, amendments or revisions.

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

revised regulations, or revoke the regulations in this part.

Dated: March 16, 1995.

Russell D. Morris,

Commissioner.

[FR Doc. 95-11984 Filed 5-15-95; 8:45 am]

BILLING CODE 4810-35-P