[Federal Register Volume 59, Number 203 (Friday, October 21, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25780]
[[Page Unknown]]
[Federal Register: October 21, 1994]
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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]
BILLING CODE 4810-35-P