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Subject:  ACCOUNTING FOR PAYMENTS MADE USING THIRD-PARTY DRAFTS

10-46-00  Purpose 
      10  Authority
                20  Departmental Policy
                30  Accounting Overview
      20  Accounting Entries For Paying Offices Which Issue and
                    Clear Third-Party Drafts For Their Organization
                30  Accounting Entries For Paying Offices Which Issue and
                    Clear Third-Party Drafts For Another Component 

10-46-00  PURPOSE 
                    
This purpose of this chapter is to establish standard Department-wide
accounting policy and procedures for payments made using third-party
drafts.  It focuses on Departmental policy and the accounting entries
that form the framework for third-party draft systems/subsystems
operated within the Department.

          10-46-10  AUTHORITY

Third-party drafts are an acceptable alternative payment mechanism for
small purchases including imprest fund transactions, and offer the
following advantages over traditional cash payments:

     .    Permits a reduction in, or elimination of, cash held by imprest
     fund cashiers.
     .    Reduce the risk of holdup-theft-pilferage of cash. 
     .    Provides for a sound audit trail by timely and regular reporting
     to an independent party.
     .    Limits the amount of funds subject to loss.

Treasury has amended the limitation amount of individual third-party
drafts from $2,500 to $10,000 in TFM Bulletin No. 95-05 dated 
December 2, 1994.  The authority for using third-party drafts is set
forth in I TFM 4-3040.70 of ,the Treasury Financial Manual (TFM) which
will be modified in accordance with TFM Bulletin No. 95-05.  Changes
to the limits are discussed in section 10-46-20.

10-46-10  DEPARTMENTAL POLICY

     A.   Third Party Drafts versus Cash Payments - The general policy of
     the Department is that third-part drafts should be used to the
     maximum extent possible in place of making cash payments.

     B.   Dollar Amount Limitations on Third-Party Drafts - In accordance
     with changes authorized by Treasury, the limitation on third-
     party drafts was increased from $2,500 to $10,000 in June 1994. 
     Each agency may establish the maximum amount for which third-
     party drafts may be issued; however, the face value may not
     exceed $10,000, and this limitation must be printed on the face
     of the draft.  Further, the $2,500 limit will stay in effect for
     third-party drafts issued for routine imprest fund transactions.

          In addition, Treasury will consider, on an individual agency
     basis, the use of third-party drafts up to $25,0000 for small
     purchases.  Agencies requiring a draft limit higher than $10,000
     must request a waiver from Treasury detailing demonstrated
     benefits and savings.  Waiver requests must be directed to
     Treasury for review and approval as follows:

          Director, Cash Management Policy and
            Planning Division
          Financial Management Service
          Department of the Treasury
          Room 420
          401 14th Street, S.W.
          Washington, D.C.  20227

          Also forward a copy of the waiver request along with the Treasury
     approval to the HHS Office of Finance at the following address:

          Deputy Assistant Secretary, Finance
          Department of Health and Human Services
          HHH Building, Room 739H
          200 Independence Avenue, S.W.
          Washington, D.C.  20201-0001

     C.   Payments to be Made by Third-Party Drafts - Initially use of
     third-party drafts were limited to imprest fund type
     transactions, but are now approved as an alternative payment
     mechanism for all type of payments.  Third-party drafts may be
     used for vendor payments, all types of travel payments and for
     emergency employee payments.  They are authorized for payment of
     small purchases subject to the Prompt Payment Act wherever they
     are operationally and cost effective and consistent with 31CFR
     Part 206, and when Electronic Funds Transfer or other standard
     Treasury applications or the use of the Government Purchase Card
     do not meet the agency's needs.

.          10-46-30  ACCOUNTING OVERVIEW

Third-party drafts are an authorized payment mechanism.  A Federal
employee may issue a draft drawing upon a third-party draft vendor's
account for certain Federal payments.  The third-party draft vendor is
reimbursed periodically for amounts disbursed and for services
rendered.  The net effect is to forego the need for maintaining
imprest funds at an operating division or PHS agency thereby reducing
the delay inherent with drawing a check on government accounts at the
Treasury.  As noted along with the following entries, this process
requires additional accounting entries since once the third-party
draft is drawn: (1) a new liability for payment due to the draft
vendor(s) must be recognized and (2) an offset is needed to the
(transactional) draw on agency cash caused by the liquidation of the
initial liability.  The actual draw on agency cash takes place with
the reimbursement of the third-party draft vendor(s).  For drafts
directly issued and cleared for their organizations, paying offices
follow the procedures in Section 10-46-40. 

Accounting entries listed in Section 10-46-50 shall be used by those
paying offices which issue and clear third-party drafts as a service
for another component.  These entries differ from those in Section 
10-46-40 in that once the drafts are issued, the paying office records
a receivable from the customer agency while the customer agency
records an advance received from the paying office.  Once cash is
collected from the customer agency the paying office cancels the
receivable, then pays the third-party draft vendor.  Meanwhile, the
customer agency cancels the advance received from the paying office. 

Under some contractual agreements, an advance may be made to a third-
party draft vendor for use as working capital.  This is referred to as
"compensating balances."  All compensating balances issued to the
vendor shall be recorded in General Ledger Account 1417N, Advances to
Others - All Other, using Transaction Code 064.

10-46-40  ACCOUNTING ENTRIES FOR PAYING OFFICES WHICH ISSUE
                    AND CLEAR THIRD-PARTY DRAFTS FOR THEIR ORGANIZATIONS

     A.   At Time Third-Party Drafts Are Issued

          At the time third-party drafts are created for payment of an
     obligation or an advance, the payment transactions currently in
     use (i.e., T/Cs 061, 181, 190, etc.) shall be generated and 
          entered into the accounting system.  Simultaneously, an
     additional transaction shall be prepared and entered into the
     accounting system as follows:.                                        Transaction         Entry      Fund     Object
                                                Code          Description        Group     Class

                                           304         Drafts Issued  000-599    61.7H
                                        for Third-     900-999   
                    Party Payments

          Dr. 1012  Disbursements (Other than Payroll)
                    Cr. 2315N  Advances through Third-Party Drafts

          This transaction must have a CAN that will record the liability
     to the same appropriation used to pay the obligation or record
     the advance.  The entry can be recorded at a summary level or at
     a detail level for drafts issued.  Transactions shall be entered
     into the accounting system at the time drafts are issued.

     B.   At Time the Draft Is Cleared

          When the third-party draft vendor presents a bill for the drafts
     paid, the bill shall be verified for correctness and a Payment
     Voucher will be prepared for Treasury disbursement.  This payment
     shall recorded as follows:

          Transaction          Entry          Fund     Object
             Code           Description       Group     Class

        305         Payment to Third-   000-599    61.7H
                                                            Party Draft Vendors 900-999
                                        for Drafts Honored

          Dr. 2315N  Advances through Third-Party Drafts
                    Cr. 1012  Disbursements (Other than Payroll) 

          This transaction must have a CAN that will direct it to the same
     appropriation associated with the obligation or advance
     transactions for which the drafts were issued.  The entry can be
     recorded at a summary level for each appropriation or at a detail
     level for each draft.

          The purpose of this transaction is to reduce the outstanding
     third-party advance and increase disbursements.  The balance in
     GL Account 2315N shall equal the amount of the outstanding
     drafts.  Total disbursements recorded in document level records
     shall be equal to the balance in GL Accounts 1012 and 2315N.

.          10-46-50  ACCOUNTING ENTRIES FOR PAYING OFFICES WHICH ISSUE AND  
          CLEAR THIRD-PARTY DRAFTS FOR ANOTHER COMPONENT

     A.   At Time of Draft Issuance

          At the time a third-party draft issuing office creates and issues
     a draft for another component (herein referred to as Customer
     Agency) for payment of an obligation or an advance, the following
     transactions shall be generated and recorded in the appropriate
     accounting systems (i.e., draft issuing office and Customer
     Agency).  The draft issuing office shall generate and furnish the
     accounting entries to the Customer Agency via electronic media
     (i.e., telecommunications, magnetic tape, etc.).

               1.   Third=Party Draft Issuing Office Transaction 

                                                                      Transaction       Entry         Fund    Object    F/NF
                                                                         Code        Description     Group     Class    Code

                       307         Third-Party    000-599    61.7H      2
                                                                 Drafts Issued  900-999   
                                                  for Another 
                                                  Agency
     
                    Dr. 1314  Advances & Reimbursements Receivable-Unbilled
                              Cr. 2315N  Advances through Third-Party Draft

                    This transaction is to record funds due from the Customer
          Agency for the drafts issued on their behalf (GL Account
          1314) and to establish liability to the third-party draft
          vendor for the drafts paid on behalf of the Government (GL
          Account 2315N).

          The draft issuing office shall establish Suspense CANs for each
     Customer Agency that they service and use the CAN for billing and
     collection activity.

               2.   Third-Party Customer Agency Transactions 

                         (a)  Accounting transactions to record the advance or
               payment made by the third-party draft issuing office
               (i.e., T/Cs 061, 181, 190, etc.), and 

.                                                                  (b) Transaction       Entry         Fundl   Object    F/NF
                                                                         Code        Description     Group     Class    Code

                       306         Third-Party    000-599    61.7H      2
                                                                 Drafts Issued  900-999   
                         by Another 
                                                  Agency
     
          Dr. 1012  Disbursements (Other than Payroll)
               Cr. 2313N  Advances - All Other

                    The purpose of transaction A2(b) is to offset the      
          disbursement entries (GL Account 1012) that were generated
          in the payment/advance transaction in A2(a) above and also
          to establish a liability for the drafts issued by another
          agency (GL Account 2313G).  This transaction must also have
          a CAN that will record the liability to the same
          appropriation used to pay the obligation or record the
          advance as shown in A2(a) above.

          The accounting transactions in A2(a) and A2(b) shall be  entered
     into the system at the same time and as close as possible to the
     time the drafts are issued.

     B.   At the Time of Collection

          The draft issuing office will receive reimbursement of funds
     through its SF 224, Statement of Transactions, by citing the
     Customer Agency's appropriation.  The amount charged will be the
     amount paid to the third-party draft vendor for drafts issued on
     behalf of the Customer Agency.  The draft issuing office will
     send a copy of their SF 224 showing the amount charged to the
     Customer Agency.

          The following transactions shall be generated and recorded in the
     appropriate agency accounting system:

               1.   Third-Party Draft Issuing Office Transaction 

                                                                      Transaction       Entry         Fund    Object    F/NF
                                                                         Code        Description     Group     Class    Code

                       308         Third-Party    000-599    61.7H      2
                                                                 Drafts         900-999   
                                                  Collections

                    Dr. 1012  Disbursements (Other than Payroll)
                              Cr. 1314  Advances & Reimbursements Rec - Unbilled

                    This transaction is to record the receipt of funds from the
          Customer Agency as reported on the SF 224 and to reduce the
          Accounts Receivable.

               2.   Third-Party Customer Agency Transaction 

                    Transaction      
                        Code           Entry Description         

                       306         Third-Party Drafts Issued
                (Reverse)     by Another Agency
     
                    This transaction is to liquidate, or reduce advances
          previously established for the third-party drafts and to
          record the actual disbursement of funds charged by the draft
          issuing office on its SF 224.

     C.   At Time Third-Party Drafts Are Cleared

          When the third-party draft vendor presents a bill for the drafts
     paid, the bill shall be verified for correctness and a Payment
     Voucher will be prepared for Treasury disbursement.  For payments
     applicable to customer agencies, the following transaction shall
     be generated and recorded in the draft issuing office's
     accounting system.

                    Third-Party Draft Issuing Office Transaction

                                                                      Transaction       Entry         Fund    Object    F/NF
                                                                         Code        Description     Group     Class    Code

                       305         Payments to    000-599    61.7H      2
                                                                 Third-Party    900-999   
                                                  Draft Vendor 
                         for Drafts
                                                  Honored

                    Dr. 2315N  Advances through Third-Party Drafts
                              Cr. 1012  Disbursements (Other than Payroll)

          The purpose of this transaction is to reduce the outstanding
     advance to the third-party draft vendor and reflect a
     disbursement of funds.  The payments pertaining to the Customer
     Agencies shall be recorded citing the Suspense CANs used to
     record the receivable (T/C 307).