[Federal Register Volume 60, Number 94 (Tuesday, May 16, 1995)]
[Rules and Regulations]
[Pages 25990-25995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11984]



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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:
    <bullet> Chemical-sensitive paper that reveals attempts to alter 
checks with solvents and ink eradicators.
    <bullet> Watermark paper that is visible when held to a light 
source, and impossible to reproduce with a photocopier or scanner.
    <bullet> 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