The Check Forgery Insurance Fund

The United States Treasury Check Forgery Insurance Fund

What is the United States Treasury Check Forgery Insurance Fund?

The Check Forgery Insurance Fund was established by the Federal Government in 1941 to serve as a restitution source to payees when checks drawn upon federal treasury depositories had been lost, forged or stolen.¹ The Fund's enabling statute, 31 U.S.C.S. 3343 (a), (b), (d) has sustained minor changes since that time, but remains the law.

The Check Forgery Insurance Fund is financed by section 31 U.S.C.S. 3343, subdivisions (a) and (d) which state in part:

"(a)The Department of the Treasury has a special deposit revolving fund... Amounts may be appropriated to the Fund. The Fund consists of amounts (1) appropriated to the Fund; and (2) received under subsection (d) of this section.

(d) The Secretary shall deposit immediately to the credit of the Fund and amount recovered from a forger or a transferee or party on the check..."

Initially, $50,000 was earmarked for the Check Forgery Insurance Fund². Presently, its funding level is set at the discretion of the Secretary of the Treasury.

Who is authorized to utilize the Check Forgery Insurance Fund?

The Check Forgery Insurance Fund is accessed only by the Commissioner of the Financial Management Service or "(A)ccountable officers of the United states..."³ which are defined as "...disbursing officers authorized by the Secretary of the Treasury to maintain official accounts of the United States in depository banks located in the United States, its territories and foreign countries..."⁴. "Accountable officers" also include U.S. Government cashiers who have been authorized to maintain a checking account.⁵

What is the Procedure for Reimbursement?

A. Filing the Complaint

When a payee does not receive a check drawn upon a federal treasury depository as planned, or realizes that such a check has been forged, the payee is responsible to contact the issuing agency. The agency will then send the payee a copy of the check and a questionnaire. Often, the payee may realize that they in fact received the check and the matter is dropped. If the payee has not received the check, and the indorsement is not their own, they return the questionnaire and file a claim with the issuing agency.

When a claim alleging a forgery is received, the disbursing officer will first determine whether the check is still outstanding. If so, the depository bank is then asked to issue a stop payment order on that draft. The bank is required to then acknowledge receipt of this request in writing.⁶

Should the disbursing officer discover that the check had been endorsed in blank, the payee loses all rights to a replacement check.⁹

B. Reclamation.

If the disbursing officer discovers the check to be forged, the disbursing officer will pursue collection of a settlement check from the depository bank or "reclamation". The disbursing officer makes a written request for reclamation to the depository bank⁷ which the depository bank acknowledges in writing.⁸

In the event that the forged check was drawn on a designated depository checking account which was subsequently closed, the disbursing officer is required to accomplish a transfer of funds to an open checking account.¹⁰ This transfer is accomplished by drawing a check against the closed account for deposit to an open account.¹¹

The following requirements must be met to commence a reclamation proceeding for a substitute check to be issued:

1) the disbursing officer must be satisfied that the check was indeed forged with no doubt as to any question in regard to law of fact;

2) the check which has been forged must not have been outstanding for more than one full fiscal year in which it was issued;

3) the claim by the payee must be made in writing; and

4) the payee must provide any necessary and properly executed supporting documents.¹²

The issuance of a substitute replacement check does not operate to increase the accountability of the disbursing officer and should not be reflected on the officer's account statements.¹³

The code also provides that if the Treasury check was issued in foreign funds, the replacement check must also be issued in foreign funds.¹⁴

What if the Reclamation procedure fails?

If reclamation cannot be effected, for example, if the depository bank can prove a point of law or fact that relieves it from responsibility, the disbursing officer is authorized to credit an account entitled "Receivables- Check Overdrafts" on the Statement of Accountability and charge the account of the "United States Treasury Check Forgery Insurance Fund."¹⁵ A replacement check is then issued from the Check Forgery Insurance Fund upon the "Receivables" account. This process should be undertaken only as a last resort.

Payment from the Check Forgery Insurance Fund.

Payment from the Check Forgery Insurance Fund carries additional criteria which must be satisfied pursuant to 31 U.S.C.S. 3343(b) which states:

The Secretary of the Treasury shall pay from the Fund to a Payee or special endorsee of a check drawn on the Treasury or a depository designated by the Secretary the amount of the check without interest (emphasis added) if:

(1) the check was lost or stolen without the fault of the payee or a holder that is a special endorsee and whose endorsement is necessary for further negotiation;
(2) the check was negotiated later and paid by the Secretary or a depository on a forged endorsement of the payee's or special endorsee's name;
(3) the payee or special endorsee has not participated in any part of the proceeds of the negotiation or payment; and
(4) recovery from the forger, a transferee, or a party on the check after the forgery has been or may be delayed or unsuccessful.

This process may also apply if there is a delay in the recovery of a settlement check. Any recovery received thereafter from the depository bank is credited to the Check Forgery Insurance Fund.¹⁶