April 8, 2004
Appeal of
BRUNSWICK ELECTRONICS
Under Contract No. 089480-02-Z-0065
PSBCA No. 4942
APPEARANCE FOR APPELLANT:
Michael C. Conway, Esq.
APPEARANCE FOR RESPONDENT:
Margaret E. Harper, Esq.
OPINION OF THE BOARD
Appellant, Brunswick Electronics, has appealed the decision of the contracting officer assessing Appellant $48,644.28 for a shortage found in the accounts of a Contract Postal Unit that Appellant was operating under contract with Respondent, United States Postal Service. At the election of the parties, this appeal is being decided without a hearing, in accordance with 39 C.F.R. §955.12. Only entitlement is at issue in this proceeding.
FINDINGS OF FACT
1. In November 1994, Appellant[1] entered into a contract with Respondent to operate a Contract Postal Unit (CPU) at Appellant’s place of business in Troy, New York. That contract was in effect through the close of business on November 3, 2001. (Stipulation of the Parties, paragraph (Stip.) 10; Respondent’s Appeal File, Tab (RAF) 1, 11).
2. Effective November 4, 2001, the 1994 contract was replaced by the contract at issue here. Under the 2001 contract, Appellant was to provide certain postal services to the public, including the sale of stamps, metered postage, money orders, and philatelic products, and the rental of post office boxes. Also, under the 2001 contract, Respondent was to receive the proceeds of the CPU’s sales and pay Appellant a percentage of the revenue received from the sale of postal products and services, and a different percentage of the revenue received from the rental of post office boxes. The contract was for an indefinite term, subject to specified termination rights (see Finding 7). Appellant secured a bond in the amount of $50,000 in connection with operating the CPU. (Stip. 2, 9; RAF 11-13).
3. Contract paragraph B.5, “Security,” provided:
“When the Contract Postal Unit is closed or unattended, all moneys and accountable paper – including blank money orders – must be locked in a safe with a combination lock. Retail products must be kept in a suitable locked cabinet.” (RAF 13).
4. Contract paragraph B.9, “Postal Funds,” provided:
“All moneys received from the operation of the Contract Postal Unit are the property of the U.S. Postal Service, and not the property of the supplier. Funds received in the operation of the CPU shall be kept separate and apart from all other funds received by the supplier.” (RAF 13).
5. Contract paragraph B.11, “Liability,” provided:
“The supplier assumes the risk of, and will be responsible for, any loss of or damage to Postal Service moneys and property, except when the supplier can show that (1) the supplier complied with all of the security requirements contained in this contract and the losses occurred despite that compliance; and (2) that the losses did not result from the acts or omissions of the supplier or its personnel.” (RAF 13).
6. Contract paragraph E.1, “Inspection of Contract Postal Unit,” provided:
“The Postal Service, reserves the right, without prior notice, to conduct audits and customer surveys and to review and inspect the supplier’s performance and the quality of service at any time during the operating hours of the Contract Postal Unit. A written report will be submitted to the supplier for corrective action, if necessary.” (RAF 13).
7. Contract paragraph H.4, “Termination on Notice,” provided:
“This contract may be terminated by either party upon 60 days’ written notice. In the event of such termination, neither party will be liable for any costs, except for payment in accordance with the payment provisions of the contract for actual services rendered prior to the effective date of the termination. When required to protect the Postal Service’s interests, the contracting officer may terminate the contract upon one day’s written notice.” (RAF 13).
8. Section 429.3 of Postal Service Handbook F-1, “Post Office Accounting Procedures,” stated that CPUs are to be audited “at least once each postal fiscal year.” Handbook F‑1 was not part of the contract between the parties. (Stip. 13).
9. On or about December 27, 2000 (Postal Fiscal Year 2001), the Postal Service performed an audit of Appellant’s CPU. The audit report indicated a shortage in the amount of $189.09. (RAF 7, 8).
10. Respondent next performed an audit of Appellant’s CPU on April 22, 2002 (Postal Fiscal Year 2002). That audit revealed an actual shortage of $48,644.28. (RAF 15, 8; Stip. 12, 15). Postal operations were suspended at the CPU on or about that date (Appellant’s Supplemental Documents, Exh. 7).
11. The contracting officer terminated the contract on one day’s notice, effective April 23, 2002. Appellant did not appeal the termination. (RAF 16, 21; Stip. 19).
12. In a final decision dated July 5, 2002, the contracting officer demanded that Appellant repay the amount of the shortage, $48,644.28, within 15 days of receipt of the letter. Appellant filed an appeal from the final decision by letter dated August 13, 2002. (RAF 18, 19).
13. The shortage was investigated by a Postal Inspector. The Inspector interviewed Appellant’s owner and employees, reviewed bank records, performed criminal background checks, and conducted polygraph examinations of all but one employee. The Inspector concluded his investigation in June 2003, but was unable to determine whether any individual among Appellant’s owner or employees had embezzled funds from the CPU or was otherwise responsible for the shortage. The Inspector noted that all of the employees, including the owner, had access to the CPU funds and that there were no individual accountability procedures in place. The Inspector also found no evidence that the shortage had been caused by any “third parties.” (Declarations of David A. Wasserzug dated November 13 and December 4, 2003).
14. During the time the CPU contract at issue here was in effect, whenever the CPU was closed or unattended, all moneys and accountable paper – including blank money orders – were always locked in a safe with a combination lock. In addition, all retail products were always kept in a suitable locked cabinet. (Affidavit of James Bowman, dated October 7, 2003).
DECISION
The parties have stipulated that there was a shortage of $48,644.28 in the Contract Postal Unit operated by Appellant under contract with Respondent. Under the terms of the contract’s Liability provision (Finding 5), Appellant is responsible for the loss of Postal Service money and property unless it can show that it complied with all the security requirements of the contract and that the loss did not result from the acts or omissions of Appellant or its personnel. Respondent does not seriously contest Appellant’s contention that it complied with the security requirements (see Findings 3, 14), but argues that Appellant has not met its burden of showing that the loss did not result from the acts or omissions of its personnel.
Appellant argues that the record does not support a conclusion that the shortage must have come from Appellant’s personnel. Appellant faults the investigation by the Postal Inspector, arguing that he did not consider the possibility that the shortage might have been caused by the negligence or malfeasance of Postal Service personnel involved in administering the contract.
Appellant also argues that it should be relieved of liability because of the 16-month gap between Postal Service audits of the CPU accounts. While recognizing that there was no contractual provision requiring the audits, Appellant contends that the fact that Respondent had previously audited the CPU created a duty to continue to do so, and contends that Appellant had come to rely on those audits as part of its business relationship with the Postal Service.
As noted above, under the language of the Liability clause, Appellant assumed the risk of, and the responsibility for, the loss of “…Postal Service moneys and property, except when [Appellant] can show … that the losses did not result from the acts or omissions of [Appellant] or its personnel.” (Finding 5)[Emphasis added]. Therefore, once the existence of a loss has been shown, as it has been here, the burden of producing evidence to show that the loss did not result from its or its employees’ acts or omissions falls on Appellant, not Respondent.
Appellant’s first argument misconstrues the standard to be applied in determining liability under the contract language. Appellant argues that it should be relieved of liability because the record does not show that the shortage must have been caused by its personnel. The correct standard under the language of the contract, however, is that Appellant remains liable for the shortage unless it shows that the shortage did not result from the acts or omissions of Appellant’s personnel. Therefore, it was up to Appellant to offer evidence necessary to demonstrate that the acts or omissions of Appellant’s employees did not result in the shortage. Appellant has not done so.
Appellant criticizes the Postal Inspector’s investigation, but offers nothing more than speculation and innuendo regarding what an investigation of the Postal Service personnel involved in administering the contract might have revealed.[2] Further, in view of Appellant’s obligation to offer evidence, as described above, Appellant’s reliance on alleged shortcomings in the extent of the Inspector’s investigation is not a basis for relieving Appellant from its responsibility for the loss. Appellant has offered no probative evidence into the record to meet its burden of proof. Accordingly, we do not accept Appellant’s argument.
Appellant’s arguments with respect to the alleged failure of Respondent to audit the CPU in a timely manner also miss the mark. The F-1 Handbook, which contained direction to Postal Service personnel to audit the CPU at least once each fiscal year, was not part of the contract. Even assuming that Respondent failed to comply with that directive, such failure would, therefore, not constitute a breach of the contract. The General Store, PSBCA No. 3951, 98-1 BCA ¶ 29,573 at 146,603, recon. den. 99-1 BCA ¶ 30,124, and cases cited therein. In addition, as noted by Respondent, the December 2000 and April 2002 audits, although 16 months apart, were in consecutive postal fiscal years. Therefore, in any event, Appellant has not shown that the timing of the two audits violated the F-1 Handbook requirement.
Appellant’s other argument concerning the audits is also without merit. Appellant has not shown that Respondent’s history of exercising its contract right to audit the CPU created any contractual obligation that it continue to do so. In addition, Appellant has not shown that it relied on such history, or would have been justified in relying on such history, in failing to adequately monitor the financial operation of its CPU.
Appellant has failed to show that the loss discovered on April 22, 2002, “did not result from the acts or omissions of [Appellant] or its personnel” or that there is any other basis for relieving it from liability. Accordingly, the appeal is denied.
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
Norman D. Menegat
Vice Chairman
Board Member
[1] Appellant entered into the contract under the name Brunswick Video. It assumed its current name in 1997. (Respondent’s Appeal File, Tabs (RAF) 1, 3).
[2] Appellant suggests, without any citation to record evidence, that it may not have received all of the stamps the records indicate that it received. Appellant also finds it “strangely coincidental” that the shortage occurred during the 16-month period between audits and to a business that Appellant contends had had no significant accounting errors in years. Appellant finds it “peculiar” that the shortage in question was very close in amount to the $50,000 amount of the bond that it had secured, and “unusual” that the loss took place shortly after the amount of the bond was raised to $50,000. Appellant suggests, without reference to any evidence, that the Inspector did not investigate the Postal Service’s accountability in this “glaring series of coincidences” because “he would not like what he finds, and because he was not looking for the true culprit.” (Appellant’s brief).