A03:
PROVIDE ALL FEDERAL PAYMENTS USING ELECTRONIC FUNDS TRANSFER BY 1999

THE CHALLENGE -- NEW LAW REQUIRES THAT ALL FEDERAL GOVERNMENT PAYMENTS BE MADE ELECTRONICALLY

Imagine this: A government that disburses payments to its customers electronically in a timely, secure, and cost-effective manner using electronic funds transfer (EFT).

In Coral Gables, Florida, one retiree is upset about the loss of a check from his daughter when his mailman is robbed. His neighbor, although concerned about the incident, is relieved to know that her Railroad Retirement check has been sent to her bank electronically. She no longer worries about her safety in going to the bank to deposit a paper check. She also feels more secure knowing that funds will be there when she wishes to make a withdrawal.

This isn't the distant future. It is happening every day and will be occurring more and more in the next several years. Soon, most Americans will take advantage of information technology to contact the government electronically. New and improved systems will make it easy for the public to initiate requests to receive benefits and find answers to their questions. Recipients will no longer have to wait for their government checks to arrive in the mail, but will receive their payments electronically.

On April 26, 1996, President Clinton signed into law the Debt Collection Improvement Act of 1996, which mandates that all payments from federal agencies and corporations, with the exception of tax refunds, must be made electronically by 1999. Today, the government makes over 850 million payments annually to federal benefit recipients, federal salaried employees, grant recipients, and contractors. This legislation will provide far-reaching benefits to the American public, financial institutions, and the federal government.

By using EFT, government will work better and cost less. Federal government customers will receive their payments faster and without risk of loss or theft. In addition, EFT will significantly reduce the administrative burden on financial institutions, allowing them to concentrate on satisfying customer needs and enhancing their competitive edge.

EFT will also provide significant cost savings to the federal government. For each check payment converted to EFT, the government saves about $0.40. By eliminating postage and printing costs, the Department of the Treasury estimates it can save $500 million over the first five years following implementation of the program.

NEED FOR CHANGE

Since the passage of the Debt Collection Improvement Act of 1996, the Treasury Department's Financial Management Service (FMS) and other government agencies have taken steps to move the government toward a 100 percent EFT environment. However, the government and the banking industry need to make many changes to overcome the barriers to full EFT use.

System Barriers

Some federal government agencies currently operate systems that are incapable of supporting EFT. In addition, there are other barriers, such as the shortage of automated teller machines (ATM) in rural areas and the lack of necessary hardware and communication tools throughout the government. FMS is currently working with key EFT stakeholders to either improve their systems or provide alternative solutions.

Electronic Payment Industry Barriers

Some financial institutions do not have the capability to provide addenda information with EFT payments. As a result, their customers have difficulty in accounting for EFT payments. FMS is working with the industry to establish alternative methods for transmitting this information electronically to the customers.

Organizational and Knowledge Exchange Barriers

Many government agency representatives and payment recipients are not well informed about EFT and are not aware of all the benefits. FMS is reaching out to the public and private sectors to educate them about these benefits.

ACTIONS

In order to educate key stakeholders about this new legislation, the following actions need to be accomplished:

1. Establish focus groups and conduct seminars and workshops with federal agencies.

By July 1997, the Department of the Treasury should establish focus groups that include benefits recipients, vendors, and financial institutions to determine what the federal government can do to educate people and organizations on the concept of electronic payments. The Treasury Department should also conduct workshops to educate federal employees about the new payment mechanisms. The workshops should continue through 1998, when the program will be fully implemented.

2. Create alternative mechanisms.

By September 1997, the Department of the Treasury should establish a joint government-industry working group to identify alternative payment methods the industry can use to implement EFT by 1999.