Electronic payments lag as deadline looms
- By Colleen O'Hara
- Jul 12, 1998
With the deadline for agencies to make all payments electronically just less than six months away, less than 40 percent of the payments the government makes to the private sector are done electronically, the Treasury Department reported last week.
The Debt Collection Improvement Act of 1996 mandated that by Jan. 1, 1999, government payments to federal employees, contractors and beneficiaries of federal programs— with the exception of tax refunds— be paid via electronic funds transfer instead of by paper checks. By using EFT, the government estimated it can save at least 28 cents per check on postage, printing supplies and paper.
If all federal payments were made via EFT, the government estimated it would save about $100 million a year.
However, only about 39 percent of all payments the government issues to businesses are issued electronically, Bettsy Lane, director of the cash management directorate at Treasury's Financial Management Service, told an audience at the E-Gov 98 Conference in Washington, D.C. By contrast, about 95 percent of all salary payments are made electronically.
Agencies must collect the necessary banking information, such as account numbers, so that payments to vendors can be made via EFT, Lane said. Unlike salary payments to employees, which under certain circumstances can still be issued as paper checks, vendors must be paid electronically, according to the debt collection act. If vendors do not register by the deadline, they will not get paid, Lane said.
One of the reasons vendor participation in EFT is low is the difficult enrollment process. Vendors must register with each agency for EFT, possibly repeating the same registration process dozens of times. "It is complex and redundant," Lane said.
Also, many financial institutions do not use electronic data interchange (EDI), which is needed to receive and forward the remittance information to vendors. Education is also essential because "vendors need to know what they have to do," she said.
The National Automated Clearinghouse Association (NACHA), working with Treasury, is conducting an education campaign to teach vendors about electronic payments and the benefits of using EDI to receive payments and remittance information.
The Federal Reserve Bank this fall will release EDI translation software to make it easier for vendors to use EDI, and a NACHA rule that will go into effect in September will require vendors that use the automated clearinghouse network to pass remittance and payment information to the payee via EDI.
The timing of the NACHA rule "is driven by the government law, but it has a general application," a NACHA spokesman said. "It will help the EFT initiative go more smoothly."
Treasury issues about 85 percent of the 904 million payments— most of which are benefits payments, such as Social Security payments— that the government issues each year. The Defense Department pays the bulk of the remaining payments.
Treasury will meet the Jan. 1 deadline for "most payments," Lane said. The law, she said, gives the Treasury secretary the authority to decide what payments may be exempt from the requirement.
Some exceptions may include international payments because some countries may not have the capability to receive electronic funds and one-time payments, which would make the effort to collect bank account numbers and other information not financially worth the effort.
Lane said FMS' goal is to have 82 percent of all its payments issued electronically by 2000. "Things are going very well," she said. "We feel we are on target, and things are moving as expected."
About 73 percent of the 44 million Social Security payments made every month are issued electronically through FMS. "Not having to rely on a check to come in the mail...is a miracle for some of our folks," said Tom Staples, the assistant commissioner of financial policy and operations in the Office of Finance at the Social Security Administration. "With electronic payment, the money stays in one place, and the number of address changes is reduced. We can track down within minutes what happened to a payment."
Staples added that in the second quarter of fiscal 1998, SSA made about 81 percent of its vendor payments electronically. "Our future lies in getting the electronic bill in and payment in," he said.
Vendors are not reluctant to comply with the law, said Olga Grkavac, senior vice president of the Information Technology Association of America's Systems Integration Division. But it will be difficult to meet the 100 percent goal by Jan. 1. "Since most people get Social Security checks and payments electronically, I can't imagine our members objecting," she said. "We're totally committed to comprehensive use of electronic commerce at all levels. Clearly that's the direction in the commercial sector."