The federal government missed a statutory deadline requiring Uncle Sam to make all its payments electronically by the beginning of this year. But the government's use of electronic funds transfer continues to grow, according to figures from the Treasury Department.
Under the Debt Collection Improvement Act of 1996, Congress mandated that all federal payments except tax payments be made by electronic funds transfer (EFT) after January 1, 1999. The government saves approximately 40 cents per transaction by using EFT instead of checks.
But the federal government did not meet the statutory target. In November, the Treasury made 72 percent of the government's payments electronically, according to the Financial Management Service, the Treasury bureau charged with the EFT effort. That's up from two-thirds of payments a year ago.
The government has been most successful with EFT in paying its own employees. As of November, 96 percent of federal employees received their pay via direct deposit.
Cindy Johnson, director of cash management planning and policy at the Financial Management Service, said the government has been offering direct deposit to its employees for 20 years, but use of the system really picked up following passage of the Debt Collection Improvement Act. Agencies now encourage new employees to sign up for direct deposit, Johnson said.
The government has been less successful paying its contractors electronically. Only 49 percent of vendors were paid via EFT as of November, Treasury reported.
Vendors, particularly small- and medium-sized businesses, have had difficulties meeting the EFT mandate. Banks haven't been able to transfer information vendors need to reconcile payments against invoices, said Sally Phillips, a senior analyst at the Financial Management Service. In addition, some vendors complain that banks' fees for providing remittance data are too high. A banking industry rule went into effect in September requiring that banks support businesses' requirements for EFT.
Vendors-and agencies-can go around banks by using an online service provided by the Financial Management Service's Austin Financial Center. The center's Payment Advice Internet Delivery system allows vendors to access remittance data over the Internet using a secure password.
Phillips noted that despite the difficulties, vendors are increasingly receiving payments via EFT. Before the Debt Collection Improvement Act went into effect, only 10 percent of vendors used EFT.
Another challenge federal agencies face is paying beneficiaries of such programs as Social Security and disabled veterans' compensation. Millions of such beneficiaries do not have checking accounts.
Still, the government now pays 72 percent of its beneficiaries electronically. Johnson credits the hard work agencies, particularly the Social Security Administration, have put into educating beneficiaries about the EFT option.
In addition, Treasury is working with banks to set up special Electronic Transfer Accounts for federal beneficiaries. The accounts would accept only electronic federal payments. Treasury is also allowing people to continue receiving paper checks.
No benefit would ever be denied because a beneficiary could not use EFT, Johnson said.
Recent storms provided a good example agencies can point to when urging beneficiaries to accept payments electronically. Federal benefits checks were delayed in four states following the recent massive storm that dumped nearly two feet of snow on Chicago. While beneficiaries in those states who receive paper checks in the mail had to wait for their money because of the weather, those who had signed up for direct deposit had the money deposited in their bank accounts on time.
NEXT STORY: Key House panels could see changes