Treasury urged to inform agencies about value of electronic payments

The Treasury Department should provide federal agencies with more information on the costs and benefits of submitting payments from citizens and businesses electronically to improve efficiency, according to a new report from the Government Accountability Office.

The department's Financial Management Service deposits funds sent to the government for taxes, duties, fees, sales, leases and loan repayments in the Treasury. FMS collected $509 billion from agencies that received such payments in fiscal 2009, not including the Internal Revenue Service.

According to the report, 87 percent of funds FMS collected in fiscal 2009 were submitted by electronic payment methods, such as wire transfers, credit cards or automated clearinghouse (ACH) transfers. The report noted electronic payments are preferable to cash or paper checks because processing is more efficient and less expensive.

"Electronic collections provide better accuracy, lower mailing and processing costs, and fewer delinquencies and defaults," GAO said. "When the Federal Reserve moved to electronic conversions of paper checks, work hours spent on check processing decreased by almost half and transportation costs associated with check processing decreased by about 11 percent."

The percentage of funds agencies submitted by traditional methods in 2009 was relatively low but still constituted more than $36 billion. The report also noted that nonelectronic payments often are smaller and make up a significant percentage of overall transactions. For example, only 2 percent of the $23 billion collected under the Minerals Management Service's Minerals Revenue Management program came in as checks. But those checks represented 77 percent of transactions.

Shifting remaining paper-based payments to an electronic method also can improve the accuracy and security of an agency's financial transactions, the report said. GAO studied five agencies and found that eliminating paper-based payments improved their internal processes.

"Officials from all five case study agencies cited a decrease in current or estimated future costs resulting from the use of electronic collection methods, but none of the agencies could fully quantify these savings," the study said. "For example, state government representatives agreed that for many organizations, paying by ACH transfer is preferred because paying by check is expensive in terms of the cost and time of printing, mailing and reconciling payments."

Despite the advantages of electronic payments, some agencies continue to use alternative methods, partly because FMS does not provide information about the costs of various payment methods, GAO said.

"FMS officials stated that FMS does not track cost of collection information by agency, but instead by collection method and bank," the report said. "FMS has this cost information and could provide it, but based on past practices, it generally has not."

Other agencies continue to use paper-based payments because of specific circumstances. Those processing payments from smaller vendors or remote locations, such as the Minerals Management Service or the National Park Service, often deal with customers who don't have the ability to submit or receive payments electronically.

GAO urged Treasury to share information on the costs of different payment methods, noting that agencies are making decisions about collection methods without that data. FMS officials agreed with the recommendations, and said they are working on a plan to address the issue and complete a review of reimbursement policy by April 2010.