Electronic Funds Transfer--Its Potential for Improving Cash Management in Government

FGMSD-80-80: Published: Sep 19, 1980. Publicly Released: Sep 19, 1980.

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Electronic funds transfer (EFT) technology is being increasingly used in government and industry to replace checks for sending and receiving money. The use of EFT in the Federal Government is expected to increase the government's opportunities for realizing interest savings. Funds which flow faster into the Treasury's interest-earning tax and loan accounts at banks and other financial depositories begin earning interest sooner. In addition, funds which flow faster into the Treasury's accounts at the Federal Reserve can also begin earning income sooner.

However, EFT has only limited ability to affect borrowing decisions. Although it can make funds available a few days earlier, borrowing decisions are generally insensitive to short-term changes in the timing of receipts. The overriding consideration in the Treasury's borrowing decisions is debt management, not cash management. Faster EFT receipts can sometimes reduce the amount borrowed. This can occur when the aggregate of such receipts effectively raises the monthly low points of the Treasury's projected cash balances. To avoid a shortage of cash, borrowing decisions tend to focus on these low points, which normally occur around midmonth and are created by the timing differences in government disbursements and receipts. For EFT to have a more positive influence on borrowing decisions, the faster flow must be tied into the forecasting process. EFT can give the Treasury greater accuracy in forecasting its daily cash balances because it eliminates the timing uncertainties in the mailing, cashing, and clearing of checks. Recurring EFT payments and receipts can provide more reliable data for estimating the future effect of these transactions on the daily cash balances.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of the Treasury should ask all federal agencies to report to the Treasury the amounts and timing of large receipts and payments to be made by EFT as soon as they know when such transactions will be made, preferably at least 10 days in advance.

    Agency Affected:

 

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