Electronic Payments:

Many Programs Electronically Disburse Federal Benefits, and More Outreach Could Increase Use

GAO-08-645: Published: Jun 23, 2008. Publicly Released: Jun 30, 2008.

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Traditionally, federal agencies made benefit payments by paper check, but they faced increased pressure to reduce costs and increase the convenience, security, and timeliness of payment delivery. In response to a 1996 congressional mandate, the U.S. Department of Agriculture's Food Stamp Program implemented Electronic Benefit Transfer (EBT) to distribute food stamps. According to agency evaluations, EBT has reduced program costs and fraud and offered recipients a quick, secure way to receive payment. These results spurred interest in using electronic payment methods for other benefit programs. GAO was asked to report on (1) the extent to which federal benefit programs are using electronic payments, and factors agencies consider for their use and (2) options for increasing the use of electronic payments, particularly the Department of the Treasury's (Treasury) actions to that end. GAO surveyed federal benefit programs identified from two federal databases; reviewed documents, reports, and studies on electronic payments; and interviewed federal and state agency, industry, and consumer representatives.

Most federal benefit programs GAO surveyed (34 of 42) reported using 1 or more electronic payment methods, and the majority of those programs also indicated that most of their recipients received their benefits electronically. Less than half (18 of 42) of the programs surveyed provided data that would allow GAO to determine the percentage of payments made electronically, in part because state agencies disburse payments for many programs. For the 5 largest, by dollar value, programs that provided data, about 54 to 100 percent of payments were made electronically (see figure below). Agencies consider various factors, including financial burden to recipients, program and recipient characteristics, program costs, and fraud and security risks, when making a decision to use an electronic payment method for the delivery of benefits. Various options exist for agencies to increase electronic distribution of federal benefits, including (1) mandating that recipients receive benefits electronically, (2) making electronic payment the default option upon enrollment, (3) promoting electronic payments through public outreach, (4) piloting electronic distribution programs, and (5) using electronic payment cards in new ways. Treasury has introduced key initiatives in its efforts to support and increase the use of electronic payments, particularly programs for which Treasury disburses payments, such as Social Security benefits. However, Treasury does not disburse payments for all federal benefit programs. In 2006 and 2007, Treasury met with federal Chief Financial Officers (CFO) to discuss Treasury's cash management initiatives, such as increasing electronic payments. Treasury also discussed electronic payments with program staff from larger agencies for which Treasury disburses payments. However, Treasury has no plans to conduct these meetings regularly with CFO agencies and other smaller agencies. Treasury's role as the federal government's leader for payments and its experience with electronic payment methods suggest that it could provide valuable information and assistance to smaller agencies with less experience or expertise. Regularly scheduled outreach efforts to other agencies could provide opportunities for Treasury to increase the use of electronic payments.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury has developed plans and taken actions to implement the GAO recommendation to increase use of electronic payments by conducting outreach to federal agencies on a regular basis. First, Treasury officials participated in scheduled meetings and conferences, including the annual Payment Management Customer Conference where discussions were held to expand knowledge of the Direct Express Card and the US Debit Card for benefit payments. Second, Treasury held regular discussions with their Regional Financial Centers' (RFC) Customer Advisory Board to promote electronic benefit payments at federal agencies and RFC customer agencies, such as AARP. Third, Treasury holds quarterly meetings with its largest benefit agency, the Social Security Administration, where there is a constant focus on electronic processing of benefits, as well as regularly scheduled meetings with officials from the Veterans Administration and the Office of Personnel Management. Data provided by Treasury show an increase in the number of enrollments in its Direct Express initiative. Lastly, Treasury created a new Office of Financial Innovation and Transformation that supports the idea of an all-electronic Treasury, which includes encouraging electronic benefit payments for all federal programs.

    Recommendation: To help Treasury achieve its goals of increasing the use of electronic payments and moving to an all-electronic government, the Secretary of the Treasury should direct the Commissioner of Financial Management Service to consider developing a process for conducting outreach to federal agencies on a more regular basis, with the goal of identifying opportunities for increasing the use of electronic payments. For example, Treasury could meet with agency Chief Financial Officers, or their designees and with staff from smaller agencies, on a semiannual or annual basis to discuss challenges that agencies face in moving to electronic payments and to identify actions that Treasury and agencies could take to facilitate the transition to electronic payments.

    Agency Affected: Department of the Treasury


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