Use Technology to Streamline Financial Services

Increase the Use of Technology to Streamline Financial Services

BACKGROUND

The use of information technology to streamline financial services is a
key element of the infrastructure that the federal government must have
to deliver fiscally sound financial management. Historically, financial
processes were among the first administrative processes to be automated,
and these systems continue today to be fundamental in the delivery of
good financial management. Over the years, the greatest challenge before
financial managers has been to continue to improve upon these systems
and take advantage of the technological enhancements that have evolved
in information management. Financial systems generally provide two major
products--the delivery of financial information and the automation of
financial processes. Both can benefit from the improvements that exist
in information technology today.

Federal financial management systems and applications have not fully
used the ever-changing enhancements technology has made available.  The
systems lag in standards and compatibility and are, for the most part,
out of date. Manual processes that require paper documentation and
multiple data entry to various subsystems even within an agency
financial system are highly prevalent throughout the federal government.
These situations result in inefficiencies and introduce problems of
reconciling erroneous and omitted data. Additionally, they require a
tremendous resource commitment of people and time to process financial
transactions.

The federal government promotes the use of electronic funds transfer
(EFT), which includes transfers through the Automated Clearing House and
transfers made by wire. Using EFT rather than paper checks for payments
(popularly called direct deposit) reduces costs and allows greater
control over the timing of payments. Currently, the cost to send checks
is nearly six times the amount to send the payments electronically to
banks. Additionally, vendors, individuals, or states gain greater
security, reliability, and convenience if paid electronically by the
government.

Electronic benefits transfer (EBT) is a more recent advance. EBT uses
plastic cards to deliver federal benefits to individuals who do not have
bank accounts or regular relationships with banks. EBT replaces food
stamp coupons and checks delivered through the mail. It uses proven
technology and the existing commercial infrastructure, including
automated teller machines, point-of-sale terminals, and on- line data
transmission networks. The goals of the EBT program are to provide an
electronic disbursement alternative to all beneficiaries without bank
accounts and to coordinate these efforts with federal, state, and local
programs.

Electronic data interchange (EDI) has been piloted in several agencies
and is currently used very successfully in the Department of Defense and
the General Services Administration to exchange common business
documents and financial transaction data between and among agencies and
the public sector for invoicing, purchase orders, receiving reports,
etc. The federal payments process within EDI is called Vendor Express
and transfers both dollar value and related information electronically
into bank accounts.

Within the federal government payments for services between agencies can
be handled electronically through the On-line Payment and Collection
(OPAC) system. However, not all agencies use OPAC in their business
transactions within the government, and, where it is used, the
processing of transactions is not always timely. The application of EDI
standards throughout the agencies using OPAC would promote even more
efficient transfer of financial data among the agencies.

Tremendous resource savings and greater reliability can be achieved when
electronic technology is applied to business practices between or within
government agencies, or between businesses and government agencies.

NEED FOR CHANGE

The federal government has led the financial industry in certain
technologically progressive applications, but they are not used to their
maximum effectiveness. In 1992, the federal government's cash flow was
$2.5 trillion. Less than 10 percent of collections were received
electronically and only 42 percent of payments were made
electronically.[Endnote 1] Even though EFT has been available to pay
federal employees for 15 years, the government still provides checks to
employees, if they desire. Currently, about 84 percent of federal
employees receive their salary payment electronically.[Endnote 2] Some
agencies have pursued requiring EFT as a condition of employment and
have run into union objections. Others, such as the military, have been
successful in fully implementing EFT to pay their military and civilian
employees. This tool has only recently begun to be used by a small
number of agencies to reimburse employees for travel expenses.  The GSA
began reimbursing its federal travelers in February 1993 through EFT and
provides an 800 number for employees to call to check on payment status.
The Department of Energy also reimburses its federal travelers through
EFT.

Federal salaries are only a small proportion of the 800 million payments
made annually by the federal government. The largest number of federal
payments are for social security (over 550 million). In 1992, only 49
percent of those payments were made through EFT. That percentage has
increased recently and is expected to be around 55 percent in 1993. The
increase is due, in large part, to the efforts of the Department of the
Treasury and the Social Security Administration offering direct deposit
of funds at the initial point of contact with a new beneficiary. Federal
pension and veterans benefit payments and tax refunds constitute the
other significant volumes of federal payments. Of those, 66 percent of
federal pensions, 43 percent of veterans benefits, and 10 percent of tax
refunds were paid electronically in 1992.

Converting all unbanked recipients to EBT would save millions of
dollars annually over paper-based processing costs, claims costs, and
availability of funds. Eight states currently are operating and
testing EBT while another 26 are in various stages of planning. Major
issues remaining to be resolved include the unknown cost/benefit
impact; who bears the costs of the program; and the treatment of
liability for lost, stolen, and sold cards under proposed Federal
Reserve Board regulations.

The National Performance Review (NPR) is proposing a nationwide EBT that
would use a standard commercial debit card. As envisioned, this
nationwide EBT would be a standard configuration, based on existing
industry standards, that would be offered competitively by vendors as a
base or enhanced service, locally and regionally, just as in the
commercial environment. This project will require a dedicated group of
individuals with senior government support and leadership. Just as
critical to any eventual system is the settlement, reconciliation, and
reporting service to support large-scale EBT use that needs to be in
place. The Department of the Treasury, the Federal Reserve, and the Food
and Nutrition Service are currently working on this service.

Numerous administrative processes in government, whether they are for
travel, procurement, budget execution, timekeeping, property management,
personnel/payroll accounting, or other processes requiring financial
transactions, continue to be labor and paper- intensive, requiring
multiple levels of approval and remaining vulnerable to poor internal
controls. Most could be streamlined and automated to save time, increase
data accuracy, and improve internal controls. Modern software
applications designed for both personal computer (PC) and PC-based local
area networks are available for most of these processes. However,
agencies continue to use existing manual-based processes, or more often
continue to design and build customized systems to support these
processes without eliminating manual-based processes.

Current approaches to systems development, such as information
engineering, recommend that managers develop an information architecture
as a first step in the redesign of systems and processes. This approach
systematically guides managers through an examination of their current
systems and processes and identifies key information flows and products.
The benefit of this approach is that it generally results in
recommendations to simplify processes, automate others, and more often
than not, eliminate many. If this approach is followed, agencies
generally avoid simply automating poor manual processes. This is
particularly important in the replacement of older financial systems.
This approach has been used by the Environmental Protection Agency in
the design of its Contracts Management Information System. It is also
the approach now being used in the redesign of financial systems in the
Departments of State and Housing and Urban Development.

Electronic signature allows for electronic approval of funding
documents. Not only does this tool reduce the paperwork burden
associated with the administration of these documents, it also automates
internal controls that often add to the paperwork process and just as
often are ignored. Although many applications are on the market that
provide for electronic signature, the standards for secure transfer of
data vary between them, creating internal control concerns and raising
data management issues. Although much progress has been made in
developing standards for electronic signature, final standards and
protocols from the National Institute of Standards and Technology (NIST)
are still not available. NIST has issued a bulletin that provides
initial information to federal agencies on security issues in the use of
EDI. However, the lack of published electronic signature standards and
protocols deters many financial managers from implementing these systems
and prevents efficient and secure transfer of data between systems.

Cross-references to Other NPR Accompanying Reports

Reengineering Through Information Technology, IT02: Implement
Nationwide, Integrated Electronic Benefit Transfer.

Department of Agriculture, USDA07: Deliver Food Stamp Benefits Via
Electronic Benefits Transfer to Improve Service to Customers While
Remaining Cost Effective.

ENDNOTES

1. U.S. Office of Management and Budget, Federal Financial Management
Status Report and 5-Year Plan (Washington, D.C., August 1993), p. 49.

2. Ibid.

3. "Electronic funds transfer payment methods," Federal Acquisition
Regulations, 52.232-28 (April 1989).