Where's the check?

Despite its emphasis on making electronic commerce a central component of its business operations, the federal government is about to miss a major deadline to issue payments electronically.

With less than two weeks before agencies are legally required to send federal payments via electronic funds transfer (EFT), the government is only two-thirds of the way finished with the project.

But few people are upset about the shortfall because the Financial Management Service, the federal government's primary check writer, has made more progress than expected, and even congressional sponsors of the mandate acknowledge that the deadline may have been unrealistic.

The 1996 Debt Collection Improvement Act required that agencies pay employees, contractors and benefits recipients— with some exceptions— by EFT instead of paper checks after Jan. 1, 1999. As of Sept. 30, according to FMS, 63 percent of federal payments, not including those made by the Defense Department, were made electronically.

Kenneth Carfine, director of the FMS Cash Management Directorate, said the deadline for 100 percent electronic payments may not ever have been realistic because too many people have to be persuaded to sign up for the service. In addition, he said, there were "technical issues'' that held up electronic payments to vendors.

Instead, FMS hopes to make 75 percent of federal payments by EFT at the end of fiscal 2000. "From our perspective, we're doing very well," Carfine added. "Compared to private industry, we're far ahead." Although the 100 percent requirement in the law did not include tax refunds, FMS counts them in its goal.

Rep. Stephen Horn (R-Calif.), a co-sponsor of the debt collection act and chairman of the House Government Management, Information and Technology Subcommittee, said he would have to review agencies' progress before concluding whether they have failed to comply with the law.

"I believe [in] setting the goal as high as you can go and see people stretch a little and try to make it,'' he said, adding that he would "let it go'' if agencies are "getting it done in a reasonable time period.''

Former Rep. Jim Lightfoot (R-Iowa), who authored the provision and is now vice president of Forensic Technologies Inc., a Montreal-based company with U.S. government contracts, said FMS seems to have "legitimate" reasons for missing the deadline, adding that any level of progress saves taxpayers money.

The government estimates it can save $100 million a year on its nearly 1 billion payments if it eliminates paper checks entirely. Because agencies do not need to install new software or equipment to authorize EFT payments, meeting that goal depends mainly on convincing check recipients to participate, Carfine said.

FMS disburses 85 percent of federal payments to the public, including employee salaries, federal retirement benefits, veterans' benefits, Social Security payments and contractor payments. DOD issues most of the rest, including its own payroll and vendor payments.

The government has made the most progress getting its current employees to forgo paper payments. According to figures provided by FMS and the Defense Finance and Accounting Service (DFAS), 96 percent of employees now have their salaries deposited directly into their bank accounts. In the private sector, less than 60 percent of workers are paid this way, according to the National Automated Clearing House Association (NACHA), which sets policy for and promotes EFT within the banking industry.

Federal payments of vendor invoices have lagged the most, with no more than half of these made electronically. The figures do not include payments made by credit card, which, according to the General Services Administration, accounted for 16.4 million transactions last year— more than the total number of vendor payments made by FMS.

One reason why more contractors are not paid electronically is that, until this year, few banks would provide contractors with easy-to-interpret remittance information so that contractors could match their payments to their invoices. That made EFT onerous to small businesses that did not have electronic commerce software to match up the data.

But this fall, NACHA started to require that banks furnish remittance data. The Federal Reserve Board is providing 12,000 banks with software that will translate remittance information from formats used in EFT transactions into e-mail, fax or paper reports.

In addition, DFAS and FMS are making remittance information available to Defense and civilian agency contractors, respectively, through secure World Wide Web sites.

But Sheryl Morrow, director of FMS' Program Assistance Division, said increasing vendor participation is "going to take the agencies being a little bit more progressive in getting the word out to their vendors.''

Russ Plaisance, deputy director for vendor pay with DFAS, said that in the past, signing up for EFT was "awkward'' because vendors had to submit their banking information to each office that paid them. But recently DOD set up a mandatory Central Contractor Registration database, which requires vendors to file this data only once. As a result, Plaisance said, "we are now much more aggressively enforcing the policy.'' He said DFAS expects to make more than 90 percent of its domestic payments electronically within two years.