Electronic Payments: Many Programs Electronically Disburse Federal Benefits, and More Outreach Could Increase Use
Published: 2008-06-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: Federal, state, and local governments are responsible for issuing a large  proportion of the recurring federal benefit payments made to individuals  today. Traditionally, these payments have been made by paper check, but  government agencies have faced increased pressure to reduce costs while  simultaneously increasing the convenience, security, and timeliness of  payment delivery. The high cost of issuing paper checks already has  resulted in an increase in the use of Electronic Funds Transfer (EFT) to  deliver payments. EFT is any transfer of funds that is initiated through an  electronic terminal, telephone, computer, or magnetic tape for the purpose  of ordering, instructing, or authorizing a financial institution to debit or  credit an account. Direct deposit, the primary example of EFT, provides a  low-cost way to disburse payments. However, direct deposit does not  work for consumers who do not have a bank account or do not sign up for  direct deposit. To reach these recipients, states and the federal  government have created new financial products.
Electronic Benefit Transfer (EBT) was devised in the 1980s to meet the  needs of the U.S. Department of Agriculture’s (USDA) Food Stamp  Program. Its initial purpose was to transfer federal benefits electronically  to eligible recipients under certain entitlement and grant programs. During  the early 1990s, several states successfully developed and implemented  EBT projects. Also, a 1996 statute mandated that food stamp programs  nationwide use EBT as their benefit distribution method no later than  October 1, 2002, except for state agencies facing unusual barriers to  implementing an EBT system. According to agency evaluations, EBT has  helped to significantly reduce fraud and has offered benefit recipients a  quick, secure way to receive payments, while allowing agencies to reduce  program costs. These positive results—and the potential for duplicating  them in other benefit programs—have led some Members of Congress,  agencies, and industry representatives to advocate for the increased use of  electronic payment methods. In addition, the Department of the Treasury  (Treasury), as the lead agency for federal government payments, is striving  toward an all-electronic government for the disbursement and collection  of payments.
In response to your request, this report discusses the extent to which  federal programs are using electronic payments to disburse benefits and  the feasibility of expanding the use of electronic payments to other federal  benefit programs. Specifically, we (1) describe the extent to which federal  programs are using electronic payment methods to disburse benefits; (2)  identify factors that agencies consider when implementing or using  electronic payments; and (3) identify potential options for increasing the  use of electronic payments, particularly Treasury’s actions to increase  electronic payments.
To respond to these objectives, we reviewed agency documents, reports,  and studies on electronic payments. We interviewed Treasury officials and  collected written and testimonial information about their experiences in  implementing and using electronic payment methods to distribute  benefits, as well as current initiatives aimed at increasing the use of  electronic payments. We conducted a site visit to Harrisburg,  Pennsylvania, to obtain preliminary information on the state’s use of  electronic payments because Pennsylvania was the first state to pilot EBT  for the Food Stamp Program in October 1984. We interviewed officials at  the following six federal agencies responsible for overseeing or  administering federal benefit programs to obtain information on their use  of electronic payments to deliver benefits: USDA, Department of Labor  (DOL), Department of Veterans Affairs (VA), Social Security  Administration (SSA), Department of the Interior’s Bureau of Indian  Affairs (BIA), and Department of Health and Human Services (HHS). We  also attended conferences sponsored by NACHA—the Electronic  Payments Association’s Electronic Benefits and Services Council and the  Electronic Funds Transfer Association to observe presentations from a  variety of federal and state agencies, electronic payment providers, and  private-sector consultants on issues related to implementing and using  electronic payment methods to disburse benefits. To determine the extent  to which federal programs use electronic payments, we identified 455  federal benefit programs using 2 federal databases, developed and applied  criteria to determine whether the programs should be included in our  review, and ultimately selected 45 federal programs that represented a  variety of the types of federal benefit programs that exist. We conducted a  Web-based survey of the 45 programs that we identified as meeting our  criteria for further review, but later excluded 3 programs upon receiving  their survey responses. We collected data on program characteristics, the  extent of electronic payment use, and other methods of payment. To  identify factors to consider when implementing electronic payments and  options for increasing the use of electronic payments, we met with private- sector consultants, such as Booz-Allen Hamilton; Maximus; and Burger,  Carroll, and Associates, Inc., who had assisted agencies in developing or  implementing electronic payment solutions, and with three major  electronic payment providers—J.P. Morgan Chase, Affiliated Computer  Services, and EFD (eFunds Corporation). In addition, we obtained the  views of consumer advocacy groups such as the Consumer Federation of  America, Consumers Union, and the National Consumer Law Center. We  also interviewed representatives from groups representing the electronic  payments industry, such as the Electronic Funds Transfer Association and  NACHA—the Electronic Payments Association. Using the results of our  survey to identify responses that were important for describing the  characteristics of each program, we purposively selected the following 5  programs from our survey that represented a variety of characteristics to  use as case illustrations to examine additional information related to their  experiences with using electronic payments: Supplemental Nutrition  Program for Women, Infants, and Children (WIC); Indian Social Services  Welfare Assistance; Supplemental Security Income (SSI); Unemployment  Insurance; and Trade Adjustment Assistance. Four of the 5 programs that  we selected for case illustrations were federal programs whose benefits  were administered by individual state or tribal agencies. Therefore, we  also interviewed state and tribal agencies in Arizona, California, Georgia,  Michigan, Minnesota, Ohio, Oklahoma, Texas, and Utah to obtain more  information on factors that they considered when deciding to implement  electronic payments and options for increasing the use of electronic  payments. In selecting state agencies and tribes, we considered various  factors, such as whether they were using or planning to use electronic  payments or had conducted pilots to test the feasibility of using electronic  payments, and recommendations from agency officials.
We conducted our work from April 2007 through June 2008 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on our  audit objectives. Appendix I provides a more detailed description of our  objectives, scope, and methodology. Appendix II provides a list of the  programs we surveyed and data relating to their use of electronic  payments.
subsections: section_title: Background
paragraphs: Efficient payment systems are important for the smooth functioning of the  large and complex U.S. economy. As the availability and use of technology  evolves, the payment systems at all government levels must adapt to the  changing needs and expectations of individuals, businesses, and  governments. The U.S. Treasury disburses the great majority of federal  government payments, including benefit payments. Increasingly, in recent  years, Treasury has made those disbursements electronically. Treasury  and other federal agencies using electronic payments have a variety of  mechanisms with which to make benefit payments, including direct  deposit, EBT, and other EPCs.
subsections: section_title: Trends in the Use of Paper Checks and Electronic Payments in the United States
paragraphs: In the United States, many payments traditionally made with paper  instruments—checks and cash—are now being made electronically, with  debit or credit cards or via the automated clearinghouse (ACH). Until  recently, paper checks accounted for the majority of noncash payments. A  2002 Federal Reserve Board of Governors (Federal Reserve) study  concluded that the number of checks paid annually in the United States  likely began to decline during the mid-1990s. A 2005 Federal Reserve  study stated that the average annual rate of decline in the number of  checks paid is estimated to have been 3.3 percent between 1995 and 2000  and 4.3 percent between 2000 and 2003.
The cumulative effect of the growth in electronic payments has only  recently become large enough to substantially affect the number of checks  paid. By 2003, led by rapid growth in debit card payments, the number of  electronic payments exceeded the number of check payments for the first  time in U.S. history. As of 2006, electronic payments comprised over two  thirds of all noncash payments by number, but less than half by value.  Specifically, the number of electronic payments was 62.7 billion in 2006,  with a value of $34.1 trillion, compared with 30.6 billion checks paid in  2006, with a value of $41.7 trillion. Some of the increase in the use of  electronic payments was due to changes in the financial behavior of  consumers and businesses, particularly their payment instrument choice.  For example, electronic payments have been used more frequently in  transactions where checks or cash may have been used in the past. Many  other factors, such as growth in economic activity and population, may  have contributed to the increase in electronic payments. Figure 1 shows  the annual number of electronic and paper check payments in the United  States for selected years—that is, 1995, 2000, 2003, and 2006.
The large number of electronic payments generally indicates the growing  efficiency of the payment system, according to the 2005 Federal Reserve  study. The processing of paper payments typically requires extensive  physical handling. Automation has created opportunities for depository  institutions and other payment processors not only to introduce new  payment instruments, but also to reduce their costs in processing paper  and electronic payments. Future innovations are expected to continue to  help decrease costs and add value and functionality.
section_title: Federal Benefit Payments Made Electronically and by Paper Check
paragraphs: Treasury’s FMS is the primary disburser of payments to individuals and  businesses on behalf of federal agencies. Annually, FMS disburses almost  1 billion payments, with an associated dollar value of more than $1.6  trillion. Programs administered by SSA account for the largest percentage  of Treasury-disbursed benefit payments. The majority of SSA’s payments  fall under the Old-Age and Survivors Insurance and the Disability  Insurance programs. These programs combined are commonly referred to  as Social Security. In addition, SSA administers the SSI program. Besides  administering payments for SSA, Treasury makes retirement and  compensation payments on behalf of (1) DOL for victims of black lung  disease, (2) the Office of Personnel Management for retirement benefits  for federal employees, (3) the Railroad Retirement Board (RRB) for retired  railroad workers, and (4) VA for benefits paid to veterans or their  survivors. As of fiscal year 2008 (through January), about 88 percent of all  Treasury-disbursed payments are benefit payments made on behalf of  these agencies.
Treasury’s use of electronic payments to disburse these benefit payments  has increased significantly over the past decade. As shown in figure 2, in  fiscal year 1996 Treasury disbursed 56 percent of the total volume of  benefit payments electronically compared with 81 percent in fiscal year  2007. As of fiscal year 2008 (through January), 81.6 percent of these  benefits were paid electronically. Treasury experienced the greatest gains  in the use of electronic payments between fiscal years 1996 and 1999,  where there were increases of about 5 to 6 percent per year. Beginning in  fiscal year 2000, electronic payment volumes generally increased about 1  percent per year.
section_title: Methods That Federal Agencies Use to Disburse Benefits Electronically
paragraphs: Federal agencies use several electronic methods, some dating to the 1970s,  to distribute recurring benefits and payments to individuals. As originally  implemented, direct deposit is the electronic transfer of a benefit or other  type of payment into a checking, share draft, savings, or prepaid card  account. However, this option could only be used for delivering benefits  when a benefit recipient who has a bank account chooses to authorize  direct deposit. Technological advances in the way EFT works now allow  for direct deposit to payroll and other types of prepaid debit cards that are  not tied to an individual account in the name of the cardholder, but rather  draw funds from a pooled account that may hold money belonging to  thousands of cardholders. Federal programs, such as Social Security, SSI,  Railroad Retirement, Veterans Benefits, and Civil Service Retirement, have  used direct deposit since as early as 1976.
The DCIA instructed Treasury to ensure that individuals have access to an  account at a financial institution, that such an account have the same  consumer protections provided to other account holders, and that the  account be provided at a reasonable cost. In a variation of direct deposit,  Treasury designed the Electronic Transfer Account (ETA) in July 1999 to  ensure that individuals who receive a federal benefit, wage, salary, or  retirement payment have access to a federally insured account.  According to Treasury, at the time of our review, there were currently  about 90,000 active ETA accounts.
In addition to methods that link and distribute benefits to a bank or other  account, the federal government uses a variety of disbursement options  that employ cards. For example, the primary delivery vehicles for food  stamp payments are EBT cards. Food stamp recipients use a debit-type  card that allows them to access their food stamp benefits at point-of-sale  (POS) terminals in USDA-authorized retail grocers. The EBT cards are  industry-standard magnetic stripe debit cards that are protected by using  an industry-standard personal identification number (PIN). These cards  are not tied to a consumer asset account, and generally the account  structures and processing requirements differ from other payment cards.  EBT cards can be used to deliver benefits to banked and unbanked  recipients and also can be used to deliver multiple benefits using a single  card. EBT works well when the benefit form is noncash and when access  to benefits are limited to certain locations, like food retailers.
Other types of cards can be used for multiple functions or at a wide variety  of retail locations. For example, EPCs can be employed to deliver benefit  payments to banked and unbanked recipients. One EPC can be used to  deliver multiple payments to the cardholder—for example, enabling the  cardholder to receive both state and federal payments. Depending on the  structure and enrollment criteria of programs, EPCs also can be used to  receive direct deposit of payroll or other nongovernment payments. Some  EPCs are debit cards tied to a cardholder-owned account, while others are  prepaid or stored-value cards tied to an aggregated account that is not  cardholder owned. The stored-value card allows a prepaid balance of  funds to be recorded electronically on a card. Both types of EPCs can  support government payment needs. The debit cards use magnetic stripe  technology and can be processed online or offline. An online transaction  results in the immediate electronic transfer of funds and requires the use  of a PIN to authorize the transaction. With an offline transaction, a hold is  placed against the buyer’s account for the amount of the transaction, but  the settlement is not made immediately. Offline debit transactions can be  signature-based—that is, they require the customer to sign a receipt—or  PIN-secured. Embedded computer chips can turn stored-value cards into  “smart cards” that store cardholder information. Smart cards are  considered offline systems because they do not have a real-time  connection to a host processing system that authorizes the transaction.  Transaction authorization and PIN verification occur in communications  between the chip and a smart card “reader” at the POS. Furthermore,  EPCs can be “branded” or “nonbranded.” Branded cards have a  MasterCard, American Express, Discover, or Visa logo and allow  cardholders to conduct signature-based transactions anywhere that those  brands are accepted as well as at ATM and POS machines. Nonbranded  cards allow PIN-based transactions only through POS or ATM networks.
section_title: Federal Government Benefit Programs
paragraphs: Federal benefit programs generally are any such programs administered or  funded by the federal government, or by any agent or state on behalf of the  federal government, that provide cash or in-kind assistance in the form of  payments, grants, loans, or loan guarantees to individuals. Government  assistance programs can be critically important to the well-being of  individuals and their families. A variety of benefit programs exist for  veterans, seniors, students, children, people with disabilities, dependents,  disaster victims, farmers, caregivers, and others. As discussed more fully  in appendix I, for this review, we identified and analyzed data for 42  federal benefit programs that provided recurring payments to individuals.  These programs are under the purview of 11 federal agencies, including  SSA, DOL, USDA, and HHS, among others. The types of federal programs  that we identified included food and nutrition assistance programs,  training and education assistance programs, and income support  programs.
section_title: Most Programs We Surveyed Used Electronic Methods to Distribute Benefits, but Data on the Extent of Use Are Limited
paragraphs: Our survey of 42 federal benefit programs showed that the majority of  these programs were using electronic payments to deliver benefits to  recipients. In some cases, the programs used more than 1 type of  electronic payment. However, 6 programs indicated that they did not use  electronic payments, and that they disbursed benefit payments by paper  check. Eighteen of the 42 programs we surveyed provided data we needed  to compute the percentage of payments made electronically. Of these 18  programs, the percentage of payments made electronically ranged from  about 5 to 100 percent. Some programs were unable to provide us with  data because they are federal benefit programs administered by states.  Thus, data are collected by individual states and are not available at the  federal level.
subsections: section_title: Most Programs We Surveyed Used Electronic Payment Methods to Distribute Benefits, but a Small Number of Programs Did Not
paragraphs: Of the 42 programs we surveyed, 34 programs (81 percent) indicated that  they used electronic payment methods to distribute benefits to recipients;  6 programs indicated they did not use electronic payments; and 2  programs indicated that they were unsure whether they used electronic  payments. Of the 34 programs that used electronic payments, 20 programs  were administered at the federal level—as opposed to the state agency  level—and about half of the 34 programs paid cash benefits to recipients  on a monthly basis. In addition, 16 of the 34 programs using electronic  payments were needs-based programs, which require recipients to meet  some qualifications on the basis of factors such as income, familial status,  or household size.
As shown in more detail in appendix II, 31 of the 34 programs that used  electronic payments provided data on the number of recipients in the  program, and 30 of the 34 programs provided data on the total dollar value  of benefits made to recipients in the program in fiscal year 2006. More  specifically, 16 of the 34 programs that used electronic payments indicated  there were fewer than 1 million recipients in the program in fiscal year  2006. Two programs—Food Stamp and Social Security Retirement  Insurance—reported having 26.7 million and 33.9 million recipients,  respectively, in fiscal year 2006. The remaining programs that used  electronic payments reported having between 1 million and 9 million  recipients. In addition, 7 of the 34 programs that used electronic  payments indicated that the total dollar value of payments made to  recipients in fiscal year was less than $20 million. Fifteen programs  reported disbursing $100 million to $10 billion in benefit payments in fiscal  year 2006, and the remaining programs that used electronic payments  disbursed more than $10 billion in benefit payments during the same year.  The largest program we surveyed, in terms of dollar value of benefit  payments, was the Social Security Retirement Insurance program, which  distributed $418 billion in benefit payments in fiscal year 2006.
The programs used a variety of electronic payment options for delivering  the benefits. For example, 25 programs distributed benefits through direct  deposit; 9 programs used EBT; and 8 programs used another type of EPC,  such as the debit card. However, some programs used more than 1 type of  electronic method. The Low Income Home Energy Assistance Program,  for example, indicated that it used 3 electronic payment options—direct  deposit, EBT card, and debit card.
Most of the 34 programs that made electronic payments indicated that  they did so for a majority of their recipients. About 59 percent of the  programs that responded to the question (20 of 34) indicated that all,  almost all, or most of their recipients received payments through  electronic methods. Twenty-three programs (68 percent of those who  responded to the question) indicated that about half or more of their  recipients received payments electronically.
Although most of the programs we surveyed used an electronic payment  method, the following 6 programs indicated that they did not use an  electronic payment method to distribute benefits, and that they delivered  benefits using paper checks:    Women, Infants, and Children Farmers’ Market Nutrition Program    Survivors and Dependents Educational Assistance    Post-Vietnam Era Veterans’ Educational Assistance  Indian Job Placement United Sioux Tribe Development Corporation  These 6 programs each had fewer than 3 million recipients in fiscal year  2006 and expended less than $500 million in benefit payments that year.   Four programs had fewer than 100,000 recipients in fiscal year 2006. The  Women, Infants, and Children Farmers’ Market Nutrition Program had  about 2.5 million recipients. In addition, 4 programs expended less than  $100 million in fiscal year 2006, but the Survivors and Dependents  Educational Assistance program expended about $495 million in benefit  payments. All 6 programs provided cash benefits to recipients; however,  the frequency of payments made to the recipients varied. For example, 3  programs paid benefits monthly, 2 programs paid benefits annually, and 1  program distributed benefits on a quarterly basis. See appendix II for  selected information on the 42 programs we surveyed.
section_title: Limited Data on the Percentage of Payments Made Electronically Were Available
paragraphs: Eighteen of the 42 programs we surveyed were able to provide specific  data that would allow us to calculate the percentage of the total dollar  value of payments that were made electronically (see fig. 3). Of these 18  programs, the percentage of payments made electronically ranged from  about 5 to 100 percent. One reason for some programs’ inability to provide  data was that they are federal benefit programs administered by states.  Thus, data were collected by individual states and were not available at  the federal level. Other reasons for the programs not being able to provide  the data included their not being able to disaggregate payment data or  collect payment data by type of payment.
Eight of these 18 programs reported having made 100 percent of their  payments electronically (see fig. 3). However, 6 of these programs are  education assistance programs, which may pay benefits directly to an  educational institution, rather than to an individual. For example, the  Nurse Anesthetist Traineeships, Scholars and Fellows, and Minority  Faculty Fellowship programs indicated that they distribute their benefits  directly to universities or training providers by electronic means. The  remaining 2 programs that reported making 100 percent of their payments  electronically were USDA’s Nutrition Assistance for Puerto Rico and Food  Stamp programs.
While most programs we surveyed used electronic means, many programs  indicated that they used paper checks to distribute benefits. Thirteen of  the 42 programs provided sufficient data that would allow us to calculate  the percentage of the total dollar value of payments paid by paper check  (see fig. 4). For those 13 programs, the percentage of payments made by  paper check ranged from about 1 to 100 percent. Of these 13 programs, 9  distributed less than half of the total dollar value of benefit payments by  paper check. The remaining 4 programs distributed 100 percent of their  benefit payments by paper check.
section_title: Agencies Consider Various Factors When Implementing or Encouraging the Use of Electronic Payments
paragraphs: Federal and state agencies, industry representatives, and others widely  agree on the advantages of electronic payments, including timely  payments for recipients and reduced costs for agencies. However,  agencies also consider other factors, such as certain perceived  disadvantages, program characteristics, costs and efficiencies, and  security risks, when determining whether and how to implement  electronic payments or when encouraging the increased use and  acceptance of electronic payments among recipients and the public.
subsections: section_title: Many Recognize the Advantages of Electronic Payments, but Agencies Also Consider Perceived Disadvantages When Implementing Electronic Payments
paragraphs: According to agency officials, industry representatives, and consumer  groups, the use of electronic methods to make benefit payments has  advantages for the recipient. For example, according to agency officials,  electronic payments are secure and reliable because they use the ACH  network to deliver payment. According to Treasury, ACH provides the  recipient with a secure, dependable, and efficient way to receive  payments. Recipients can also receive their payments more quickly.  Benefit payments are deposited on a specific date, and recipients no  longer have to wait in line to pick up a check or wait for it to arrive in the  mail. Benefits paid electronically are also more easily replaced if lost or  stolen. Treasury officials explained that if a check were stolen, it might  take as long as several months to replace a claimant’s check; in contrast, if  an electronic payment file were lost or misdirected, replacement funds  could be provided electronically on the same or the next day. Also,  recipients can purchase products as needed without forfeiting unused  benefits. For example, the vast majority of benefits under USDA’s WIC  program are issued using paper checks or vouchers, but certain states are  piloting or have implemented WIC EBT, which is an electronic method for  distributing WIC benefits. When the WIC program uses paper vouchers,  recipients have to purchase all food items listed on their voucher at one  time. With WIC EBT, however, recipients can buy as much or as little of  their authorized food prescription at any time during the authorized  benefit period, and the EBT system automatically manages expiration of  any unused benefits. According to a consumer group representative,  electronic payments offer other advantages, including convenience and  the ability to withdraw funds in small increments to prevent the need for  recipients to carry around large sums of cash. Finally, electronic payment  methods can provide intangible benefits. According to agency and industry  representatives, EBT cards reduced the stigma associated with using food  stamp coupons or vouchers. Representatives from one industry group  stated that recipients involved in focus groups stated that using the EBT  card gave them a sense of pride. Furthermore, an evaluation of the EBT  system in one state indicated that substantial majorities of recipients,  retailers, and financial institutions prefer the EBT system to the check or  coupon system.
However, certain bank and automated teller machine (ATM) fees  associated with electronic payments may increase the cost of using  electronic payments, especially for recipients with precarious financial  circumstances or low account balances. Minimum balance requirements  for bank accounts may pose a hindrance for recipients, according to  agency officials, because financial institutions may impose fees when the  account balances fall below the minimum requirement. Also, according to  agency officials and a consumer group representative, ATM withdrawal  fees can increase the costs of using an electronic payment, especially  when out-of-network ATMs are used. Financial institutions are permitted  to impose fees for overdrawn accounts, which may affect recipients who  may not be financially savvy or who have precarious financial  circumstances, according to agency officials and a consumer group  representative. Furthermore, recipients residing in rural or remote areas  often lack access to financial services, making the delivery of benefits to a  bank account or on an EPC more challenging. For example, agency  officials stated that many businesses in rural areas, particularly those on  Indian reservations, do not accept debit cards. In addition, agency officials  explained that remote Indian reservations and Alaska Native communities  may lack the infrastructure (e.g., telephone lines and the Internet) needed  to implement electronic payments, and not all reservations have access to  banks and ATMs.
Certain recipients may face specific challenges in obtaining electronic  payments or using cards to access benefits. For example, some SSI and VA  recipients have mental or physical disabilities that could hinder their  ability to manage a bank account for direct deposit of their benefits. Also,  because many SSI recipients have an individual appointed to manage their  benefit payments due to the nature of their disabilities, the use of  electronic payments can pose challenges relating to titling of accounts.  Moreover, dexterity and visual challenges that elderly recipients or  recipients with disabilities face also can make it difficult to use an EPC. In  addition to issues related to physical and mental disabilities, according to  VA officials, some older veterans from the World War II and Vietnam War  eras simply distrust the government and would prefer to receive a paper  check.
Certain banking practices and varying levels of consumer protection may  hinder the acceptance of electronic payments by some consumer group  representatives and recipients. Although some federal benefits are  generally exempt from garnishment, a consumer group representative with  whom we spoke was concerned that banks did not distinguish exempted  funds when processing a garnishment order. Certain federal benefit  payments—such as Social Security, SSI, and veterans’ benefits, which are  generally exempt under federal law from garnishment and the claims of  judgment creditors—often constitute an important part of, and  sometimes all of, a recipient’s income. As a result, when financial  institutions receive garnishment orders and place freezes on accounts  containing exempt federal benefit funds pending resolution of the  garnishment process, the recipients of these funds can face significant  hardship. At the same time, financial institutions are required by state law  to comply with garnishment orders, which may necessitate placing a  freeze on an account that contains federal benefit payments. According to  the consumer group representative, payments drawn on an account before  the recipient becomes aware that the account was frozen are returned to  the bank unpaid, and the bank assesses fees for those returned items,  which are also taken from the recipient’s account. The representative  stated that this practice causes a hardship for low-income, elderly, and  disabled Social Security recipients. Also according to this representative  and an agency official, some recipients make a deliberate decision to  receive a paper check, rather than to sign up for direct deposit, so that  their benefits will not be garnished.
Treasury officials acknowledged concerns related to the garnishment of  benefits, and stated that Treasury is working with banking regulators to  determine how best to segregate funds in bank accounts to address such  issues. On September 28, 2007, the federal financial institution regulatory  agencies issued proposed guidance to encourage financial institutions to  have policies and procedures in place regarding the handling of  garnishment orders. The agencies developed the proposed guidance to  address concerns associated with the garnishment of exempt federal  benefit payments, and to encourage financial institutions to minimize the  hardships encountered by federal benefit recipients while remaining in  compliance with applicable law. Among the practices included in the  proposed guidance are that a financial institution should    promptly determine if an account contains only exempt federal benefit    promptly notify a consumer when receiving a garnishment order and  placing a freeze on the consumer’s account,   minimize the cost to the consumer when the account containing exempt  funds is frozen by refraining from imposing overdraft or insufficient funds  fees or by refunding such fees when the freeze is lifted, and   offer consumers segregated accounts containing only federal benefit funds  without commingling other funds.
Treasury officials stated that they recognized the concerns of many benefit  recipients that their federal benefit payments may be garnished in  violation of federal law. Treasury has a new payment option that may help  to address this issue—the Direct Express card, which is more fully  discussed later in this report. According to Treasury, this card has no  monthly fee and many free services, and, because only federal benefit  payments may be deposited on the card, there should not be any confusion  concerning whether an individual’s money is generally protected from  garnishment in accordance with federal law.
Consumer groups have also raised concerns about the varying levels of  consumer protection offered to recipients receiving benefits through  different electronic methods. According to consumer group  representatives with whom we spoke, consumer protections are not the  same for recipients using EPCs. Regulation E, the implementing rule of the  Electronic Fund Transfer Act, establishes protections for individuals  engaging in electronic fund transfers and applies to any electronic fund  transfer that authorizes a financial institution to debit or credit a  consumer’s account. However, Regulation E does not apply to needs- tested benefits in a program established under state or local law or  administered by a state or local agency.
According to USDA officials, EBT cards that are used to deliver food  stamp and other cash benefits administered by the states, such as  Temporary Assistance for Needy Families (TANF), are exempt from  Regulation E requirements. Recipients using these cards, for example, may  not be compensated for benefits that might have been used by an  unauthorized individual, according to consumer group representatives.  Although such EBT cards are not covered by Regulation E, an industry  representative told us that some benefit programs have requirements for  dispute resolution. For example, USDA has dispute resolution  requirements for food stamp EBT transactions that were perceived by the  official to be in the best interest of the beneficiary.
section_title: Noncash or Service Delivery Programs May Require More Planning and Consideration When Implementing Electronic Payment Methods
paragraphs: Certain programs have characteristics that make implementing or  expanding electronic payments more complicated. According to agencies  and industry representatives, programs that distribute cash benefits can be  easily converted to electronic payments. However, noncash or service  delivery programs can present more complex planning and technology  challenges. For example, WIC benefits are not cash, but a food  “prescription,” that provides certain nutritional items tailored to the needs  of the individual recipient that only can be obtained at authorized retailers.  Challenges to the electronic distribution of WIC benefits include keeping  the database of universal product codes (UPC) updated, because the  codes are needed to identify eligible food items. USDA is currently  working to implement, and some states have volunteered to pilot, a  national UPC database that would allow agencies and food manufacturers  to enter product information into the database. A workgroup of state  agencies, food retailers, and food manufacturers was convened to assist in  identifying and resolving critical issues associated with the database.
Another challenge to distributing WIC benefits electronically is processing  the different types of WIC EBT transactions. For example, some states use  an “online” EBT card with the magnetic stripe, and other states use the  “offline” EBT card with the circuit chip. USDA officials stated that USDA  is working with retailers to update their existing cash register systems so  they can process both types of EBT cards used by state agencies.  Furthermore, according to USDA officials, not having a common set of  standards for transaction processing to govern WIC EBT transactions  poses a challenge. Therefore, USDA works with retailers, industry  representatives, and state agencies in an effort to develop standards that  will lay the groundwork for nationwide WIC EBT. According to USDA  officials, USDA has worked with Accredited Standards Committee X9,  Inc., which is an American National Standards Institute accredited  standards developing organization, to define common processes for WIC  EBT transactions processed using both online and offline EBT cards and is  working with certain states to develop standard practices for WIC EBT  transactions, such as setting standards for the type of information that  should be on a WIC EBT receipt.
The Trade Adjustment Assistance (TAA) program administered by DOL,  which provides assistance to individuals adversely affected by increased  imports to help them obtain suitable employment, is composed of an  income-assistance component and service-delivery components. The  income-assistance component of the benefit, called Trade Readjustment  Allowance (TRA), is provided to individuals in the form of a monetary, or  cash, payment. One of the service-delivery components of the benefit  provides assistance for education or training in the form of vouchers.  Officials in one state have explored ways to implement an electronic  solution for training vouchers issued through the TAA program. Officials  we interviewed in other states stated they had successfully implemented  or planned to implement an electronic payment option for the TRA cash  benefit. For example, almost all TRA benefits in Minnesota are disbursed  using a debit card or direct deposit, and state officials in Georgia stated  that they have successfully delivered TRA benefits through direct deposit  since 1999. State officials we interviewed in California stated that they  were considering issuing TRA benefits using a debit card.
Payments for programs, such as unemployment insurance and Social  Security, that do not restrict how or where funds are used can be made  through many types of electronic methods. Treasury officials stated that  one method—EBT—is a better option for programs with restrictions such  as the Food Stamp Program, which only can be redeemed for eligible food  items at authorized locations. According to a paper published by  NACHA—The Electronic Payments Association, EBT is generally most  effective as a payment solution when the transfer of value involves  requirements specific to program policy or unique recipient needs that  differentiate it from a simple payment product.  One industry  representative with whom we met stated that if a benefit program has  rules restricting how the benefits are accessed and used, then it needs an  EBT solution. If the benefits are unrestricted, then other payment cards  work well. Another industry representative also stated that if a benefit  payment is strictly cash, then EBT is not the best option; rather, EPCs are  better for benefits that include cash payments.
Along with the type of benefit, agencies also consider how to meet the  needs of various stakeholders when deciding to implement an electronic  payment solution. For example, USDA officials stated that they had to  consider the impact of WIC EBT on grocers and retailers to develop a  system that would meet the needs of all users. Agency officials in one state  told us that they conducted focus groups with local health clinics, grocers,  WIC recipients, and the advocacy community to obtain input from all  stakeholders prior to implementing WIC EBT. Stakeholder reluctance, on  the other hand, can inhibit federal programs from implementing electronic  payments or prolong the development of an electronic payment  mechanism. For example, an industry representative we interviewed  explained that one state opposed the interoperability of EBT among states  because it did not get the additional revenue from sales taxes when its  EBT customers purchased food items from a bordering state with no sales  tax.
section_title: Up-front and Operating Costs Can Be Deciding Factors When Implementing Electronic Payment Systems
paragraphs: Typically, it costs less to issue an electronic payment than to issue a paper  check. Treasury estimated that in fiscal year 2007, a check payment cost  the federal government $0.979 and an electronic payment cost $0.099.  According to Treasury, the government could have potentially realized an  annualized cost savings in fiscal year 2007 of more than $189 million for all  check payments that could have been paid electronically. State agencies  have also cited cost reduction and efficiency as key reasons for  implementing electronic payments. For example, electronic payments  eliminate check ordering, storage, printing, and postage costs for the  agency. The use of electronic payments also reduces paperwork and other  administrative processes for the agency.
According to some state agency officials and industry representatives, cost  savings and efficiency are only fully realized when 100 percent of  payments are disbursed electronically. For example, an industry  representative stated that the benefits of electronic payments are realized  when paper checks are eliminated; that is, when there is no need for any  type of infrastructure to distribute and process checks. Another industry  representative with whom we spoke also stated that, in the long run, as  fewer and fewer paper checks are printed, the cost per check will continue  to increase because there will be fewer economies of scale. According to  this representative, true efficiencies would be realized only when checks  are no longer used. Officials in one state agency stated that providing  recipients with benefits by paper check was not an option because the  agency would need two parallel payment systems to accomplish one task,  which would not be cost-effective. In response to these officials’ and  representatives’ statements, Treasury stated that it maintains a check  payment system in addition to its electronic payment options. One of the  reasons that Treasury maintains its check payment system is to make  payments to recipients without bank accounts, or unbanked recipients.  According to Treasury, approximately 4 million recipients of Social  Security and SSI benefits are unbanked, and there has been no widely used  national initiative to deliver electronic payments to unbanked recipients.  Furthermore, electronic payments to the unbanked are not mandated.  According to Treasury, the savings from making an electronic payment  compared with making a check payment will continue to be realized as  check costs rise due to postage increases and other cost increases, such as  paper and envelopes.
However, cost can be a deciding factor in implementing or choosing  between electronic payment methods, according to agency officials.  According to some agency officials with whom we spoke, implementing  electronic payments for a benefit program is resource-driven. To  accomplish electronic payments, agencies need funding and staff.  According to BIA officials, some Indian reservations and Alaska Native  communities would have difficulty bearing the costs associated with  administering and maintaining an electronic system. An industry  representative with whom we spoke explained that a primary cost of  implementing electronic payments is associated with modifying software,  planning meetings to discuss technical and operational aspects of the  project, and training staff. Agency officials explained that before  implementing electronic payments for a specific program, they have to  consider the cost-effectiveness of doing so. For example, the current  payment system for the Veterans Education Assistance Program is not  capable of generating electronic payment files and would have to be  redesigned to accommodate this feature. Fewer than 500 individuals are  eligible to receive benefits under this program, and the number of eligible  recipients is declining. Therefore, VA officials stated that the benefits they  would realize from implementing electronic payments for this program  would not outweigh the associated up-front costs. Other agency officials  echoed VA’s sentiment, stating that it is sensible for an issuer to use  electronic payments to make large numbers of payments. However, if the  issuer were making only a small number of payments, it might be more  advantageous for it to issue paper checks.
Small or low-volume programs were not the only ones that cited up-front  costs as a challenge to the electronic delivery of benefits. The WIC  program has had difficulty finding an electronic payment model that can  provide effective services at a reasonable cost. For example, a WIC EBT  system requires sophisticated POS devices that can identify and sort foods  by category and amount. Also, according to a USDA official, the WIC  program does not have much funding for development of new payment  systems. For example, an early attempt at WIC EBT in the New England  region was inhibited by, among other things, up-front costs borne by the  WIC program. In another example, USDA terminated a WIC EBT pilot in  Ohio due to the high costs associated with the monthly caseload. USDA  officials explained that states have to be able to afford to operate the WIC  EBT program within the administrative funding amount provided annually.  According to USDA, if Ohio had expanded its WIC EBT pilot statewide, the  costs would have been too expensive to operate, given the amount of  funding the state received to administer the program. However, according  to USDA officials, other states have successfully implemented WIC EBT  within the cost restraints of the program. For example, Wyoming was the  first state to implement WIC EBT statewide in January 2002, and New  Mexico implemented WIC EBT statewide in December 2007. Texas and  Michigan are currently in the process of implementing WIC EBT statewide  and expect to be fully implemented by early 2009. USDA also provides  grants to states to assist with implementing WIC EBT. According to USDA  officials, they give priority to states that are piloting WIC EBT. In 2007,  USDA also offered preplanning awards for states that expressed an  interest in using WIC EBT. States can use the preplanning grant funds to  conduct feasibility studies for implementing WIC EBT, among other  things.
According to USDA officials, a thorough cost evaluation is needed before a  state agency can determine whether it can afford the ongoing cost of WIC  EBT within its nutrition services and administration budget. USDA  officials stated that many factors impact the affordability of WIC EBT.  Because each state agency has discretion in how it operates its WIC  program and designs its paper benefit delivery system, costs vary from  state to state. This cost variation, in turn, makes it difficult to assess the  affordability of EBT across all states. Each state agency must assess  whether it can find savings by replacing current paper-based systems with  electronic benefit delivery systems. For example, if a state agency’s  banking costs for processing paper food instruments is high, elimination of  that cost may help offset the cost of EBT. Furthermore, states that can  process EBT transactions using state resources, rather than hiring an EBT  processor, may experience a lower EBT cost than state agencies that must  pay ongoing processor fees.
Furthermore, although different electronic payment methods can appear  to be equally cost-efficient and feasible to implement, they may present  different operational costs. Generally, state agencies bear the cost of  making payments using EBT because they pay a fixed cost to the EBT  provider on the basis of the number of households that receive a benefit  allotment in a given month. Payment providers can provide other payment  cards at no cost to the state agency because they can gain revenue from  the transaction in the form of interchange or other transaction fees (e.g.,  ATM withdrawal fees) paid by the retailer or the card user. An industry  representative stated that, at one time, EBT was a good means for  distributing cash payments to beneficiaries, but now the current trend is  for programs that distribute cash benefits to provide beneficiaries with  branded EPCs that function like debit cards. The administering agency  must pay a monthly fee for each individual that uses an EBT card.  However, with branded EPC cards, the administering agency may not be  responsible for a monthly fee because the card issuer (e.g., VISA or  MasterCard) collects a portion of the interchange fees.
section_title: Although Electronic Payments Have Security and Audit Features, Agencies Consider Fraud Risks and System Vulnerabilities When Using Electronic Payment Methods
paragraphs: Electronic payments can help reduce certain risks associated with a paper  environment, including fraud and payment system vulnerabilities, but risks  continue to exist in an electronic environment. In an effort to bolster  information system security in the federal government, Congress passed  the Federal Information Security Management Act of 2002, which  authorized and strengthened information security program, evaluation,  and annual reporting requirements for federal agencies. Virtually all  federal operations are supported by automated systems and electronic  data, and agencies would find it difficult, if not impossible, to carry out  their missions and account for their resources without these information  assets. Therefore, it is important for agencies to safeguard their systems  against risks such as loss or theft of resources (such as federal payments  and collections), modification or destruction of data, and unauthorized  uses of computer resources. According to agency officials and industry  representatives, risks associated with an agency’s payment system exist  regardless of the method used to distribute benefits. As agencies  implement electronic methods for distributing benefit payments, they  should be aware of how susceptible to risk the payment system is and how  risks may change in an electronic environment.
To assist agencies in providing adequate security, the federal government  and the electronic payments industry have developed standards for EBT  and other types of EPCs. Federal rules and regulations resulting from the  Personal Responsibility and Work Opportunity Reconciliation Act of 1996,  which mandated nationwide EBT issuance of food stamp benefits,  established technical standards for processing EBT transactions. Also, the  Quest Operating Rules, which set forth the requirements for the  distribution of government benefits under the Quest service mark, provide  technical standards for the exchange and processing of EBT transactions.  Adherence to the Quest Operating Rules is optional, and states that have  not adopted these rules operate under state-specific rules. According to  USDA officials, whether or not states adopt the Quest Operating Rules,  they must follow the standards and regulations established by various  federal rules governing food stamp EBT transactions, which include  compliance with applicable standards developed by the American National  Standards Institute and the International Organization for Standardization.  In addition, the Payment Card Industry (PCI) Data Security Standard,  which major credit card companies developed to help organizations that  process card payments prevent credit card fraud and various other  security vulnerabilities and threats, provides a set of comprehensive  requirements for enhancing payment account data security. One industry  representative stated that the increased use of payment cards has resulted  in an increased awareness of the importance of maintaining high  standards for security.
In addition to security standards, electronic payments provide a complete  audit trail for agencies, which makes it easier to resolve payment errors  and detect fraud. According to USDA officials, EBT systems in particular  can identify suspected patterns of fraud and create electronic audit trails  that provide the agency with an opportunity to target its fraud  investigations. USDA collects daily food stamp transaction data from each  state and adds the data to its EBT transaction database for analysis. The  system scans these data to flag transactions or sets of transactions that fit  a certain set of criteria defined by established patterns of fraudulent  activity. The system then generates a monthly “Watch List” of retailers  with suspicious transaction patterns incongruent with a store’s particular  type of retail operation. Since adopting EBT for food stamps, USDA  officials told us that fraud has been reduced dramatically. The national  rate of food stamp trafficking declined from about 3.8 cents per dollar of  benefits redeemed in 1993 to about 1 cent per dollar during the period of  2002 to 2005.
However, electronic payments are susceptible to unauthorized use, loss, or  theft, just as paper payments, albeit to a lesser extent. According to  Treasury officials, most problems are associated with paper checks. They  stated that the level of risk with check payments will always be  considerably higher than that of electronic payments, since checks are  more susceptible to being lost, stolen, or forged. Electronic systems also  are vulnerable to the use of benefits inconsistent with program policy or  the erroneous or unauthorized establishment and funding of benefits. The  use of EBT cards for food stamps has changed how food stamp benefits  are trafficked, for example, by making it much more difficult for  middlemen who previously collected and redeemed large amounts of  paper coupons from recipients who were willing to sell them. Now, some  food stamp recipients can stand outside of stores offering to loan their  EBT cards to shoppers entering the store. In this situation, the shopper  would purchase groceries using the card and return it with a discounted  amount of cash to the recipient upon leaving the store. Recipients can also  swipe their EBT card, but instead of buying groceries, they receive a  discounted amount of cash and the retailer keeps the difference. In  addition, for certain VA benefits, there is a risk that authorized individuals  could fail to notify the agency that a recipient is deceased to continue to  receive funds, and could continue to withdraw funds from the deceased  recipient’s bank account. According to an industry representative,  recipients can sell an EPC and the PIN, and then report that the card had  been lost or stolen to recoup lost benefits. However, according to federal  and state agency officials and industry representatives, electronic  payments are much less susceptible to fraud and risk than payments made  by a paper instrument, such as a check or voucher.
section_title: Various Options Exist for Increasing the Use of Electronic Payments, Including Further Treasury Actions
paragraphs: Federal and state agencies could employ various options to increase the  use of electronic payments to distribute federal benefit payments. These  options include requiring recipients to receive their benefits electronically  through mandates, making electronic payment the default option,  promoting the benefits of electronic payment through public outreach,  using pilot programs, and applying EPCs in a variety of ways. The most- sweeping option for increasing use of electronic payments would be  mandating electronic payments without exception for recipients. Other,  less-sweeping alternatives also could result in the increased use of  electronic payments, and they range from making electronic payment a  default option upon benefit enrollment to greater public education and  outreach. These alternatives also include piloting electronic distribution  programs and applying EPCs in new ways. Treasury, the primary  disbursing agency for the federal government, has introduced several  initiatives and conducted outreach to federal agencies in its efforts to  support and increase the use of electronic payments. For example,  Treasury has met with CFOs from the largest federal agencies to discuss  Treasury’s program initiatives, such as increasing electronic payments.  However, Treasury has no plans to meet with CFO agencies and other  smaller agencies on a regular basis.
subsections: section_title: Options to Increase Electronic Payments Could Include New Statutory Requirements or Widescale Adoption of Methods Some Agencies Already Use or Have Piloted
paragraphs: The most-sweeping option—and one that would guarantee an increase in  the use of electronic payments—would involve mandating electronic  payments without exceptions for recipients. Congress could mandate that  all federal benefit payments be made electronically and not allow  recipients to opt out of receiving payments electronically. Current federal  law covers some, but not all, federal benefit payments, since, as stated by  Treasury, the law does not include federally funded, state-disbursed  payments. In addition, Treasury’s implementing regulations include a  waiver policy, which permits individuals to determine for themselves  whether direct deposit would cause them a hardship.
The Personal Responsibility and Work Opportunity Reconciliation Act of  1996 is an example of a mandate with no exceptions for recipients. The act  required that state agencies administering the Food Stamp Program use  EBT exclusively by 2002 to distribute benefits, except for those states  facing unusual barriers to implementing an EBT system. However, once  implemented, EBT became mandatory for the recipients. In a 2002 report,  we did not identify any overall technical barriers impeding the statewide  implementation of EBT systems. Although, we did note that four  jurisdictions, which collectively distributed about 1.7 percent of food  stamp benefits nationally, delayed their implementation, in part, due to  concerns over the higher cost of EBT over the old paper coupon system of  food stamp benefit delivery. According to USDA, as of June 2004, all 50  states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands  were operating EBT systems to issue food stamp benefits. Overall, several  industry representatives agreed that EBT works well, and many prefer it  because it is convenient and safer than checks or cash. Furthermore, some  agency officials with whom we spoke said they require or will require  electronic payments for certain state-administered federal benefits, such  as unemployment insurance, without a statutory mandate. Specifically,  agency officials said they notified recipients that direct deposit or a debit  card were the only payment options available to them.
However, a mandate would present challenges, particularly for certain  types of programs. For example, as we noted in the previous section of  this report, challenges to using EBT for WIC involve the product-driven  nature of the benefit. Although Congress has not mandated that USDA  WIC benefits be distributed electronically, one industry representative and  two agency officials indicated that states adopting EBT for the WIC  program are by default making EBT distribution a requirement because  that is the only way the benefits would be distributed. As of March 2008,  only two states had implemented WIC EBT statewide. Depending on the  type of technology being used, states may need to modify the existing  electronic checkout system to process WIC transactions. According to one  industry representative, an electronic WIC solution that uses a magnetic  stripe can be used at any retailer equipped with an electronic cash register  system. However, a solution that uses smart card technology, where a chip  is embedded in the card, would require special equipment to read the chip.
Furthermore, a representative of one consumer group noted that making  electronic payments mandatory for recipients reduces the incentive for the  industry to develop good EBT products and deliver quality services. Some  consumer groups and industry representatives believe that recipients  should be given a choice of how their benefit payments are distributed.
Rather than mandating electronic payments for recipients, agencies could  choose a less-sweeping option that would make electronic payment the  primary payment option on benefit applications. According to some  industry representatives, enrollment in a benefits program should  automatically default to electronic distribution. That is, individuals would  receive benefits electronically, unless they specifically opted out and  asked for a paper check. According to one industry group, this approach  likely would foster broader acceptance and prove less intimidating to  elderly recipients than an approach without the choice of opting out. In  addition, a few industry representatives stated that recipients were less  likely to opt out of receiving payments electronically because it would  require some effort on their part. Some industry representatives indicated  that exceptions could be retained for certain recipients with special  challenges or needs—for example, those living in remote areas with  limited banking access—should continue to receive paper checks.  However, one industry representative contended that providing an opt out  puts an agency in the position of having to support multiple distribution  processes; that is, electronic as well as paper infrastructures.  Furthermore, officials from one state told us that having parallel systems  reduced cost savings. Officials from another state we interviewed said that  offering paper checks as an option afforded recipients a ready opportunity  to decline electronic payments.
In another approach, agencies could conduct consumer outreach to  educate recipients of the benefits they could derive from receiving their  payments electronically and, as a result, could increase their acceptance  and use of electronic methods. Agency officials, some consumer groups,  and industry representatives indicated that consumer outreach helps in  promoting electronic payments. Along these lines, Treasury has conducted  consumer outreach through a variety of means. For example, Treasury, in  partnership with SSA, has communicated directly with Social Security  recipients at preretirement seminars and indirectly through printed  publications. More specifically, Treasury’s key marketing strategy to  inform check recipients about the advantages of direct deposit is to  include mail inserts with their payments. Treasury also has tailored its  communications strategies for different audiences. According to Treasury  officials, the use of media such as radio, television, and outdoor  advertising (e.g., signage at bus stops) is a better way to reach the  unbanked, rather than the use of print media. In other examples, officials  from one state agency told us they issued press releases about the benefits  of electronic payments, sent mailings to recipients of certain benefit  payments to encourage them to sign up for direct deposit or the debit  card, and led discussions with labor union representatives and workers to  obtain feedback. Two representatives from an industry group stated that  they did not know how effective conducting consumer outreach would be  because it was already well-known that electronic payment programs  worked well. They also stated that mail inserts might not be effective  because individuals tended to throw inserts away.
Piloting an electronic benefit program is yet another mechanism that  agencies can use to increase electronic payments. Implementing pilot  programs can demonstrate whether recipients or other stakeholders, such  as retailers, are receptive to electronic payments and identify needed  refinements or fixes that could make electronic payments more feasible.  Several industry representatives and agency officials agreed that pilot  programs give agencies a chance to test information and payment systems  as well as an opportunity to gauge public perceptions and acceptance of  methods and products that agencies use. However, one industry  representative contended that pilots are not always necessary because the  success of electronic payment solutions had already been proven.
Several states—including Michigan, New Mexico, Ohio, Texas,  Washington, and Wyoming—have piloted or are in the process of piloting  WIC EBT to test its feasibility before rolling out the program statewide.  According to the results of the Washington State online WIC  demonstration project and some agency officials and industry  representatives, the pilots helped gain acceptance among retailers,  recipients, and others. In a survey of participants in the Washington State  pilot, 60 percent of the recipients said EBT was much better than paper  checks. While the survey results for retail staff, including managers, were  mixed, they agreed that they liked the concept of WIC EBT but believed  that enhancements to the terminals were necessary. Washington’s WIC  commitment was only for 6 months, and, according to USDA, Kentucky  will continue the project begun in Washington to further test the use of  online technology for WIC EBT. An agency official from another state  reported that the pilot program led to enhancements of its WIC EBT pilot  system. Specifically, its vendor identified a glitch in the pilot system that  placed a hold on recipients’ benefit accounts while waiting for the EBT  host to confirm a transaction. The delayed processing could have  prevented the recipients from using the EBT cards for a few hours. The  vendor modified the system so that this step was no longer required and  recipients’ accounts were no longer put on hold. In contrast, as we have  previously discussed, Ohio’s pilot was terminated in June 2005 because of  the high cost to process EBT transactions. According to USDA officials, it  would have been too expensive, at that time, for Ohio to operate the WIC  EBT system statewide with the amount of administrative funding it  received.
As EBT has become more widely accepted and the use of debit card  technology has increased, state agencies administering federal benefits are  exploring other types of EPCs to further increase the use of electronic  payments. The recent increased use of debit card payments (e.g.,  according to the 2007 Federal Reserve Payments Study, the number of  debit card payments increased from 15.6 billion in 2003 to 25.3 billion in  2006) has led states to explore using variations of the EBT and the EPC  cards to deliver benefit payments. For example, some states have explored  using hybrid cards to deliver multiple state-administered benefits. Hybrid  technology involves the issuance of a single card with a magnetic stripe  and integrated chip technology that could allow recipients to access  benefits as well as store cardholder information such as medical records.  Specifically, benefits such as Food Stamp and TANF would be accessed by  swiping the magnetic stripe, whereas medical information would be read  from the integrated chip embedded in the card. According to an industry  group, smart cards are generally more durable than magnetic stripe cards  because the data on the stripe can easily be changed or can be erased by  magnets. In addition, smart cards have the ability to carry a variety of  applications, such as identification and payment data, on a single card.
While some states have used the EBT card to deliver multiple benefits,  some have also been considering using a “co-branded” EBT card to deliver  a number of benefits. The card—which, for example, can bear both the  Quest service mark and a logo, such as Visa or MasterCard—would allow  benefit recipients to access restricted and unrestricted government-issued  benefits using a single payment card. Specifically, the co-branded card  would be accepted for unrestricted cash transactions at all locations that  accept commercial payments such as Visa or MasterCard. With co- branding it is presumed that food stamp benefits, which are restricted,  would be established as a separate account type from cash benefits,  thereby ensuring that purchases could only be made at USDA authorized  retail locations. Individual states have been considering co-branded cards  for a variety of reasons. According to the Electronic Benefits and Services  Council’s white paper on the co-branding of EBT cards, some states have  determined that their clients would like a single card. For example, 87  percent of the clients surveyed in Texas would like to have a single card.  States on the Gulf Coast have sought the best and easiest way to disburse  funds after a disaster. Furthermore, other states seek to increase the  number of locations where recipients could access benefits and payments.  However, the concept of co-branding is relatively new, and state agencies  and the electronic payment industry continue to explore many issues  associated with co-branding. For example, according to the Electronic  Benefits and Services Council’s white paper, a cardholder could conduct a  co-branded transaction by using either a PIN or a signature. Federal  regulation limits food stamp transactions to PIN-based transactions, and  merchants favor the use of PIN-based transactions because they are  comparatively low cost for the retailer. However, a signature-based  transaction generally allows the cardholder to access cash benefits at  virtually any retail location that accepts commercial payments, such as  Visa or MasterCard.
section_title: Treasury Has Introduced Three Initiatives and Conducted Limited Outreach with Federal Agencies to Support the Use of Electronic Payments
paragraphs: Treasury, as the primary disbursing agency for the federal government, has  introduced two initiatives and is working on a third program to encourage  the use of electronic payments to distribute federal benefit payments for  programs for which they disburse payments. The first initiative, “Go  Direct,” is Treasury’s marketing and education campaign targeting check  recipients. The goal of the campaign is to have more individuals convert  from paper checks to direct deposit by emphasizing the benefits of direct  deposit—such as safety, security, and convenience. According to Treasury,  over the last 3 years, 1.8 million recipients have converted from paper  checks to direct deposit. However, the rate of growth in direct deposit has  slowed. Furthermore, Treasury stated that it faced challenges in  converting unbanked recipients to electronic payments and in reaching  new enrollees.
To overcome challenges related to converting check payments to  electronic payments, Treasury developed a second initiative. Specifically,  in January 2007, Treasury piloted the Direct Express debit card (bearing  the MasterCard logo) for 1 year to unbanked Social Security and SSI  recipients in Illinois. Approximately 3,000 recipients participated in the  program. According to its Web site, Treasury’s financial agent established  a Direct Express account for the recipients, who then could use the card  at ATMs to access benefits in their accounts. The pilot was successful, and  Treasury launched the Direct Express card nationwide in April 2008.  According to Treasury officials, results of a survey conducted after the  pilot showed that 85 percent of the card users were satisfied with the debit  card, and that 88 percent indicated that they would refer the program to a  family member or a friend. Information provided on Treasury’s Web site  indicated that Direct Express gives recipients the advantages of direct  deposit, even if they do not have a bank account. In addition, Treasury  explained on its Web site that the Direct Express card offers cardholders  the convenience and security of making purchases anywhere that  MasterCard is accepted and of getting cash back at thousands of locations  and ATMs. Some of the services provided free of charge include    purchases at retail locations, cash back with purchases, or cash  withdrawal through banks or credit unions;   one ATM cash withdrawal for each deposit posted to accounts each month  when using a Direct Express ATM;   balance inquiry at ATMs, by telephone or online; and    access to the toll-free customer service number or Web site 24 hours a day,  7 days a week.
Furthermore, the Direct Express card benefits are FDIC-insured, and the  consumer protections of Regulation E (such as disclosures of consumer  liability and procedures for resolving errors) apply to the debit card  account. The Web site also notes that Treasury and SSA strongly  recommend that Social Security and SSI recipients receive benefits  electronically—either by direct deposit to their bank accounts or to a  Direct Express debit card. However, recipients are not required to sign up  for the Direct Express card if they do not have a bank account.  Furthermore, if after signing up for a Direct Express card, recipients do  not like using it, they may close their card account. As an alternative,  Treasury suggests that these recipients enroll in direct deposit. According  to Treasury officials, because of the many features that we have previously  described, they are optimistic that the debit card will reach the core of  check recipients that are reticent about electronic payments.
Lastly, to address the challenge that new enrollees present, Treasury is  working closely with SSA to ensure that new SSA benefit enrollees sign up  for direct deposit at the point of the initial application for benefits.  Through a newly designed application process, SSA will encourage benefit  applicants to sign up for direct deposit into an existing bank account.  Furthermore, SSA will offer the Direct Express debit card to individuals  who do not have bank accounts. Treasury and SSA will also market direct  deposit and the Direct Express debit card to preretirees.
Although Treasury disburses payments for some federal agencies and  programs, it does not disburse payments on behalf of all federal agencies  because some agencies have authority to disburse payments themselves— for example, when an agency has statutory authority or when Treasury  delegates to an agency the authority to issue specific payments. As the  federal government’s leader for payments, Treasury said that its goal is to  move toward an all-electronic government for disbursement and collection  of payments. Toward this end, Treasury, in its Fiscal Years 2003-2008  Strategic Plan has discussed increasing electronic payments as a strategic  goal and also has identified a cross-cutting objective and strategy, such as  including federal program agencies as key partners in achieving this goal.  Furthermore, Treasury encourages all agencies to improve their cash  management practices by using EFT whenever cost-effective, practicable,  and consistent with statutory authority. For example, Treasury officials  told us that they met with CFOs from the largest federal agencies (those  under the CFO Act) to discuss payment solutions and other issues, and  that they are willing to meet with any federal agency to discuss issuing  payments on their behalf electronically. Specifically, in the late fall of  2006 and early 2007, FMS’s Commissioner and Deputy Commissioner  established an effort to meet with the CFO and Deputy Chief Financial  Officer of each of the 24 CFO Act agencies. In addition, the Commissioner  and Deputy Commissioner attended a Small Agency Council meeting of  the financial officers of executive federal agencies that are not a part of  the CFO Act.
These meetings with other agencies were designed as an opportunity for  Treasury to strengthen communications and establish relationships with  those who influence financial management within the federal sector as  well as to discuss Treasury’s program initiatives, such as increasing  electronic payments. According to Treasury, there was universal support  during the CFO meetings for its goal of moving to all-electronic means for  payments and collection. Treasury also noted that agencies cited as  concerns a lack of staff and a lack of funding resources to undertake EFT  and related electronic initiatives, although these concerns were not  specific to electronic payment. Treasury introduced this action due to  personnel changes in FMS’s Office of the Commissioner and in the CFO  offices of some agencies. In addition, according to Treasury, as a part of its  routine business activities, Treasury conducted informal outreach at the  program level, particularly to staff from the larger agencies for which it  disburses payments, such as SSA and VA, to encourage the use of  electronic payments. These efforts were positive in introducing agencies  to Treasury’s initiatives and also provided Treasury with information on  some of the challenges agencies were facing in using electronic methods.  However, while Treasury’s focus has primarily been on the larger agencies  for which it disburses payments, smaller agencies could also benefit from  these outreach efforts. Treasury has not conducted outreach to CFOs and  staff from smaller agencies on a consistent basis and has no plans for  more regular outreach to CFOs and smaller agencies, including those that  may not fully use electronic payments. However, officials from one agency  told us that other agencies could benefit from Treasury’s experience and  expertise on electronic solutions. By developing a means to ensure regular  dialogue with the CFO Act agencies and other smaller agencies for which  Treasury disburses payments, Treasury may be able to further encourage  the use of electronic payments and help agencies develop solutions to  address the challenges or constraints they are facing. Such action could  assist Treasury in reaching its goal of moving to an all-electronic  government for payments.
section_title: Conclusions
paragraphs: The use of electronic payments to disburse federal benefits appears to be  increasingly accepted by agencies and recipients. The results of our survey  of 42 federal benefit programs indicated that 34 programs used some form  of electronic payment to disburse benefits to the majority of recipients. At  the same time, some of these programs also continue to disburse benefits  using a paper check, and some programs we surveyed did not disburse  benefits electronically, which means that some challenges remain to  increasing the use of electronic payments. Agency officials and industry  and consumer group representatives were largely in agreement that there  are several advantages of electronic payments compared with paper  checks, but they also recognized that agencies have several factors to  consider when making the decision to implement an electronic payment  method. When agencies decide to implement an electronic payment  method to disburse benefits, they do so while considering the perceived  disadvantages of electronic payments, characteristics of the program  whose payments will be made electronically, costs of implementing and  using an electronic method, and potential risks associated with electronic  payments. Taking these factors into consideration can help agencies  understand how best to choose and implement the most appropriate  electronic payment method for distribution of federal benefit payments.  Doing so might also have the added benefit of encouraging the increased  use and acceptance of electronic payments among recipients.
Federal and state agencies have a range of options to increase the use of  electronic payments to distribute federal benefits payments, and,  specifically, Treasury has a leadership role in supporting the use of  electronic payments. These options include the most-sweeping option that  mandates electronic payments without exception to less-sweeping  alternatives that range from making electronic payment a default option to  conducting more public education and outreach and implementing pilot  programs. Moreover, through its initiatives, such as the “Go Direct”  campaign and the Direct Express debit card, Treasury has used some of  these options and assisted agencies for which it disburses payments in  increasing the use of electronic payments. Treasury has also taken steps to  encourage federal agencies to improve their financial management  practices, including increasing the use of electronic payments. Conducting  such an outreach effort on a more regularly scheduled basis—including  meeting with the agencies we identified in this report that did not use  electronic payments or did not fully use electronic payments to disburse  benefits—would allow Treasury to include more detailed discussions  about electronic payments and develop ongoing relationships with  agencies’ CFOs and staff who could use Treasury’s expertise to move  toward the use of electronic payments governmentwide.
section_title: Recommendation for Executive Action
paragraphs: To help Treasury achieve its goals of increasing the use of electronic  payments and moving to an all-electronic government, we recommend that  the Secretary of the Treasury direct the Commissioner of FMS 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 CFOs, 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.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from the Secretaries of  Treasury and USDA. In an e-mail summarizing comments from Treasury’s  Financial Management Service, Treasury noted that it generally agreed  with the report. Treasury did not comment on the recommendation but  stated that it would address the recommendation in its statement of  actions to congressional committees not later than 60 days after the date  of the report. Treasury suggested we note in the report that while there  has been increased support for mandating electronic payments, some  consumer and special interest groups have not been supportive of  implementing a mandatory electronic delivery method for delivering  benefits. Our report presented various options that exist for agencies to  increase electronic distribution of federal benefits, including mandating  electronic payments for recipients. We noted in the report that there are  concerns about making electronic payments mandatory. Specifically, we  stated that some consumer groups and industry representatives believe  that recipients should be given a choice of how their benefits payments  are distributed. Treasury also provided technical comments that we  incorporated in the report as appropriate.
Officials from USDA’s Food and Nutrition Service provided oral comments  on a draft of this report and stated that they agreed with its overall  message. USDA officials specifically stated that up-front costs did not pose  the greatest challenge to implementing WIC EBT because the WIC  program provides grants to state agencies for EBT project planning and  development. Although these officials expressed concern that the grant  funds are limited, they stated that the bigger issue for WIC is the ability of  state agencies to afford the ongoing costs of EBT. We added language in  the report that explains the difficulty with assessing states’ ability to afford  the ongoing costs of a WIC EBT program. USDA officials also stated that  while WIC EBT will allow greater cost monitoring and provide  administrative efficiencies, cost reduction is not a key reason for  implementing WIC EBT. We understand that not all programs implement  electronic payments solely to reduce costs. Nonetheless, agency officials  we interviewed cited cost reduction and efficiency as key reasons for  implementing electronic payments. We did not specifically attribute this  statement to USDA officials, nor did we make a specific reference to WIC  EBT.
USDA officials also noted that the report discussed fees that could be  passed on to recipients, such as those for minimum balances or ATM fees,  but that such fees do not apply to EBT cards that offer access to targeted  benefits outside of banks—for example, Food Stamp or WIC benefits  redeemed at authorized retailers using the EBT card. We acknowledge that  the type of fee and extent to which fees apply vary by the type of  electronic payment method being used. We also understand that there are  no associated fees for recipients when using EBT cards to access Food  Stamp and WIC benefits. However, such fees may apply when accessing  other types of benefits—for example, unrestricted cash benefits—using an  EBT card or another type of EPC. Our intent was to generally describe the  types of perceived disadvantages of using electronic payment methods— which included fees, recipient and benefit characteristics, and certain  banking practices, among others—and not necessarily to link only EBT to  a discussion of fees or to imply that all methods of electronic payment  have all of the perceived disadvantages described in the report. USDA  officials also provided technical comments, which we incorporated in the  report where appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of the report to the  Chairman, House Committee on Oversight and Government Reform, and  other interested congressional committees. We are also sending copies of  this report to the Secretary of the Treasury; the Secretary of Agriculture;  the Chairman, Board of Governors of the Federal Reserve System; the  Commissioner of the Social Security Administration; the Secretary of  Labor; and other interested parties. We will make copies available to  others upon request. In addition, the report will be available at no charge  on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-8678 or jonesy@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in  appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) describe the extent to which federal programs  are using electronic payment methods to disburse benefits; (2) identify  factors that agencies consider when implementing or using electronic  payments; and (3) identify potential options for increasing the use of  electronic payments, particularly the Department of the Treasury’s  (Treasury) actions to increase electronic payments.
To respond to these objectives, we reviewed agency documents, reports,  and studies on electronic payments. We interviewed Treasury officials and  collected written and testimonial information about their experiences in  implementing and using electronic payment methods to distribute  benefits, as well as current initiatives aimed at increasing the use of  electronic payments. We conducted a site visit to Harrisburg,  Pennsylvania, and met with state agency officials in the state’s Department  of Health, Department of Public Welfare, and Office of the Budget to  obtain information on the state’s use of electronic payments because  Pennsylvania was the first state to pilot Electronic Benefit Transfer for the  Food Stamp Program in October 1984. We interviewed officials at the  following six federal agencies responsible for overseeing or administering  federal benefit programs that provided recurring benefits to individuals to  obtain information on their use of electronic payments: the U.S.  Department of Agriculture (USDA), Department of Labor (DOL),  Department of Veterans Affairs, Social Security Administration (SSA),  Department of the Interior’s Bureau of Indian Affairs, and Department of  Health and Human Services. We also attended conferences sponsored by  NACHA—The Electronic Payments Association’s Electronic Benefits and  Services Council and the Electronic Funds Transfer Association to  observe presentations from a variety of federal and state agencies,  electronic payment providers, and private-sector consultants on issues  related to implementing and using electronic payment methods to disburse  benefits.
To determine the extent to which federal programs use electronic  payments, we used the Catalog of Federal Domestic Assistance (CFDA)  and the Federal Assistance Award Data System (FAADS) to identify  federal benefit programs that provided recurring payments to individuals.
CFDA and FAADS, used together, provided general information on each  federal benefit program, including a brief description of the program, the  number of recipients in the program, and dollar amounts obligated for the  program. Our analysis of CFDA and FAADS data began on June 14, 2007,  and we used the most recently available data as of that date for our  analysis. For CFDA, we analyzed data from fiscal year 2006. The most  recent complete set of available data from FAADS was from fiscal year  2005.
We first queried the CFDA database to obtain a list of programs that would  be suitable for our review. The CFDA query returned a list of programs,  for which the team needed corresponding data from FAADS, including the  number of recipients and the dollar amount obligated for each program.  The unique CFDA number for each program was the primary data element  that allowed us to obtain corresponding information from the FAADS  database for those programs identified in CFDA. Therefore, we queried a  list of similar programs using the FAADS database. These queries  ultimately returned 455 federal benefit programs.
The team developed criteria and, using program descriptions from CFDA,  agency, and other government Web sites, conducted a content analysis of  the programs to determine which of the 455 programs identified by FAADS  and CFDA met our criteria for further review. For example, consistent  with our criteria, we excluded programs whose benefits were not  ultimately paid to individuals, programs that did not provide recurring  payments, loan or loan guarantee programs, programs whose payments  were made in connection with an insurance program, and programs whose  payments subsidized the hiring or salaries of employees. On the basis of  our review of the programs using these multiple sources of information,  we selected 45 federal programs that met the criteria. As such, the final  selection of programs for study was a nonrandom, nongeneralizable  sample of programs selected to represent a variety of federal benefit  programs that exist.
The FAADS and CFDA databases provided information that allowed us to  identify programs, but the databases did not provide information on  whether electronic payments were used to disburse benefit payments.  Therefore, we surveyed the 45 programs we identified to obtain  information on the extent to which they used electronic payments. We  conducted a Web-based survey with the 11 agencies responsible for  administering the 45 programs, but we later excluded 3 programs upon  receiving their survey responses. We requested the names and e-mail  addresses of specific program respondents—typically, program officials or  managers in the divisions responsible for administering the program— from the GAO liaison at each agency in which we sent surveys. To ensure  security and data integrity, we provided each program respondent with a  Web address, a unique identification number, and a password to allow  them access to the survey.
The survey included questions on program funding and benefits, program  data and statistics, electronic payments, paper check payments, voucher  payments, and other types of payments used to deliver benefits. To  prepare for the survey, we pretested the survey with program officials for  4 programs to determine whether respondents would understand  questions the way that we intended. Since the survey was administered via  the Internet, we also conducted a usability pretest with officials from 1 of  the programs we surveyed to observe the respondent answering the survey  questions as they would appear when the survey was activated. To  increase the response rate of the survey respondents, we sent two  reminder notices via e-mails to encourage completion prior to the survey  deadline and conducted follow-up telephone calls to those programs that  did not respond to the survey by the initial deadline. We checked the  validity of the survey data by conducting limited checks of the accuracy of  survey responses from agency officials using a data verification protocol.  We identified key survey items for which we wanted to verify or obtain  additional information as well as other survey items that were missing or  incomplete. For the programs that we determined should not have been  included in the review on the basis of their survey responses, we did not  conduct follow-up if the program provided sufficient information to  determine that it should have been excluded.
Survey development, such as obtaining contact information for survey  respondents and conducting survey pretests began on September 10, 2007,  and our collection of survey responses ended on January 31, 2008. We  received responses from all 42 programs, providing an overall response  rate of 100 percent. While the overall response rate to the survey was 100  percent, not all survey questions were answered by our respondents,  particularly the two questions that asked for the total dollar value of  benefits paid electronically and by paper check.
To assess the reliability of the FAADS and CFDA databases, we (1)  reviewed existing information related to the data sources, (2) performed  electronic testing for obvious errors in accuracy and completeness, and  (3) interviewed agency officials knowledgeable about these data. There  were certain limitations with the FAADS and CFDA databases—namely,  the fact that the information is self-reported by various agencies and may  have missing or incorrect information. However, given our intended use of  the FAADS and CFDA data—to identify programs that provide recurring  benefits to individuals, not to identify the entire universe of federal benefit  programs or make statements about a particular population of programs— and the results of previous reliability assessments of CFDA, the data  elements were sufficiently reliable for the purposes of selecting a variety  of programs to include in our review.
To identify factors to consider when implementing electronic payments  and options for increasing use of electronic payments, we interviewed and  obtained documentation from Treasury and other federal agencies, such  as USDA, DOL, and SSA, among others. We also met with experienced  private-sector consultants who had assisted agencies in developing or  implementing electronic payment solutions, such as Booz-Allen Hamilton;  Maximus; and Burger, Carroll, and Associates, Inc., and with the three  major electronic payment providers that agencies use to implement  electronic payment solutions—J.P. Morgan Chase, Affiliated Computer  Services, and EFD (eFunds Corporation). In addition, we obtained the  views of consumer advocacy organizations, such as the Consumer  Federation of America, Consumers Union, and the National Consumer  Law Center. Finally, we interviewed representatives from groups  representing the electronic payments industry, such as the Electronic  Funds Transfer Association and NACHA—The Electronic Payments  Association.
We also selected the following 5 programs from our survey to use as case  illustrations and examined additional information related to their  experiences using electronic payments: Supplemental Nutrition Program  for Women, Infants, and Children; Indian Social Services Welfare  Assistance; Supplemental Security Income; Unemployment Insurance; and  Trade Adjustment Assistance. In selecting programs for case illustrations,  we considered survey responses that were important for describing the  characteristics of each program, such as the type and frequency of the  benefit payment; the number of recipients in the program; the dollar value  of benefit payments made to recipients in the program; and the extent to  which the program used electronic payments to disburse benefits. The  team then purposively selected programs that represented a variety of the  characteristics found in the data.
Four of the 5 programs that we selected for case illustrations were federal  programs whose benefits were administered by individual state or tribal  agencies. For these programs, we selected state and tribal agencies in  Arizona, California, Georgia, Michigan, Minnesota, Ohio, Oklahoma, Texas,  and Utah and conducted interviews with program officials to obtain more  information on factors that they considered when deciding to implement  electronic payments and options for increasing the use of electronic  payments. In selecting state agencies and tribes, we considered various  factors, such as whether they were using or planning to use electronic  payments, had conducted pilots to test the feasibility of using electronic  payments, and recommendations from agency officials.
We conducted our work from April 2007 through June 2008 in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on our  audit objectives.
section_title: Appendix II: Selected Data for the 42 Federal Benefit Programs We Surveyed, by Dollar Value of Benefit Payments (Fiscal Year 2006)
paragraphs: Appendix II: Selected Data for the 42 Federal  Benefit Programs We Surveyed, by Dollar  Value of Benefit Payments (Fiscal Year 2006)
Dollar value of  benefit payments  (FY 2006) (FY 2006)
Use an electronic  payment  method?
Dollar value of  benefit payments  (FY 2006) (FY 2006)
Use an electronic  payment  method?
Dollar value of  benefit payments  (FY 2006) (FY 2006)
Use an electronic  payment  method?
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Kay Kuhlman, Assistant  Director; Mark Egger; Kevin Jackson; Jamila Jones; Yola Lewis; Robert  Lowthian; Natalie Maddox; Andrew Nelson; Carl Ramirez; Linda Rego; and  Barbara Roesmann made key contributions to the report.