Electronic Transfers:

Use by Federal Payment Recipients Has Increased but Obstacles to Greater Participation Remain

GAO-02-913: Published: Sep 12, 2002. Publicly Released: Oct 15, 2002.

Additional Materials:

Contact:

Richard J. Hillman
(202) 512-8678
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

In 2001, the Department of the Treasury made 764 million payments valued at $549 billion to beneficiaries of federal programs, primarily programs administered by the Social Security Administration. Of these payments, 76 percent were made using electronic funds transfers (EFTs), potentially saving the government millions of dollars in costs associated with disbursing paper checks. In 1996, Congress passed legislation which required that federal payments except tax refunds be made electronically as of January 1999. The act also required that each person affected by this mandate have access to an account at a financial institution at a reasonable cost and with certain consumer protections. To meet this requirement, Treasury developed the Electronic Transfer Account (ETA). Most recipients of federal benefits have their payments deposited electronically. The number of recipients using EFT climbed steadily throughout the 1990s, rising from around half to more than three-quarters of all beneficiaries. Treasury and the Social Security Administration (SSA) have undertaken activities to increase the use of direct deposit, including developing marketing material and directly notifying check recipients of the advantages of using EFT, particularly safety and convenience. Although information describing the characteristics of these EFT users is limited, GAO determined that participation rates are highest for those 65 and older. The primary obstacle to using EFT was that many federal check recipients did not have a bank account. GAO's analysis of the Survey of Income and Program Participation's 1998 data indicated that 11 million benefit recipients, over half of all federal benefit check recipients in 1998, were unbanked. The ETA has not been widely accepted by banks or unbanked beneficiaries despite Treasury's efforts to promote it. Since initiation of the program in 1999, 36,000 ETAs have been opened, representing fewer than 1 percent of unbanked beneficiaries. Based on discussions with representatives from Treasury, SSA, financial institutions, and consumer groups, GAO identified several approaches that Treasury could consider to increase the use of electronic transfers. These approaches include increasing cooperation between banks and local SSA offices to more effectively enroll beneficiaries for ETAs; exploring other electronic payment options besides the ETA to deliver benefits; partnering with banks to provide information on the general availability of low cost banking products, especially in areas with low ETA coverage; and conducting further research to determine why certain states have low direct deposit participation rates.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In September 2002, GAO recommended that Treasury revisit the estimate of the number of unbanked federal check recipients, as well as explore the use of Census Survey of Income and Program Participation (SIPP) data as a means to both obtain a better estimate of the extent of federal check beneficiaries who are unbanked and to better understand the characteristics of the unbanked population. In response to the GAO recommendation, Treasury's Financial Management Service stated that they would review and analyze data from the Census SIPP. On June 10, 2003, this report was submitted as supporting documentation to show completion of this item.

    Recommendation: To assist Treasury in pursuing its goal of convincing unbanked beneficiaries to use EFT, the Secretary of Treasury should revisit the estimate of the number of unbanked federal check recipients. In doing so, the Secretary should also explore use of Census Survey of Income and Program Participation data as a means to both obtain a better estimate of the extent of federal check beneficiaries who are unbanked and to better understand the characteristics of the unbanked population.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: In June 2006, FMS reported to us that they decided to move forward with a pilot project to provide unbanked federal benefit recipients the option of receiving their Federal benefit payments via a debit card. This was one of the options in our report that we recommended that FMS consider. FMS reported that it is in the early stages of developing a 12-month pilot project, which is expected to begin dispersing benefits in 2007. The goal of the pilot is to determine whether debit cards offer a cost-effective way to disburse Federal benefit payments to an unbanked recipient. FMS reported that if the pilot is successful, it anticipates developing a program that would provide the debit card, as an alternative to the ETA. This would provide Federal benefit recipients another means by which to electronically receive their Federal payments. Thus, FMS has satisfied our recommendation that they consider an alternative to the ETA. By implementing a pilot featuring a debit card, FMS has the potential to develop a viable alternative to the ETA and increase the number of federal benefit recipients receiving their benefits electronically.

    Recommendation: To assist Treasury in pursuing its goal of convincing unbanked beneficiaries to use EFT, the Secretary of Treasury should use the information on the extent and characteristics of unbanked federal check recipients to consider alternative approaches, including those discussed in this report, to develop a strategy that offers a greater likelihood of attracting that portion of the unbanked population that chooses not to open an ETA.

    Agency Affected: Department of the Treasury

 

Explore the full database of GAO's Open Recommendations »

Dec 11, 2014

Dec 10, 2014

Nov 18, 2014

Nov 13, 2014

Oct 10, 2014

Sep 30, 2014

Sep 22, 2014

Jul 9, 2014

May 14, 2014

Looking for more? Browse all our products here