Electronic Payments: Many Programs Electronically Disburse	 
Federal Benefits, and More Outreach Could Increase Use		 
(23-JUN-08, GAO-08-645).					 
                                                                 
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.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-645 					        
    ACCNO:   A82487						        
  TITLE:     Electronic Payments: Many Programs Electronically	      
Disburse Federal Benefits, and More Outreach Could Increase Use  
     DATE:   06/23/2008 
  SUBJECT:   Beneficiaries					 
	     Check disbursement or control			 
	     Electronic benefits transfers			 
	     Electronic funds transfer				 
	     Federal agencies					 
	     Federal aid programs				 
	     Federal social security programs			 
	     Federal/state relations				 
	     Financial institutions				 
	     Lending institutions				 
	     Payments						 
	     Program evaluation 				 
	     Transfer payments					 
	     Program costs					 
	     Social programs					 
	     Waste, fraud, and abuse				 
	     USDA Electronic Benefit Transfer System		 

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GAO-08-645

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Report to the Ranking Member, Committee on Oversight and Government 
Reform, House of Representatives: 

United States Government Accountability Office: 

GAO: 

June 2008: 

Electronic Payments: 

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

Electronic Payments: 

GAO-08-645: 

GAO Highlights: 

Highlights of GAO-08-645, a report to the Ranking Member, Committee on 
Oversight and Government Reform, House of Representatives. 

Why GAO Did This Study: 

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 Agricultureï¿½s 
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 Treasuryï¿½s (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. 

What GAO Found: 

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 
Treasuryï¿½s 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. Treasuryï¿½s role as the federal 
governmentï¿½s 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. 

Figure: Percentage of Electronic Payments for the Top 5, by Dollar 
Value, Programs That Provided Data: 

This figure is a table of data showing the percentage of electronic 
payments for the top 5, by dollar value. 

Name of program: Social Security Retirement insurance; Total dollar 
value of benefit payments (FY 2006): $418,056,535,776; Percentage of 
payments made electronically (FY 2006): 87.9%. 

Name of program: Social Security Disability insurance; Total dollar 
value of benefit payments (FY 2006): $77,846,049,345; Percentage of 
payments made electronically (FY 2006): 76.7%. 

Name of program: Supplemental Security Income; Total dollar value of 
benefit payments (FY 2006): $41,547,968,487; Percentage of payments 
made electronically (FY 2006): 53.8%. 

Name of program: Food Stamp; 

Total dollar value of benefit payments (FY 2006): $30,187,346,987; 
Percentage of payments made electronically (FY 2006): 100%. 

Name of program: Social Insurance for Railroad Workers; Total dollar 
value of benefit payments (FY 2006): $9,934,658,062; Percentage of 
payments made electronically (FY 2006): 88%. 

Source: GAO analysis of responses to a survey of federal benefit 
programs. 

[End of figure] 

What GAO Recommends: 

GAO recommends that Treasury consider conducting outreach to federal 
agencies regularly, particularly those that may not use or fully use 
electronic payments. Treasury did not comment on the recommendation, 
but generally agreed with the reportï¿½s findings. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-645]. For more 
information, contact Yvonne Jones at (202) 512-8678 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Most Programs We Surveyed Used Electronic Methods to Distribute 
Benefits, but Data on the Extent of Use Are Limited: 

Agencies Consider Various Factors When Implementing or Encouraging the 
Use of Electronic Payments: 

Various Options Exist for Increasing the Use of Electronic Payments, 
Including Further Treasury Actions: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Selected Data for the 42 Federal Benefit Programs We 
Surveyed, by Dollar Value of Benefit Payments (Fiscal Year 2006): 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Annual Number of Electronic and Paper Check Payments in the 
United States for Selected Years (1995, 2000, 2003, and 2006): 

Figure 2: Percentage of Treasury-Disbursed Benefits That Were Made 
Electronically, Fiscal Years 1996 through January 2008: 

Figure 3: Total Dollar Value and Percentage of Payments That Were Made 
Electronically for 18 Programs We Surveyed: 

Figure 4: Total Dollar Value and Percentage of Payments That Were Made 
by Paper Check for 13 Programs We Surveyed: 

Abbreviations: 

ACH: automated clearinghouse: 

ATM: automated teller machine: 

BIA: Bureau of Indian Affairs: 

CFDA: Catalog of Federal Domestic Assistance: 

CFO: Chief Financial Officer: 

DCIA: Debt Collection Improvement Act of 1996: 

DHS: Department of Homeland Security: 

DOL: Department of Labor: 

EBT: Electronic Benefit Transfer: 

EFT: Electronic Funds Transfer: 

EPC: Electronic Payment Cards: 

ETA: Electronic Transfer Account: 

FAADS: Federal Assistance Award Data System: 

FMS: Financial Management Service: 

HHS: Department of Health and Human Services: 

NACHA: National Automated Clearinghouse Association: 

PCI: Payment Card Industry: 

PIN: personal identification number: 

POS: point-of-sale: 

RRB: Railroad Retirement Board: 

SSA: Social Security Administration: 

SSI: Supplemental Security Income: 

TAA: Trade Adjustment Assistance: 

TANF: Temporary Assistance for Needy Families: 

TRA: Trade Readjustment Allowance: 

UPC: Universal Product Code: 

USDA: U.S. Department of Agriculture: 

VA: Department of Veterans Affairs: 

WIC: Supplemental Nutrition Program for Women, Infants, and Children: 

United States Government Accountability Office: 

Washington, DC 20548: 

June 23, 2008: 

The Honorable Tom Davis: 
Ranking Member: 
Committee on Oversight and Government Reform: House of Representatives: 

Dear Mr. Davis: 

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.[Footnote 1] 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[Footnote 2] 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. 

Results in Brief: 

Most federal benefit programs we surveyed (34 of 42) indicated that 
they used 1 or more electronic payment methods, but data limitations 
did not allow us to determine the extent to which most of these 
agencies did so. Direct deposit was the most common method of payment; 
however, programs also used EBT and Electronic Payment Cards (EPC), 
which are debit or stored-value cards. The majority of the 34 programs 
that used electronic payments also indicated that the majority of the 
recipients in their programs received benefits electronically. However, 
less than half (18 of 42) of the programs we surveyed provided data 
that would allow us to determine the percentage of payments that were 
made electronically, in part because states are responsible for 
disbursing payments for many federal benefit programs and are not 
required to provide specific payment data to the federal agency 
overseeing the program. For those 18 programs that were able to provide 
data, the percentage of payments that were made electronically ranged 
from about 5 to 100 percent; however, for the 5 largest, by dollar 
value, of these 18 programs, about 54 to 100 percent of the payments 
were made electronically. Also, 8 of the 18 programs paid 100 percent 
of their benefit payments electronically, but 6 of these 8 programs 
were education assistance programs, in which payments typically were 
made to an institution, not to an individual. Finally, 13 of the 42 
programs we surveyed provided data that allowed us to determine the 
percentage of payments made by paper check. Nine of these 13 programs 
distributed less than half of the total dollar value of benefit 
payments by paper check, and the remaining 4 programs distributed 100 
percent of their benefit payments by paper check. 

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. While federal and state 
agency officials, industry representatives, and others with whom we 
spoke widely agree on the advantages of electronic payments for the 
recipients, such as secure and timely payments, agencies also consider 
perceived disadvantages when implementing electronic payments. For 
example, some agency officials and consumer groups told us that 
transaction fees and minimum balance requirements imposed by financial 
institutions may make using an electronic method costly for recipients 
who often have low incomes or low account balances. The characteristics 
of the recipients also are important to consider when implementing 
electronic payments, according to agency officials. Disabled or elderly 
recipients may not have bank accounts or may find it difficult to 
manage bank accounts or to use EPCs. In addition, concerns about the 
garnishment of federal benefits and the applicability of certain 
consumer protections require consideration by agencies seeking to 
implement electronic payments. Furthermore, agency officials and 
industry representatives stated that certain benefit programs have 
characteristics that might make implementing or expanding electronic 
payments more complicated. For example, instead of a cash benefit, the 
WIC program specifies a food "prescription" that provides specific 
nutritional food items to recipients and can only be used at authorized 
locations. Therefore, using electronic payments in the WIC program 
could offer more technological challenges (e.g., in designing or 
updating information systems) than using such payments in a cash 
benefit program. While agency officials cited cost reduction and 
efficiency as key reasons for implementing electronic payments, up- 
front costs such as new systems and software can be a deciding factor 
in whether to implement electronic payments, especially for small 
programs or programs with limited funding. Finally, agencies consider 
the risks associated with different types of electronic payment and 
disbursement methods. While electronic payments have reduced some of 
the risks associated with paper processes, such as unauthorized use, 
loss, and theft, electronic payments are still susceptible to these 
risks, although to a lesser extent. However, using electronic payments 
creates an electronic record of each transaction, which allows agencies 
to monitor transactions to help identify fraud more easily. Although 
these factors may present some challenges to implementing electronic 
payments for some federal benefit programs, agencies may be able to 
address many of these challenges using various options. 

Options to increase the use of electronic payment of benefits include 
adopting new statutory requirements, conducting public outreach, and 
adapting payment cards for more uses. In addition, Treasury has 
introduced initiatives to encourage electronic payments. Although the 
Debt Collection Improvement Act (DCIA) of 1996 requires federal 
payments to be made electronically, Treasury stated that the act does 
not include federally funded, state-disbursed payments.[Footnote 3] 
Furthermore, Treasury's regulations include a waiver policy that allows 
individuals to elect to receive a paper check if they believe that an 
electronic payment would impose a hardship or if they do not have a 
bank account.[Footnote 4] The most-sweeping option identified by 
industry representatives and some agency officials, and one that would 
guarantee an increase in use, would involve mandating electronic 
payment of benefits for recipients. Although a mandate would present 
challenges, they could be overcome. As a less-sweeping alternative, 
some industry representatives suggested making electronic payments the 
default payment option for recipients upon enrollment to receive 
benefits. This option also would require recipients to receive benefits 
electronically, but it would give them the choice of opting out of 
electronic payments. Another approach that several agencies have taken 
is to conduct consumer outreach to educate recipients on the benefits 
of electronic payments. For example, Treasury, in partnership with SSA, 
has reached out to recipients at preretirement seminars and through 
printed publications to encourage them to use direct deposit. In 
addition, Treasury has used radio, television, and outdoor advertising-
-such as signage at bus stops--to reach individuals without bank 
accounts, or "the unbanked." Furthermore, agencies with whom we met 
have implemented pilot programs to test the receptiveness of recipients 
or other stakeholders, such as retailers, to electronic methods. At the 
same time, these agencies have also used pilot programs to identify 
issues that could make electronic payments more feasible. States are 
also exploring other types of payment cards and innovative electronic 
payment methods. For example some states are considering using a co- 
branded card displaying a company logo, such as Visa or MasterCard, as 
an option to deliver benefits, because it would allow the recipient to 
use the card at more locations. Finally, Treasury has a leadership role 
in encouraging electronic solutions for all types of federal payments. 
Specifically, to increase the use of electronic payments to distribute 
federal benefit payments, Treasury continues to market the benefits of 
direct deposit through its "Go Direct" marketing and education campaign 
and has introduced new initiatives, such as the Direct Express debit 
card, which is geared toward Social Security and SSI recipients who do 
not have bank accounts. Treasury is also working closely with SSA to 
encourage new enrollees, through a newly designed application process, 
to receive their benefits electronically. Treasury's Fiscal Years 2003- 
2008 Strategic Plan also discusses a cross-cutting objective and 
strategy for increasing electronic payments, such as including federal 
program agencies as key partners in achieving this goal.[Footnote 5] As 
part of implementing this strategy, in 2006 and 2007, Treasury met with 
the Chief Financial Officers (CFO) of the largest federal agencies to 
discuss issues related to financial management, including electronic 
payments. Treasury has also discussed electronic payments with program 
staff at these larger federal agencies. However, Treasury has no plans 
to conduct this outreach to CFO agencies and other smaller agencies on 
a regular basis. More outreach could provide opportunities for Treasury 
to further encourage the use of electronic payments and could help 
agencies develop solutions to address the challenges or constraints 
they face in this area. 

This report contains one recommendation to the Secretary of the 
Treasury. To help Treasury achieve its goals of increasing the use of 
electronic payments and moving to an all-electronic government, we are 
recommending that the Secretary direct Treasury's Commissioner of the 
Financial Management Service to consider developing a process for 
conducting outreach to federal agencies on a more regular basis, with 
the goal of identifying opportunities for increasing the use of 
electronic payments. For example, Treasury could meet with agency 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 identify actions that Treasury and 
agencies could take to facilitate the transition to electronic 
payments. We provided a draft of this report to the Secretaries of 
Treasury and USDA for review and comment. Officials from Treasury's 
Financial Management Service (FMS) noted that Treasury 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 this report. Officials from USDA's Food and Nutrition Service 
stated that they agreed with the overall message of the report. 
Treasury and USDA also provided technical comments, which we 
incorporated in the report as appropriate. 

Background: 

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. 

Trends in the Use of Paper Checks and Electronic Payments in the United 
States: 

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).[Footnote 6] 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.[Footnote 7] 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.[Footnote 8] 

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.[Footnote 9] 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. 

Figure 1: Annual Number of Electronic and Paper Check Payments in the 
United States for Selected Years (1995, 2000, 2003, and 2006): 

This figure is a combination vertical bar graph showing the annual 
number of electronic and paper check payments in the United States for 
selected years, (1995, 2000, 2003, and 2006). The bars represent 
electronic and paper check. The X axis represents the year, and the Y 
axis represents the number of payments. 

Year: 1995; 
Number of payments: electronic: 14.7; 
Number of payments: paper check: 49.5. 

Year: 2000; 
Number of payments: electronic: 30.5; 
Number of payments: paper check: 41.9. 

Year: 2003; 
Number of payments: electronic: 44.2; 
Number of payments: paper check: 37.3. 

Year: 2005; 
Number of payments: electronic: 62.7; 
Number of payments: paper check: 30.6. 

[See PDF for image] 

Source: Federal Reserve. 

[End of figure] 

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. 

Federal Benefit Payments Made Electronically and by Paper Check: 

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. 

Figure 2: Percentage of Treasury-Disbursed Benefits That Were Made 
Electronically, Fiscal Years 1996 through January 2008: 

This figure is a line graph showing percentage of treasury-disbursed 
benefits that were made electronically, fiscal years 1996 through 
January 2008. The X axis represents the fiscal year, and the Y axis 
represents the percentage. 

Fiscal year: 1996; 
Percentage: 56%. 

Fiscal year: 1997; 
Percentage: 62%. 

Fiscal year: 1998; 
Percentage: 68%. 

Fiscal year: 1999; 
Percentage: 73%. 

Fiscal year: 2000; 
Percentage: 75%. 

Fiscal year: 2001; 
Percentage: 76%. 

Fiscal year: 2002; 
Percentage: 77%. 

Fiscal year: 2003; 
Percentage: 77%. 

Fiscal year: 2004; 
Percentage: 78%. 

Fiscal year: 2005; 
Percentage: 79%. 

Fiscal year: 2006; 
Percentage: 80%. 

Fiscal year: 2007; 
Percentage: 81%. 

Fiscal year: 2008 (Jan.); 
Percentage: 81.6%. 

[See PDF for image] 

Source: Department of the Treasury, Financial Management Service. 

[End of figure] 

Methods That Federal Agencies Use to Disburse Benefits Electronically: 

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.[Footnote 10] 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.[Footnote 11] 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. 

Federal Government Benefit Programs: 

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. 

Most Programs We Surveyed Used Electronic Methods to Distribute 
Benefits, but Data on the Extent of Use Are Limited: 

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. 

Most Programs We Surveyed Used Electronic Payment Methods to Distribute 
Benefits, but a Small Number of Programs Did Not: 

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.[Footnote 12] 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.[Footnote 13] 

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 Employment Assistance: 

* Indian Job Placement United Sioux Tribe Development Corporation: 

* Indian Social Services Welfare Assistance Program: 

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. [Footnote 14] 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. 

Limited Data on the Percentage of Payments Made Electronically Were 
Available: 

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. 

Figure 3: Total Dollar Value and Percentage of Payments That Were Made 
Electronically for 18 Programs We Surveyed: 

Agency: Education; 
Total dollar value of benefit payments (FY 2006): $1,305,357,374; 
Name of program: Leveraging Educational Assistance Partnership; 
Percentage of payments made electronically: 4.9%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $41,547,968,487; 
Name of program: Supplemental Security Income; 
Percentage of payments made electronically: 53.8%. 

Agency: DOL; 
Total dollar value of benefit payments (FY 2006): $625,000,000; 
Name of program: Coal Mine Workers' Compensation; 
Percentage of payments made electronically: 60.0%. 

Agency: Justice; 
Total dollar value of benefit payments (FY 2006): $882,015; 
Name of program: Public Safety Officers' Educational Assistance; 
Percentage of payments made electronically: 67.7%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $77,846,049,345; 
Name of program: Social Security Disability Insurance; 
Percentage of payments made electronically: 76.7%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $418,056,535,776; 
Name of program: Social Security Retirement Insurance; 
Percentage of payments made electronically: 87.9%. 

Agency: RRB; 
Total dollar value of benefit payments (FY 2006): $9,934,658,062; 
Name of program: Social Insurance for Railroad Workers; 
Percentage of payments made electronically: 88.0%. 

Agency: VA; 
Total dollar value of benefit payments (FY 2006): $1,995,531,647; 
Name of program: All-Volunteer Force Educational Assistance; 
Percentage of payments made electronically: 91.6%. 

Agency: USDA; 
Total dollar value of benefit payments (FY 2006): $351,601,585; 
Name of program: Milk Income Loss Contract Program; 
Percentage of payments made electronically: 95.9%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $15,247,594; 
Name of program: Special Benefits for Certain World War II Veterans; 
Percentage of payments made electronically: 98.9%. 

Agency: USDA; 
Total dollar value of benefit payments (FY 2006): $30,187,346,987; 
Name of program: Food Stamp; 
Percentage of payments made electronically: 100.0%. 

Agency: HHS; 
Total dollar value of benefit payments (FY 2006): $1,250,000; 
Name of program: Nurse Anesthetist Traineeships; 
Percentage of payments made electronically: 100.0%. 

Agency: Education; 
Total dollar value of benefit payments (FY 2006): $240,000,000; 
Name of program: Academic Competitiveness Grants; 
Percentage of payments made electronically: 100.0%. 

Agency: HHS; 
Total dollar value of benefit payments (FY 2006): $1,067,968; 
Name of program: Disadvantaged Health Professions Faculty Loan 
Repayment; 
Percentage of payments made electronically: 100.0%. 

Agency: USDA; 
Total dollar value of benefit payments (FY 2006): $1,412,694,137; 
Name of program: Nutrition Assistance for Puerto Rico; 
Percentage of payments made electronically: 100.0%. 

Agency: DHS; 
Total dollar value of benefit payments (FY 2006): $10,200,000; 
Name of program: Nutrition Assistance for Puerto Rico; 
Percentage of payments made electronically: 100.0%. 

Agency: Transportation; 
Total dollar value of benefit payments (FY 2006): $722,516; 
Name of program: Scholars and Fellows; 
Percentage of payments made electronically: 100.0%. 

Agency: HHS; 
Total dollar value of benefit payments (FY 2006): $108,786; 
Name of program: State Maritime Schools; 
Percentage of payments made electronically: 100.0%. 

[See PDF for image] 

Source: GAO analysis of responses to a survey of federal benefit 
programs. 

[End of figure] 

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. 

Figure 4: Total Dollar Value and Percentage of Payments That Were Made 
by Paper Check for 13 Programs We Surveyed: 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $15,247,594; 
Name of program: Special Benefits for Certain World War II Veterans; 
Percentage of payments made by paper check (FY 2006): 1.1%. 

Agency: USDA; 
Total dollar value of benefit payments (FY 2006): $351,601,585; 
Name of program: Milk Income Loss Contact Program; 
Percentage of payments made by paper check (FY 2006): 4.1%. 

Agency: VA; 
Total dollar value of benefit payments (FY 2006): $1,995,531,647; 
Name of program: All-Volunteer Force Educational Assistance; 
Percentage of payments made by paper check (FY 2006): 8.4%. 

Agency: RRB; 
Total dollar value of benefit payments (FY 2006): $9,934,658,062; 
Name of program: Social Insurance for Railroad Workers; 
Percentage of payments made by paper check (FY 2006): 12.0%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $418,056,535,776; 
Name of program: Social Security Retirement Insurance; 
Percentage of payments made by paper check (FY 2006): 12.1%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $77,846,049,345; 
Name of program: Social Security Disability Insurance; 
Percentage of payments made by paper check (FY 2006): 23.3%. 

Agency: Justice; 
Total dollar value of benefit payments (FY 2006): $882,015; 
Name of program: Public Safety Officers' Educational Assistance; 
Percentage of payments made by paper check (FY 2006): 31.9%. 

Agency: DOL; 
Total dollar value of benefit payments (FY 2006): $625,000,000; 
Name of program: Coal Mine Workers' Compensation; 
Percentage of payments made by paper check (FY 2006): 40.0%. 

Agency: SSA; 
Total dollar value of benefit payments (FY 2006): $41,547,968,487; 
Name of program: Supplemental Security Income; 
Percentage of payments made by paper check (FY 2006): 46.2%. 

Agency: USDA; 
Total dollar value of benefit payments (FY 2006): $18,400,000; 
Name of program: WIC Farmer's Market Nutrition Program; 
Percentage of payments made by paper check (FY 2006): 100.0%. 

Agency: VA; 
Total dollar value of benefit payments (FY 2006): $494,909,355; 
Name of program: Survivors and Dependents Educational Assistance; 
Percentage of payments made by paper check (FY 2006): 100.0%. 

Agency: VA; 
Total dollar value of benefit payments (FY 2006): $1,034,991; 
Name of program: Post-Vietnam Era Veterans' Educational Assistance; 
Percentage of payments made by paper check (FY 2006): 100.0%. 

Agency: Interior; 
Total dollar value of benefit payments (FY 2006): $80,000,000; 
Name of program: Indian Social Services Welfare Assistance; 
Percentage of payments made by paper check (FY 2006): 100.0%. 

[See PDF for image] 

Source: GAO analysis of responses to a survey of federal benefit 
programs. 

[End of figure] 

Agencies Consider Various Factors When Implementing or Encouraging the 
Use of Electronic Payments: 

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. 

Many Recognize the Advantages of Electronic Payments, but Agencies Also 
Consider Perceived Disadvantages When Implementing Electronic Payments: 

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[Footnote 15]--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.[Footnote 16] 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 
funds, 

* 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,[Footnote 17] 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.[Footnote 18] 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.[Footnote 19] 

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. 

Noncash or Service Delivery Programs May Require More Planning and 
Consideration When Implementing Electronic Payment Methods: 

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. [Footnote 20] 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.[Footnote 21] 

Up-front and Operating Costs Can Be Deciding Factors When Implementing 
Electronic Payment Systems: 

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.[Footnote 22] 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.[Footnote 23] 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. 

Although Electronic Payments Have Security and Audit Features, Agencies 
Consider Fraud Risks and System Vulnerabilities When Using Electronic 
Payment Methods: 

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,[Footnote 24] 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.[Footnote 25] 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[Footnote 26]. 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. 

Various Options Exist for Increasing the Use of Electronic Payments, 
Including Further Treasury Actions: 

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. 

Options to Increase Electronic Payments Could Include New Statutory 
Requirements or Widescale Adoption of Methods Some Agencies Already Use 
or Have Piloted: 

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[Footnote 27] 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.[Footnote 28] 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.[Footnote 29] 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)[Footnote 30] 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[Footnote 31] 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.[Footnote 32] 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. 

Treasury Has Introduced Three Initiatives and Conducted Limited 
Outreach with Federal Agencies to Support the Use of Electronic 
Payments: 

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.[Footnote 33] 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. 

Conclusions: 

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. 

Recommendation for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-8678 or [email protected]. 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. 

Sincerely yours, 

Signed by: 

Yvonne D. Jones: 

Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

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.[Footnote 34] 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.[Footnote 35] 

We first queried the CFDA database to obtain a list of programs that 
would be suitable for our review.[Footnote 36] 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.[Footnote 37] 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.[Footnote 38] 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. 

[End of section] 

Appendix II: Selected Data for the 42 Federal Benefit Programs We 
Surveyed, by Dollar Value of Benefit Payments (Fiscal Year 2006): 

Agency: Social Security Administration; 
Program name: Social Security Retirement Insurance; 
Dollar value of benefit payments (FY 2006): $418,056,535,776; 
Number of participants (FY 2006): 33,945,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Social Security Administration; 
Program name: Social Security Disability Insurance; 
Dollar value of benefit payments (FY 2006): 77,846,049,345; 
Number of participants (FY 2006): 8,612,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Social Security Administration; 
Program name: Supplemental Security Income; 
Dollar value of benefit payments (FY 2006): 41,547,968,487; 
Number of participants (FY 2006): 7,200,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Labor; 
Program name: Unemployment Insurance; 
Dollar value of benefit payments (FY 2006): 30,986,000,000; 
Number of participants (FY 2006): 7,540,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: U.S. Department of Agriculture; 
Program name: Food Stamp; 
Dollar value of benefit payments (FY 2006): 30,187,346,987; 
Number of participants (FY 2006): 26,671,819; 
Use an electronic payment method?: Yes; 
Type of benefit: Noncash. 

Agency: Department of Veterans Affairs; 
Program name: Veterans Compensation for Service-Connected Disability; 
Dollar value of benefit payments (FY 2006): 28,318,763,832; 
Number of participants (FY 2006): 2,725,824; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Education; 
Program name: Federal Pell Grant Program; 
Dollar value of benefit payments (FY 2006): 12,856,697,796; 
Number of participants (FY 2006): 5,164,302; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Temporary Assistance for Needy Families; 
Dollar value of benefit payments (FY 2006): 11,287,301,420; 
Number of participants (FY 2006): 4,230,189; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Railroad Retirement Board; 
Program name: Social Insurance for Railroad Workers; 
Dollar value of benefit payments (FY 2006): 9,934,658,062; 
Number of participants (FY 2006): 577,600; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: U.S. Department of Agriculture; 
Program name: Special Supplemental Nutrition Program for Women, 
Infants, and Children; 
Dollar value of benefit payments (FY 2006): 5,072,000,000; 
Number of participants (FY 2006): 8,088,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Noncash. 

Agency: Department of Veterans Affairs; 
Program name: Pension Program; 
Dollar value of benefit payments (FY 2006): 3,426,982,020; 
Number of participants (FY 2006): 536,294; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Low- Income Home Energy Assistance; 
Dollar value of benefit payments (FY 2006): 2,480,000,000; 
Number of participants (FY 2006): 5,300,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Department of Veterans Affairs; 
Program name: All-Volunteer Force Educational Assistance; 
Dollar value of benefit payments (FY 2006): 1,995,531,647; 
Number of participants (FY 2006): 332,184; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: U.S. Department of Agriculture; 
Program name: Nutrition Assistance for Puerto Rico; 
Dollar value of benefit payments (FY 2006): 1,412,694,137; 
Number of participants (FY 2006): 1,064,039; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Department of Education; 
Program name: Leveraging Educational Assistance Partnership; 
Dollar value of benefit payments (FY 2006): 1,305,357,374; 
Number of participants (FY 2006): 1,107,038; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Education; 
Program name: Federal Supplemental Educational Opportunity Grants; 
Dollar value of benefit payments (FY 2006): 864,902,427; 
Number of participants (FY 2006): 1,011,742; 
Use an electronic payment method?: Yes; 
Type of benefit: Other. 

Agency: Department of Labor; 
Program name: Coal Mine Workers' Compensation; 
Dollar value of benefit payments (FY 2006): 625,000,000; 
Number of participants (FY 2006): 81,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Labor; 
Program name: Trade Adjustment Assistance; 
Dollar value of benefit payments (FY 2006): 503,722,489; 
Number of participants (FY 2006): 83,989; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Department of Veterans Affairs; 
Program name: Survivors and Dependents Educational Assistance; 
Dollar value of benefit payments (FY 2006): 494,909,355; 
Number of participants (FY 2006): 75,460; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Department of Labor; 
Program name: Disaster Unemployment Assistance; 
Dollar value of benefit payments (FY 2006): 401,074,801; 
Number of participants (FY 2006): 172,633; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Veterans Affairs; 
Program name: Veterans Dependency and Indemnity Compensation for 
Service-Connected Death; 
Dollar value of benefit payments (FY 2006): 358,137,814; 
Number of participants (FY 2006): 341,438; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: U.S. Department of Agriculture; 
Program name: Milk Income Loss Contract Program; 
Dollar value of benefit payments (FY 2006): 351,601,585; 
Number of participants (FY 2006): 52,430; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Education; 
Program name: Academic Competitiveness Grants; 
Dollar value of benefit payments (FY 2006): 240,000,000; 
Number of participants (FY 2006): 307,545; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Refugee and Entrant Assistance State Administered 
Programs; 
Dollar value of benefit payments (FY 2006): 171,276,542; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Department of the Interior; 
Program name: Indian Social Services Welfare Assistance; 
Dollar value of benefit payments (FY 2006): 80,000,000; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Family Support Payments to States Assistance Payments; 
Dollar value of benefit payments (FY 2006): 32,800,000; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: Not sure; 
Type of benefit: Both cash and noncash. 

Agency: U.S. Department of Agriculture; 
Program name: WIC Farmers' Market Nutrition Program; 
Dollar value of benefit payments (FY 2006): 18,400,000; 
Number of participants (FY 2006): 2,497,162; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Social Security Administration; 
Program name: Special Benefits for Certain World War II Veterans; 
Dollar value of benefit payments (FY 2006): 15,247,594; 
Number of participants (FY 2006): 2,450; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of the Interior; 
Program name: Indian Employment Assistance; 
Dollar value of benefit payments (FY 2006): 14,051,101; 
Number of participants (FY 2006): 6,109; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Department of Homeland Security; 
Program name: Scholars and Fellows; 
Dollar value of benefit payments (FY 2006): 10,200,000; 
Number of participants (FY 2006): 266; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Nurse Anesthetist Traineeships; 
Dollar value of benefit payments (FY 2006): 1,250,000; 
Number of participants (FY 2006): 74; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Disadvantaged Health Professions Faculty Loan Repayment; 
Dollar value of benefit payments (FY 2006): 1,067,968; 
Number of participants (FY 2006): 71; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Veterans Affairs; 
Program name: Post-Vietnam Era Veterans' Educational Assistance; 
Dollar value of benefit payments (FY 2006): 1,034,991; 
Number of participants (FY 2006): 627; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Department of Justice; 
Program name: Public Safety Officers' Educational Assistance; 
Dollar value of benefit payments (FY 2006): 882,015; 
Number of participants (FY 2006): 189; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Transportation; 
Program name: State Maritime Schools; 
Dollar value of benefit payments (FY 2006): 722,516; 
Number of participants (FY 2006): 181; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Minority Faculty Fellowship Program; 
Dollar value of benefit payments (FY 2006): 108,786; 
Number of participants (FY 2006): 2; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of the Interior; 
Program name: Indian Job Placement United Sioux Tribe Development 
Corporation; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): 0; 
Use an electronic payment method?: No; 
Type of benefit: Cash. 

Agency: Social Security Administration; 
Program name: Social Security Survivors Insurance; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): 6,566,000; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Health and Human Services; 
Program name: Chafee Education and Training Vouchers Program; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Agency: Department of Veterans Affairs; 
Program name: Vocational Training and Rehabilitation for Vietnam 
Veterans' Children with Spina Bifida or Other Covered Birth Defects; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: Not sure; 
Type of benefit: Both cash and noncash. 

Agency: Department of Veterans Affairs; 
Program name: Monthly Allowance for Children of Vietnam Veterans Born 
with Spina Bifida; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): N/A; 
Use an electronic payment method?: Yes; 
Type of benefit: Both cash and noncash. 

Agency: Department of Health and Human Services; 
Program name: Child Care Mandatory and Matching Funds of the Child Care 
and Development Fund; 
Dollar value of benefit payments (FY 2006): N/A; 
Number of participants (FY 2006): 1,799,300; 
Use an electronic payment method?: Yes; 
Type of benefit: Cash. 

Source: GAO analysis of responses to a survey of federal benefit 
programs. 

[End of table] 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Yvonne D. Jones, (202) 512-8678 or [email protected]: 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] 7 U.S.C. ï¿½ 2016(i)(1)(A). 

[2] This association is also known as the National Automated 
Clearinghouse Association. 

[3] Pub. L. No. 104-134, title III, ï¿½ 31001(x)(1), 110 Stat. 1321-376 
(Apr. 26, 1996), codified at 31 U.S.C. ï¿½ 3332. 

[4] 31 C.F.R. ï¿½ 208.4(a). 

[5] U.S. Department of the Treasury, Financial Management Service, 
Strategic Plan for Fiscal Years 2003-2008 (Sept. 30, 2003). 

[6] The ACH network is a funds transfer system governed by a specific 
set of rules that provides for the interbank clearing of electronic 
entries for participating institutions. Both the Federal Reserve System 
and the private sector provide ACH services. Our 1997 report on the 
U.S. payment system provides additional information on the ACH network. 
GAO, Payments, Clearance, and Settlement: A Guide to the Systems, 
Risks, and Issues, GAO/GGD-97-73 (Washington, D.C.: June 20, 1997). 

[7] Geoffrey R. Gerdes and Jack K. Walton II, ''The Use of Checks and 
Other Noncash Payment Instruments in the United States,'' Federal 
Reserve Bulletin, vol. 88 (August 2002), 360-374. 

[8] Geoffrey R. Gerdes, Jack K. Walton II, May X. Liu, and Darrel W. 
Parke, "Trends in the Use of Payment Instruments in the United States," 
Federal Reserve Bulletin (Spring 2005), 180-201. 

[9] Noncash payments include payments by check, debit card, credit 
card, ACH, and EBT. 

[10] Pub. L. No. 104-134, title III, ï¿½ 31001(x)(1), 110 Stat. 1321-376 
(Apr. 26, 1996) codified at 31 U.S.C. ï¿½ 3332. 

[11] A federally insured financial institution is defined as any 
financial institution whose deposits are insured by the Federal Deposit 
Insurance Corporation or the National Credit Union Administration. 31 
C.F.R. ï¿½ 208.2(i). 

[12] Three programs that used electronic payments did not provide data 
on the number of recipients in the program in fiscal year 2006. 

[13] Four programs that used electronic payments did not provide data 
on the total dollar value of benefits disbursed in fiscal year 2006. 

[14] Of these 6 programs, the Indian Social Services Welfare Assistance 
program did not provide data on the number of recipients in the program 
in fiscal year 2006 and the Indian Job Placement United Sioux Tribe 
Development Corporation did not provide data on the total dollar value 
of benefit payments made to program recipients that year. 

[15] See 42 U.S.C. ï¿½ 407(a); 42 U.S.C. ï¿½ 1383(d)(1); 38 U.S.C. ï¿½ 5301; 
and 45 U.S.C. ï¿½ 231m(a). 

[16] See "Proposed Guidance on Garnishment of Exempt Federal Benefit 
Funds," 72 Fed. Reg. 55273 (Sept. 28, 2007). The Office of the 
Controller of the Currency; Board of Governors of the Federal Reserve 
System; Federal Deposit Insurance Corporation; Office of Thrift 
Supervision; and the National Credit Union Administration developed the 
proposed guidance. 

[17] Pub. L. No. 90-321, title IX, as added Pub. L. No. 95-630, title 
XX, ï¿½ 2001, 92 Stat. 3728 (Nov. 10, 1978). 

[18] 12 C.F.R. ï¿½ 205.3(a). 

[19] 12 C.F.R. ï¿½ 205.15(a). This provision of Regulation E implements 
sections 891 and 907 of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, which generally exempts state 
and local government needs-tested EBT programs from the disclosures, 
protections, responsibilities, and remedies established by the 
Electronic Fund Transfer Act. See Pub. L. No. 104-193, title VIII, ï¿½ 
891, title IX, ï¿½ 907, 110 Stat. 2346, 2350 (Aug. 22, 1996), codified at 
15 U.S.C. ï¿½ 1693b(d)(2)(B). 

[20] NACHA--The Electronic Payments Association, Electronic 
Disbursement Options (November 2003). 

[21] In commenting on a draft of this report, USDA officials clarified 
that the interoperability of EBT is only permitted with the Food Stamp 
Program and not with WIC. 

[22] In 2002, we conducted an analysis of 1998 and 1999 data from the 
U.S. Census Bureau's Survey of Income and Program Participation to 
estimate the number of unbanked benefit recipients. The analysis 
suggested that the number of unbanked recipients, at that time, may 
have been over 11 million recipients, twice as high as Treasury's 
estimate. GAO, Electronic Transfers: Use by Federal Payment Recipients 
Has Increased but Obstacles to Greater Participation Remain, GAO-02-913 
(Washington, D.C.: Sept. 12, 2002). 

[23] In providing comments on a draft of this report, USDA officials 
clarified that Wyoming's WIC EBT costs were being supplemented with 
state funds. 

[24] Pub. L. No. 107-347, title III, 116 Stat. 2946 (Dec. 17, 2002). 

[25] The Quest Operating Rules were developed by NACHA--The Electronic 
Payments Association's Electronic Benefits and Services Council. The 
rules clearly define the agreements, roles, and responsibilities for 
the various parties involved in EBT transactions. 

[26] The PCI Data Security Standard was developed by the PCI Security 
Standards Council--founded by American Express, Discover Financial 
Services, JCB International, MasterCard Worldwide, and Visa, Inc. to 
enhance, disseminate, and assist with the implementation of security 
standards for payment account security. 

[27] Pub. L. No. 104-134, title III, ï¿½ 31001(x)(1), 110 Stat. 1321-376 
(Apr. 26, 1996) codified at 31 U.S.C. ï¿½ 3332. 

[28] GAO, Food Stamp Program: Implementation of Electronic Benefit 
Transfer (EBT) Systems, GAO-02-332 (Washington, D.C.: Jan. 16, 2002). 

[29] Subsequent to our 2002 report, USDA issued a report to Congress on 
food stamp EBT systems. According to the USDA report, the following 
seven state agencies had not completed implementation of a statewide 
EBT system by October 1, 2002: California, Delaware, Guam, Iowa, Maine, 
the Virgin Islands, and West Virginia. These jurisdictions received 
approval from USDA's Food and Nutrition Service to extend the EBT 
implementation deadline. See USDA, Food Stamp Electronic Benefit 
Transfer Systems: A Report to Congress (October 2003). 

[30] Federal Reserve System, The 2007 Federal Reserve Payments Study: 
Noncash Payment Trends in the United States: 2003-2006 (Dec. 10, 2007). 

[31] The Quest service mark is only used on cards in states that have 
adopted the Quest Operating Rules. 

[32] Electronic Benefits and Services Council, Co-Branding of EBT 
Cards: Review and Identification of Issues White Paper (November 2007). 
The Electronic Benefits and Services Council develops and maintains the 
Quest Operating Rules, which specify uniform rights and 
responsibilities for those involved in processing EBT transactions. The 
council consists of a broad cross section of public and private-sector 
EBT stakeholders and includes the Co-Branding Work Group. 

[33] Pub. L. No. 101-576, 104 Stat. 2838 (Nov. 15, 1990), codified at 
31 U.S. C. ï¿½ 901(b). The agencies listed in this provision are the 
Departments of Agriculture, Commerce, Defense, Education, Energy, 
Health and Human Services, Homeland Security, Housing and Urban 
Development, Interior, Justice, Labor, State, Transportation, Treasury, 
Veterans Affairs; and the Environmental Protection Agency, the National 
Aeronautics and Space Administration, the Agency for International 
Development, the General Services Administration, the National Science 
Foundation, the Nuclear Regulatory Commission, the Office of Personnel 
Management, the Small Business Administration, and the Social Security 
Administration. 

[34] The CFDA database is administered by the General Services 
Administration and provides narrative records of federal benefit and 
service assistance programs compiled with information self-reported by 
agencies. The FAADS database is a central collection of selected data 
on federal financial assistance award transactions, administered by the 
U.S. Census Bureau. 

[35] The fourth quarter 2006 FAADS data were made available on Census' 
Web site as of August 31, 2007. However, we did not use that data 
because, by that time, the team had already identified programs on the 
basis of existing FAADS and CFDA data and was in the process of 
developing and implementing the Web-based survey. 

[36] We selected programs from CFDA that were classified as Formula 
Grants, Direct Payments for Specified Use, and Direct Payments for 
Unrestricted Use. We did not select a number of program lists from CFDA 
because they did not appear to return the types of programs that would 
be most suitable for our review. For example, programs that were coded 
as "Project Grants" were not selected, since our understanding of 
project grants was that they were funding provided by the government 
for a specific purpose, with characteristics, such as nonrecurring 
payments, that excluded them from our review. However, we later 
reviewed a sample of programs that were classified as "Project Grants" 
and, ultimately, determined that those programs would not be included 
in our review. 

[37] Initially, we identified 44 programs, but we later learned that 1 
program we had identified was actually administered as 2 separate 
programs. Therefore, we expanded the number of programs identified to 
45. 

[38] On the basis of survey responses and the follow-up we conducted, 
we collapsed 2 programs into 1, and decided to exclude 2 additional 
programs when we learned they did not meet our criteria for inclusion 
in the review and, thus, should not have been surveyed. Ultimately, we 
analyzed survey responses for 42 federal benefit programs. 

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