Treasury tests Internet checks

The federal government made a payment over the Internet for the first time this week when the Treasury Department e-mailed a check to a contractor.

On Tuesday, Treasury's Financial Management Service sent a $32,000 electronic check through the Defense Finance and Accounting Service's Columbus, Ohio, center to GTE Corp., for work the company did for the Air Force.

The inaugural e-check payment marks the beginning of a 12-month trial of the new technology. About 50 government contractors will participate.

FMS will issue e-checks to the contractors through DFAS centers in Columbus and Indianapolis. Encrypted e-mail messages that include the checks and digital signatures will pass across the Internet to the contractors. The contractors enter the transaction information into their accounting systems, endorse the checks with digital signatures and then e-mail the checks to their banks.

The banks will then verify the digital signatures and enter the e-checks into settlement systems that will allow the Federal Reserve Bank to pay the bills. While paper-based check processing typically takes a week, e-check reduces the processing time to under two days.

FMS issues 857 million payments a year--494 million by electronic funds transfer and 363 million by check. Under the 1996 Debt Collection Improvement Act, FMS is required to make 100 percent of the government's payments electronically by Jan. 1, 1999. However, in the second quarter of fiscal 1998, only 38 percent of vendor payments were made electronically.

One of the reasons is that some vendors are wary of electronic funds transfer because it makes accounting for payments more difficult.

"One of the challenges we face in making vendor payments electronically is to provide the vendor with sufficient accounting information that goes along with the payment," said FMS Commissioner Richard Gregg. "With e-check, we can provide that information at the same time the payment is made."

Only companies whose banks are participating in the trial can begin using e-checks. BankBoston and NationsBank are the only banks currently involved.

Several information technology companies--GTE, IBM, Sun Microsystems, IntraNet Inc., IRE, RDM Corp., and Certicom--helped develop the e-check system, including software, server systems, digital signature certificates, and encryption.