Federal Paper Pushing Costs Taxpayers Millions

OMB and Treasury push agencies to catch up with private-sector electronic invoicing.

The federal government is the nation’s largest disburser—$600 billion a year in checks go out to suppliers from civilian agencies alone, according to the Treasury Department.

So it may surprise some in this digital age that only 38 percent of the 19 million invoices filed by agencies in fiscal 2013 were submitted electronically. That left a pile of 12 million supplier invoices on old-fashioned paper, costing taxpayers an estimated $230 million yearly to process.

But if government paymasters feel stuck in the paper era, help is on the way.

The cavalry charge is led by John B. Hill, the assistant commissioner for payment management at Treasury’s Bureau of the Fiscal Service and the government’s chief disbursement officer. It falls to him to ride herd on agencies implementing the Office of Management and Budget July 2015 memo outlining the shift to electronic invoicing, which he calls the “magna carta.”

“The next generation of digitization is invoicing, the next chapter in a series on the government’s squeezing out paper checks,” Hill told Government Executive in his office lined with photographs showcasing Treasury’s technological progress. “Think of all the innovations in online banking and bill-paying—it all came from a movement in government.”

Electronic invoicing has given private companies real visibility into where their money is, something they care about a lot, noted Hill, a veteran of other Treasury accounting jobs, the Troubled Asset Relief Program, and the private information technology firm Computech.

Electronic invoicing is faster, saves money, boosts quality, reduces errors and improves customer relations. It’s a pitch Hill makes to agencies across government—whether he’s invited or not.

Pockets of Resistance

Suppliers are pressuring agencies to make the switch. “When the government buys desktop computers from IBM or Dell, that can mean a paper invoice gets sent to 100 different agencies, when they could do it all in one single portal and format,” Hill said.

Treasury itself, which, like the Defense Department is an early adapter of electronic invoicing, has used it to cut costs by about 50 percent in the last two years. Pentagon disbursers, in a program called Wide Area Workflow, have topped 90 percent of invoices done electronically, with the holdouts coming from classified projects.

Overall, 16 of the 24 agencies subject to the 1990 Chief Financial Officer Act have committed to switching to electronic invoicing, and the Obama administration’s goal is full implementation by 2018. The agencies have watched as 95,000 of their suppliers have adopted it, 30,000 of them with contracts to a Cabinet-level agency.

The conversions are egged on by accounting experts and contractors. “E-invoicing is the way of the future in the public sector, and has been used in the private sector for several years, said Ann M. Ebberts, CEO of the Association of Government Accountants. “The question now is, do agencies each establish their own e-invoicing capabilities or do we continue to expand shared services to include e-invoicing? It’s just good business to support a standardized, electronic, repeatable process—one that streamlines and automates not just for the sake of automation but that can reduce the error rate and number of manual processes,” she added. “And if it speeds up payments, that’s better for everyone.”

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, says his contractor members and his association are “strong proponents of the Treasury model,” having helped design the form of shared services for civilian agencies’ vendor processes. “But the challenge is you can’t have multiple versions. You need a common set of standards for invoicing and for the identification payment issue, and government is still researching those standards,” Chvotkin said. “It’s like the old Betamax versus VHS. They’re not identical and they have to be able to talk to one another.”

What resistance agencies do put up, Hill said, reflects the complexity of invoices relative to single electronic payments, which contain a relatively small number of data fields. “Invoice payments require a lot more work because they can be complex documents, with legal texts,” he said. “It’s an elaborate process in agencies in which they acknowledge received goods, then the accountants say yes, there is money in the account so to pay it and use this account. These are checks and balances.” To modernize the information technology, agencies need to invest $100,000 to $200,000 at a time when funds are tight.

But the agencies that he and two colleagues have been visiting since 2012 are “very receptive and want to do it,” he said. “They just have other priorities.”

Hill, who refers to his job as “the government’s chief check writer,” said the government’s pace in adopting electronic invoicing is actually rapid “compared to 50 years ago.”  

Through automation and, later, software, the department converted 95 percent of such regular government payments as Social Security and veterans benefits from paper to electronic processing. In the 1950s, Treasury had 2,300 people printing checks at 22 locations, producing about 1 million checks during a single eight-hour shift. “1976 was the high-water mark, when we produced 700 million paper checks a year,” Hill said. Now, Treasury sends out more than a billion payments a year from plants in Philadelphia and Kansas City, Mo.

How did that change unfold?

“Electronic payments started right here in this office,” Hill said, pointing to a photo of his predecessor in the mid-1970s named Lester Plumly. He and colleagues realized that once the baby-boomer generation began to retire, the government would not be able to handle that many paper checks. So Plumly persuaded the Air Force payroll staff to begin a pilot in what would soon be known as electronic funds transfer.

Back then, procedures required that computer tapes be delivered to the Federal Reserve banks, prompting a joke that EFT actually stood for “extra fast trucks.” The experiment was a success, and with the subsequent digital revolution, Congress passed the 1995 Debt Collection Improvement Act, with the earliest electronic banking mandates that would set the stage for electronic benefits payments.

“There was a social aspect,” Hill said, recalling how elderly people made a ritual of collecting their monthly Social Security checks. By 2008, by which time debit cards with privacy protections were commonplace, it was noticed that as many as 5 million Americans were “unbanked,” many because they were homeless. A pilot was launched, and by 2010 Treasury regulators phased in an option for beneficiaries to collect their recurring benefits such as Social Security or veterans payments or federal retirement using a fully protected bank prepaid debit card, Hill noted. “All of a sudden they’re in the banking system, and from a social policy point of view, this has pulled more people into the banking system than any other federal program.”

That becomes especially useful during disasters such as 9/11 or Hurricane Katrina in 2005, when government checks were frozen, Hill said.

It costs the government $1 to process a paper check versus 10 cents to process funds electronically, Hill said. Since 2013, Treasury has been on course to save $1 billion over 10 years.

Electronic invoicing in private-sector business-to-business transactions is almost entirely automated, and 50 governments in Europe and elsewhere have implemented it, many to help perform the accounting for their value added tax, Hill said.

“The external forces and the technology have matured, and businesses have worked the bugs out,” Hill said. He predicted that most agencies will beat the 2018 deadline: The OMB mandate “confirmed what we already knew because the benefits sell themselves.”

(Image via jdwfoto/Shutterstock.com)