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E-Commerce Conference April 23, 2008

Electronic Task Force Update. EC Task Force. E-Commerce Conference April 23, 2008. Gwen Canady, Chief Deputy State Controller David C. Reavis, E-Commerce Manager Office of the State Controller. EFT. Special Provision. 2007 Appropriations Act - OSC was charged with the task of:

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E-Commerce Conference April 23, 2008

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  1. Electronic Task Force Update EC Task Force E-Commerce ConferenceApril 23, 2008 Gwen Canady, Chief Deputy State ControllerDavid C. Reavis, E-Commerce ManagerOffice of the State Controller EFT

  2. Special Provision 2007 Appropriations Act - OSC was charged with the task of: • Evaluate opportunities for efficiencies in State government through the use of electronic commerce as it relates to both disbursement and collection of funds • Report the results of that evaluation to the 2008 Regular Session of the 2007 General Assembly – April 30 • Recommend proposed legislation that may be considered by the 2008 Regular Session of the 2007 General Assembly. • OSC to acquire input from various sectors of state government. • Input was acquired by two primary means: • Creation of a task force - Various government sectors • Conducting a comprehensive survey of fiscal officers

  3. Task Force Assembled • Central Agencies • OSC • DST • OSBM • ITS • UNC-GA • NC CCS • DPI • Other Agencies • DOR • DOT • DHHS • ESC • SOS

  4. Website for Task Force • Most

  5. Input and Activities • Blog Postings to Website • Zoomerang Survey – Fiscal Officers • General Govt. • Universities • Community Colleges • OSC Research • Best Practices • Other Studies

  6. Objectives • In each of the two areas (disbursements and collections), ascertain current utilization: • Paper based (types of transactions, number volumes, and dollar volumes) • Electronic based (types of transactions, number volumes, and dollar volumes) • Identify agencies and programs that have developed successful programs • Identify reasons and obstacles for lack of ecommerce participation • Identify current costs of ecommerce activities • Identify the various types of ecommerce solutions available • Identify the various types of agency activities suitable for e-commerce • Identify best practices in e-commerce • Identify security related issues • Identify industry issues of concern to governments • Identify current roles of central agencies • Identify inefficiencies in current operations • Identify what services could/should be offered on an enterprise basis • Identify impact of pending planning of BEACON Financials on e-commerce • Identify the correlation between ecommerce and the State’s Cash Management Plan • Identify various statutes pertaining to ecommerce • Identify modifications needed to statutes

  7. Assessment of Current EnvironmentTwo Master Contracts EFT Rates most favorable in the country - RFPs • EFT - Less than a penny • Merchant Cards - $.04

  8. Common Payment Service Gateway • Gateway Service for both EFT & Merchant Cards • Provided by Office of Information Technology Services (ITS) Wachovia Agency Web Application CPS EFT (ACH) Cards STMS • Processes 39% of merchant card transactions (23% of $) • Processes 20% of EFT transactions • Biggest card user - DMV • Biggest EFT user - DOR • Fee Decrease for Cards 4-1-08 • $.41 to $.35 (15% reduction)

  9. EFT Utilization • Biggest Inbound User • Dept of Revenue – Started 1994 • 120,000 taxpayers remitting electronically • 9,000 mandated • 111,000 voluntarily • $1.9 million transactions annually • 17.4 billion of $26.2 billion collected = 66% • Increased investment earnings of $8.7 million per year - as result of 3½ days float reduction • Biggest Outbound Users • Retirement System – Started 1977 • 200,000 out of 209,000 = 96% • Central Payroll – Started 1979 • 82,700 out of 87,700 = 94% • Compare to August  74,300 out of 83,800 = 88% • NCAS Vendors – Started 2000 • ACH: 225,000 out of 954,000 = 24% (34% of Dollars)

  10. NCAS Vendor Payments FY2006-07 • 24% (224,566) of 937,000 NCAS vendor payments by EFT • 35% ($7.3 billion) of $21 billion by EFT • 2% (17,400) payment totaling $394 million by Inter/Intra Governmental Transfer method Opportunity for Improvement • Possibly mandate participation ? • Make enrollment easier – online ?

  11. Direct Deposit • Retirement benefits by direct deposit since 1977 • Payroll by direct deposit since 1979 • Success largely due to DST being able to pay bank fees from interest earnings as opposed to agencies picking up tab • Mandatory Direct Deposit Policy • Retirement in 1994 • Central Payroll in 2007 • Coming in 2008 – Payroll cards for the “unbanked” Number DDPercent DD Retirement Benefits 200,000 96% Central Payroll 88,000 94% Mailing costs savings alone for Retirement = $80,000 per month

  12. Paper Warrant Trend Million 18.2 17.6 16.5 14.7 14.3 Largest Accounts 13.3 Decrease of: 3% 6% 11% 3% 7% FY 2001-02 was peak in paper warrants = 18.2 million FY 2004-05 had biggest % decrease = 11% FY 2006-07 - TANF was only increase = 16% (No EFT Program)

  13. $ Million Merchant Card Utilization Dollar Amount FY-01 285,000 FY-02 868,000 FY-03 1,573,000 FY-04 2,078,000 FY-05 2,842,000 FY-06 3,673,000 FY-07 4,509,000 FY-01 $ 22.8 FY-02 $ 76.7 FY-03 $ 182.6 FY-04 $ 233.7 FY-05 $ 311.4 FY-06 $ 435.7 FY-07 $ 534.8 #Transactions • Growth rate FY 2006-07 was 23% (30% previous years) • Currently 92 participants (850+ merchant numbers): • 21 Agencies 26 Community Colleges • 15 Universities 30 Local Governments

  14. Card Activity FY 2006-07 • DMV Vehicle Registration largest volume • 1.25 million transaction • $ 39 million • Represents 12% of $338 million DMV fees collected

  15. Card Fees FY 2006-07 • DMV Vehicle Registration largest volume • 1.25 million transaction • $ 39 million • Two Types of Fees • Pass-thru fees are paid to Visa/MC • Vendor Fees are paid to STMS

  16. Online Payments for Receipts

  17. Million $ Billion Collections Mix Dollar Amount #Transactions Cards - 11% Cash - 17% ACH - 28% Checks - 44% Cards - .7% Cash - 1.5% Checks - 23.5% ACH - 74.2% • Greatest number of transactions are paper - 61% • Greatest transactions dollars are electronic – 76% • Cards and Cash combined represent 2% of dollars collected • Twice as much is collected by cash than cards

  18. CollectionsPaper vs. Electronic

  19. Paper Base ReceiptsChecks vs. Cash

  20. DisbursementsPaper vs. Electronic

  21. Cost of Paper State Check Agency CostDST CostTotal Cost Gen. Govt. Agency $ .43 $.11 $ .54 University $1.30 $.11 $1.41 Community College $2.11$.11$2.22 Weighted Average $ .63 $.11 $ .74 • Two components of cost = Agency cost & DST cost • DST functions as “bank” for agencies • Internal costs = $.09 • FRB fees = $.02 • Cost of the issuance of a paper state check varies from agency to agency • General Government agencies experiences lower per item cost due to several large volume accounts • Average overall cost for a State warrant is $.74 • Smaller check volumes = higher per item costs • Some agencies’ cost as high as $35

  22. Debit Cards EBT – Since 1999; Vendor EFunds; Quest branded; Fee $.55 per case mo. Child Support – Being implemented in 2008; Vendor is JP Morgan ESC – Since Jan 2007; Vendor is ACS (EPPI Card) - MasterCard branded Payroll – Being implemented in 2008; Vendor is Wachovia - Visa branded Student Refunds- Universities; Vendor is Higher One – MasterCard branded

  23. Procurement Card Activity • Administered by P&C – Vendor is Bank of America • Not considered a form of “electronic payment” as defined by statute (G.S. 147-86.20(2a) • Does not result in movement of monies as it creates an “accounts receivable” and paid for when invoiced • Providers for rebates of up to 1.5% ($1million in 2007) • Limited to purchases of $2,500 • Universities largest user based on number of transactions (55% of ½ million transactions) • Average transaction size = $285 (avg. check = $1,828) • Potential for P-cards to be used for invoices – not just small purchases

  24. Best Practice - Web Capture • Gateway Service providing both capture and processing • Presentment Engine – Payor is redirected to vendor’s website • Payment Engine / Two options – ACH draft or card transaction • Two types of transactions • Bill presentment -Transaction authenticated against O/S database • One time payment – No authentication (One time payment) Third-Party Vendor Wachovia Database Authentication of O/S Transactions ACH Bank Draft Card Choice of PaymentMethod Agency’s A/R System STMS

  25. Best PracticeRemote Deposit Capture • Two methods for processing receipts of checks • ACH Conversion (POP, BOC, ARC) – MICR line sent to bank • Check 21 / IRD (Image Replacement Document) - Image sent to bank • ACH Conversion not conducive to government • Applies to consumer checks only • Has an amount limit of $25,000 • DST is evaluating potential use in State government • OSC pilot in 2008 • Check scanner terminal • Small volume of checks • Eliminates having to make trips to the bank

  26. Best Practice PCI Data Security • Card industry rules to protect cardholder data and prevent security breaches • Potential fines $1 million per occurrence • OSC has secured services of a “Qualified Security Assessor” to assist agencies in becoming and remaining compliant - Trustwave • Annual certification via questionnaire • Quarterly scanning of website and other external facing IP addresses • Requires resources of OSC and agencies • OSC has become a member of the PCI Security Council in order to have input into rule making

  27. Costs of Receipts General Government RankType Cost 1 ACH $1.00 2 Cards $1.60 3 Paper $2.00 Universities RankType Cost 1 Paper $2.00 2 ACH $3.00 3 Cards $5.00 Comm. Colleges RankType Cost 1 ACH $1.50 2 Paper $2.00 3 Cards $3.60 • Cost of Electronic transaction NOT always cheaper than Paper • Card transactions – Cost related to amount of transaction • Low volume of any one type = high per item cost • Agency’s cost of ongoing infrastructure could be higher • ACH – Lowest for Gen Govt. and Colleges but not universities • Cards – Lower than paper only for Gen Govt. • Paper – Lowest cost for universities • High dollar tuition results in high card cost for univ & colleges

  28. Merchant Card Fees Card Issuing Banks Visa & MC Pass-Through Vendor-Levied Debit Network

  29. Convenience Fee Issue • Statutes conflict with industry rules • Visa only allows “Flat” fee • Many universities discontinuing Visa • Current statute requires approval of OSBM, ITS, and Govt. Opts • Charged by agency • Charged by third-party

  30. Recommendations - Expansion • OSC to be primary agency charged with the governance responsibility of establishing comprehensive standards, policies, and procedures • Other central oversight offices to be involved: • DST, OSBM, ITS, UNC GA, NC Community College System • Management of each agency • Take an active role in identifying paper based payments that are potential candidates for converting to electronic payments • Reporting to the OSC on a prescribed basis • Oversight and approval process should be established within OSC to ensure all new ecommerce applications desired to be implemented by an agency are consistent with statewide standards and policies that may be established • Policies to be conducive to the orderly expansion of ecommerce activities • Statutory requirements • Industry requirements • Security Requirements • Cash management effects • Best Practices • Citizens needs

  31. Recommendations - Funding • Funding should be a priority for those agencies desiring to establish ecommerce functions that require modifications to their website infrastructure. These development cost are separate from the ongoing processing costs once a system is developed. • Whenever it is determined that any ecommerce activity is economically beneficial to the State as a whole, the costs incurred should be considered as a “cost of doing business,” without any expectation that the citizen should pay a convenience fee. • Funding for ecommerce activities should be in accordance with the type of agency operation, as determined by the Office of State Budget and Management and based upon a business case for a particular agency. • “Enterprise or receipts supported” operation - Transaction costs should be paid for from the agency’s enterprise or special fund. • “Appropriations supported” operation - Transactions costs may be paid for either by a direct appropriation or from the revenue account established to account for Interest on Treasurer’s Investments, whenever that revenue account is the beneficiary of the increased availability of funds as a result of being collected electronically. • Whenever it is not more efficient to process a transaction electronically, a convenience fee may potentially be levied against the payor, as approved by the Office of State Budget and Management in consultation with the State Controller, based upon the agency’s submitted business case.

  32. Factors for Cost of Doing Business Considered for Absorbing Fees as a “Cost of Doing Business” • Reduced transaction costs • Speedier collections and availability of funds (increased interest earnings) • Payment for service or product is considered “mandatory” (e.g., taxes) • Acceptance of an electronic transaction would likely increase sales or revenue • Payment is to satisfy a “delinquent” account or other type of payment that would not likely otherwise be collected • Other factors deemed appropriate for a particular type of payment (e.g., convenience expectation of citizen) Approval Processes • Funding for Enterprise and Receipts Supported Operations – By OSBM • Funding for Appropriations Supported Operations • If appropriated – By General Assembly • If from interest earnings – By OSBM in consultation with OSC & DST • Levy of convenience fee – By OSBM in consultation with OSC Reporting of Convenience Fees • To General Assembly by OSC

  33. Funding E-Commerce Transactions Agency Business Case Agency Business Case Convenience Fee Possible If other factors -Fund from operations If for citizen’s convenience only – Fund from convenience fee Convenience Fee Prohibited (Cost of doing business) Fund from Operations Convenience Fee Prohibited (Cost of doing business) Fund from Interest Earnings Convenience Fee Possible If other factors -Fund thru appropriations If for citizen’s convenience only – Fund from convenience fee Funding to be approved by OSBM Funding to be approved by OSBM w/ OSC and DST Any Convenience Fee to be approved by OSBM w/OSC

  34. Recommended Legislation Cash Management Law G.S. 147-86.10 Pertains to Cash Management (Existing) Electronic Commerce in State Govt. G.S. 66-58 Pertains to Digital, etc. (Existing) 1)Create a New Chapter Incorporates two existing chapters Pertains to “Electronic Payments” only Clarifies Responsibilities 2) Amend Various Agencies’ Statutes (Existing)

  35. More Information Office of the State Controller Web Site www.ncosc.net Support Services Center (919) 875-HELP (4357) David C. Reavis E-Commerce Manager (919) 871-6483 Amber Young Central Compliance Manager (919) 981-5481 Robert Powell State Controller April 23, 2008

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