MINNESOTA’S HYBRID CHECK 21/ ACH REMITTANCE PROCESSING
Double Duty Pays Off
Cynthia Rowley, Minnesota Department of Revenue
Brant Poore, Information Capture Solutions
August 14th 2012
BUSINESS PROBLEM
• Minnesota’s equipment that processed paper checks was reaching end of life
• Like many States, budgets in MN were tight in 2010
• Our disaster recovery plan was invalid. The other State agency that had the same equipment had replaced it
EXISTING ENVIRONMENT In-house MICR based check processing solution using two NCR7780’s
• Implemented in 2001 • Built on J&B software platform
Two IBML ImageTrac III’s exclusively used for returns and correspondence • Implemented in 2007 • Built on EMC software platform
SHRINKING PAPER
Number of Paper Returns
CY2002 2,063,588
CY2007 1,587,055
CY2008 1,473,736
CY2009 1,337,693
CY2010 1,260,696
CY2011 1,230,688
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Paper Returns
Number of Paper Payments
FY2003 2,291,714
FY2008 1,978,603
FY2009 1,747,794
FY2010 1,606,585
FY2011 1,494,637
FY2012 1,561,797
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Paper Payments
OLD PROCESS
First Pass
Key Checks
Courier
Perfect Vouchers
Prepare Deposit
Second Pass Balance
Images Data
PROJECT OBJECTIVES
• Replace aging remittance hardware and software
• Consolidate onto an in-use software platform
• Use existing equipment • Reduce data capture costs • Improve deposit time • Remain cost neutral with bank fees
THE SOLUTION
Use Exis(ng Scanning Hardware Use exis(ng Data Entry So6ware Convert checks to electronic transac(ons and deposit via:
-‐Check 21: Image Cast LeDer (ICL)
-‐ACH
Use return hardware/software for checks
Key efficiencies:
One pass system Reduced voucher exceptions Taxpayer RTN/Acct captured Works for other State agencies Dollar entry an exception Reduced sorts and batch cuts Eliminate courier Eliminated two servers Lower cost of hardware/software Eliminated license limitations Steady transaction cost with bank Reduced down time Leveraged data entry resources
TECHNICAL DESCRIPTION
• IBML SoftTrac software identifies both check and voucher at scan time
• EMC’s Captiva InputAccel open architecture workflow routes check and voucher to appropriate work queues
• Checks routed to Tangent Depost21 modules • Extract, validate and correct check MICR line and amount
information • Deposit via optimum choice of ACH, Check 21 or paper deposit
• Vouchers routed to EMC Dispatcher OCR/ICR • Automate “second pass” balancing of voucher to check
amounts from Deposit21
IMPLEMENTATION SCHEDULE
Item descrip,on Deliverable Date Completed
Requirements Gathering & Project Design
Project Specifica9ons Documenta9on
March 16, 2010
Development Begins March 22, 2010 Programs installed on MNDOR Development Environment
April 27, 2010
User Acceptance Tes9ng Begins May 3, 2010
Install Deposit 21 System in the Produc9on Environment
May 10, 2010
Controlled Live Tes9ng Begins May 11, 2010
Controlled Live Tes9ng Ends May 17, 2010
System Ready for Produc9on May 17, 2010
CHALLENGES ALONG THE WAY
• Check 21 cost per transaction • NACHA’s ACH notification rules • Integrated tax roll out • Transition/Learning Curve • Reconciliation • Volume at peak
COST PER TRANSACTION
• Paper Check < Check 21 (Image Cash Letter) • Deal breaker with Finance • Bank proposed an alternative: Hybrid ACH/Check 21: ACH <
Paper Check < Check 21 Check 21 ACH Check Conversion
All US Checks Checks from individuals less than $25,000
No foreign, travelers, cashiers, credit card or third party checks; no money orders
Same as Check 21 plus no checks from businesses
Processing costs are twice the price of paper checks
Processing costs are half the price of paper checks
Taxpayers bank statement will list a check and a copy will be available from the bank and from us
Taxpayers bank statement will list an ACH transaction; copies will not be available from the bank, but will be from us
Transactions will likely process faster than a paper check
Transactions will process faster than a paper check
Notification is required
TRANSACTION RESULTS
TRANSACTION TYPE # Volume % of Total ACH 1,064,668 70%
ICL 436,519 29%
Paper 7,303 .5%
Cash 4,971 .35%
Fed Wire 513 .15%
Revenue TOTAL 1,513,974
ACH NOTIFICATION RULES
• NACHA rules require notification to remitter • Intent to convert to ACH • Opt out procedures
• Began notification early via: • Internet • Instruction booklets and other printed materials • Vouchers • Letters
• Opt outs to date: 16 taxpayers • Today NACHA requires notification of intent only; no
opt out
OTHER CHALLENGES
• Integrated tax roll out • Between roll out 2 (business income) and roll out 3
(individual)
• Transition/Learning Curve • New remittance system • New tax system • Training
• Reconciliation • Clearing times • Deposit times
PEAK VOLUMES
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
Return
Payment
January April June September December
NEW PROCESS
Scan Payments
OCR Tran
Transmit Deposit
Balance Perfect Data
Data/ Images
Destroy Checks
OLD PROCESS
First Pass
Key Checks
Courier
Perfect Vouchers
Prepare Deposit
Second Pass Balance
Images Data
NEW PROCESS
Scan Payments
OCR Tran
Transmit Deposit
Balance Perfect Data
Data/ Images
Destroy Checks
COMPARISON
Process Steps: Days to Deposit (0 Day) Days to Deposit (1 Day) Dollars to Deposit (0 Day) Dollars to Deposit (1 Day) Vouchers Checks High Day Comparison
Before After 7 4 0% 15% 35% 32% 0% 15% 36% 36.5% 30% 17% 100% 34% 48,432 Payments 75,726 Payments $142,125,789.88 169,473,079.07
BUSINESS RESULTS
From 2010-2012 Increase of 12% Volume deposited in 1 Day
Increase of 15% of Dollars deposited in 1 Day
One time savings of $1 million+
Annual savings of $118,000
BETTER GOVERNMENT FOR A BETTER MINNESOTA AWARD
Governor Mark Dayton and Revenue Commissioner Myron Frans congratulate the
Department of Revenue Electronic Check Processing Team for saving Minnesota
taxpayers $1 million in check processing costs by working together to figure out how to
move to a system of electronic check processing
Department of Revenue Electronic Check Processing Team Team Members: Roxanne Smetana, Kathy Bradshaw, Nancy Rose, Lisa Wilson, Mark Kleppe, John Wottrich, Sandy Long, Sue Bombardo, Jean Jochim, Julie Boje, Kandy Hedlund, Kristen Schroeder, Brian Thesing, Virginia Adler, Jim Biggs, Kurt Rud, Cynthia Rowley For saving Minnesota taxpayers $1 million in check processing costs. When their old machines for processing payments needed replacing, this team figured out how to move to a system of electronic check processing, which produced a one-time savings of $1,000,000. The new system was used as a model to help other agencies develop similar improvements.
http://hometownsource.com/2011/11/18/gov-dayton-announces-better-government-for-a-better-minnesota-award-winners/
LESSONS LEARNED
• Expect the unexpected • If dates change, reevaluate scope, too
• Test, test, test
QUESTIONS