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