Page 1 U.S. Government Accountability Office (GAO) GAO’s Report on Electronic Disbursement of Federal Benefit Payments (GAO ) Presented by Kay Kuhlman, Assistant Director Financial Markets and Community Investment, GAO The Next Frontier in Public Benefits: Electronic Benefit Cards Webinar on February 3, 2011 For more information, contact Kay Kuhlman, (202) ;

Page 2 About GAO GAO is an independent agency in the legislative branch of the federal government (created in 1921). GAO is headed by the Comptroller General of the United States, who is appointed to a 15-year term by the President from candidates proposed by Congress. This long tenure gives GAO a continuity of leadership and independence that is rare within government. Most GAO work is done at the request of congressional committees or subcommittees or is mandated by public laws or committee reports. GAO also undertakes research under the authority of the Comptroller General. GAO supports congressional oversight through audits, investigations, program evaluations, policy analyses, and legal decisions (such as bid protest rulings).

Page 3 Why was GAO asked to do this study? Electronic Benefit Transfer (EBT) was devised in the 1980s to meet the needs of the USDA’s Food Stamp Program in which federal benefits were electronically disbursed to eligible recipients. Agency evaluations had found that EBT helped to significantly reduce fraud and offered recipients a quick, secure way to receive payments, while allowing agencies to reduce program costs. These positive results—and the potential for duplicating them in other benefit programs—prompted the Ranking Member of the House Committee on Oversight and Government Reform to request GAO to conduct a study on the extent to which federal programs are using electronic payment methods.

Page 4 Objectives and Scope of Study To what extent are federal benefit programs using electronic payments? What factors do agencies consider when implementing or using electronic payments? What are the potential options for increasing the use of electronic payments? The study focused on federal benefit programs but included information on states’ efforts in using electronic payments.

Page 5 Methodology Surveyed 45 federal benefit programs from federal agencies including USDA, Labor, Veterans Affairs, Health and Human Services, Social Security Administration, and Bureau of Indian Affairs Reviewed documents, reports, and studies on electronic payments Interviewed federal and state agency, industry, and consumer representatives

Page 6 Increase in Use of Electronic Payments in the United States Annual Number of Electronic vs. Check Payments in the United States, selected years (1995, 2000, 2003, 2006, 2009) Sources: 2007 and 2010 Federal Reserve Payments Studies

Page 7 Percentage of Payments Made Electronically for 18 Programs We Surveyed Note: Table does not include federal benefit programs administered by states.

Page 8 Agencies Consider Various Factors When Implementing or Encouraging Use of Electronic Payments Financial burden to recipients, such as transaction fees Recipient characteristics, such as disabilities Program characteristics, such as non-cash benefits Implementation costs Fraud and security risks

Page 9 Options Agencies Have Considered to Increase Use of Electronic Payments Mandating that recipients receive benefits electronically Making electronic payment the default option upon enrollment Promoting electronic payments through public outreach Piloting electronic distribution programs Using electronic payment cards in new ways

Page 10 Transition from Electronic Benefits Transfer (EBT) to Electronic Payment Cards (EPC) As EBT has become more widely accepted and the use of debit card technology has increased, state agencies administering federal benefits have explored other types of EPCs to further increase the use of electronic payments. Some states have explored the use of hybrid cards that involves the use of both magnetic stripe and integrated chip technology. Some states have considered using a co-branded EBT card that would include a VISA or MasterCard logo. In 2008, Treasury launched the Direct Express debit card (bearing the MasterCard logo) for Social Security and SSI recipients.

Page 11 GAO on the Web Web site: Contact Chuck Young, Managing Director, Public Affairs, (202) , U.S. Government Accountability Office 441 G Street NW, Room 7149, Washington, D.C. Copyright This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.