MINNESOTA’S HYBRID CHECK 21/ACH REMITTANCE PROCESSINGDouble Duty Pays OffCynthia Rowley, Minnesota Department of RevenueBrant Poore, Information Capture SolutionsAugust 14th 2012

BUSINESS PROBLEM Minnesota’s equipment that processedpaper checks was reaching end of life Like many States, budgets in MN were tightin 2010 Our disaster recovery plan was invalid. Theother State agency that had the sameequipment had replaced it

EXISTING ENVIRONMENTIn-house MICR based check processing solution using two NCR7780’s Implemented in 2001 Built on J&B software platformTwo IBML ImageTrac III’s exclusively used for returns and correspondence Implemented in 2007 Built on EMC software platform

SHRINKING PAPERPaper PaymentsPaper 001,500,0001,000,0001,000,000500,000500,0000Number of Paper Returns0Number of Paper ,494,637CY20111,230,688FY20121,561,797

OLD PROCESSKeyChecksFirst CourierDataImages

PROJECT OBJECTIVES Replace aging remittance hardware andsoftware Consolidate onto an in-use softwareplatform Use existing equipment Reduce data capture costs Improve deposit time Remain cost neutral with bank fees

THE epositvia:- ‐Check21:ImageCastLeDer(ICL)- ‐ACH

Use return hardware/software for checksKey tecourier

TECHNICAL DESCRIPTION IBML SoftTrac software identifies both check andvoucher at scan time EMC’s Captiva InputAccel open architectureworkflow routes check and voucher to appropriatework queues Checks routed to Tangent Depost21 modules Extract, validate and correct check MICR line and amountinformation 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 checkamounts from Deposit21


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 21Check 21ACH Check ConversionAll US ChecksChecks from individuals less than 25,000No foreign, travelers, cashiers, credit cardor third party checks; no money ordersSame as Check 21 plus no checks frombusinessesProcessing costs are twice the price ofpaper checksProcessing costs are half the price of paperchecksTaxpayers bank statement will list a checkand a copy will be available from the bankand from usTaxpayers bank statement will list an ACHtransaction; copies will not be availablefrom the bank, but will be from usTransactions will likely process faster than apaper checkTransactions will process faster than apaper checkNotification is required

TRANSACTION dWireRevenueTOTAL1,513,974

ACH NOTIFICATION RULES NACHA rules require notification to remitter Intent to convert to ACH Opt out procedures Began notification early via: InternetInstruction booklets and other printed materialsVouchersLetters Opt outs to date: 16 taxpayers Today NACHA requires notification of intent only; noopt 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 emberDecember

NEW itDepositData/ImagesDestroyChecks

OLD PROCESSKeyChecksFirst CourierDataImages

NEW itDepositData/ImagesDestroyChecks

COMPARISONBeforeAfterProcess Steps:74Days to Deposit (0 Day)0%15%Days to Deposit (1 Day)35%32%Dollars to Deposit (0 Day)0%15%Dollars to Deposit (1 Day)36%36.5%Vouchers30%17%Checks100%34%High Day Comparison48,432 Payments 142,125,789.8875,726 Payments169,473,079.07

BUSINESS RESULTSFrom 2010-2012Increase of 12% Volume deposited in 1 DayIncrease of 15% of Dollars deposited in 1 DayOne time savings of 1 million Annual savings of 118,000

BETTER GOVERNMENT FOR A BETTERMINNESOTA AWARDGovernor Mark Dayton and RevenueCommissioner Myron Frans congratulate theDepartment of Revenue Electronic CheckProcessing Team for saving Minnesotataxpayers 1 million in check processingcosts by working together to figure out how tomove to a system of electronic checkprocessingDepartment of Revenue Electronic CheckProcessing TeamTeam Members: Roxanne Smetana, KathyBradshaw, Nancy Rose, Lisa Wilson, MarkKleppe, John Wottrich, Sandy Long, SueBombardo, Jean Jochim, Julie Boje, KandyHedlund, Kristen Schroeder, Brian Thesing,Virginia Adler, Jim Biggs, Kurt Rud, CynthiaRowleyFor saving Minnesota taxpayers 1 million incheck processing costs. When their oldmachines for processing payments neededreplacing, this team figured out how tomove to a system of electronic checkprocessing, which produced a one-timesavings of 1,000,000. The new system wasused as a model to help other agenciesdevelop similar r-minnesotaaward-winners/

LESSONS LEARNED Expect the unexpected If dates change, reevaluatescope, too Test, test, test