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NYS Comptroller

THOMAS P. DiNAPOLI

The Academy for New York State's Local Officials

Cash Management: A Tutorial for Local Governments and School Districts

Module 2: Timing of Disbursements

Electronic Funds Transfer (EFT) and Automated Clearing House (ACH)

An electronic funds transfer is a financial transaction that involves an electronic (computerized telecommunications) link. EFT applications include direct deposit of payroll, wire transfers, and Automated Clearing House debits or credits. Please refer to section 5-a of General Municipal Law that authorizes the use of EFT and sets forth the requirements for written agreements with banks.

Direct deposit of a payroll involves setting up an electronic connection between the bank accounts of your local government and its employees. Once the payroll is processed, funds are immediately subtracted from your local government's bank account and added to the employees' accounts. Please refer to section 93-d of General Municipal Law and section 96-b of Banking Law that authorize contracting for these services.

Transferring funds electronically is a simple way to initiate payments such as debt service directly from your computer. You should discuss the options available to you with your local bank representative. Typically you connect via the internet over a secure protocol to the bank and input the payee, amount, account number, and any other required information, and the bank then processes the transfer directly with the receiver’s bank. Transfers often can also be made verbally by telephone. Check with your bank to find out if they charge fees for making electronic or telephone transfers.

ACH is a clearing house and delivery system for processing large volumes of electronic payments between banks. Typically, repetitive and routine transactions such as payroll, payroll taxes, pension benefits, government benefits, and vendor payments can be made using ACH.

How the ACH system works

Your municipality prepares a file with a transit routing number and account number, dollar amount, offsetting account number, and any additional required information. You transmit this file to your bank, which is the originating depository financial institution (ODFI) for the electronic payment. The bank sorts the transactions and processes them internally. The payment data is then forwarded to the ACH network which sorts and routes transactions to destination banks, known as receiving depository financial institutions (ODFI). On the settlement date (usually one or two days from origination), the originator's (your) account is debited (or credited) and credits (or debits) are created at the receiving banks.

Please contact your local bank representative for information on the ACH system. Before starting wide-scale use of the ACH payment system, be sure you know the costs involved for processing payments under your current system versus the costs of using ACH.

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