Cost-Saving Ideas: Electronic Banking
Local governments and school districts use electronic banking as a faster, easier and less expensive
alternative to paper transactions.
Policy and Procedures
Before you begin processing transactions electronically, you should implement internal control policy
and procedures for your online banking activities and electronic funds transactions. The policy and
procedures should specify:
- What online banking and electronic funds transfer (EFT) activities will be used
- Who is authorized to initiate electronic transactions
- Who will approve electronic transactions
- Who will transmit electronic transactions
- Who will record electronic transactions
- Who will review and reconcile electronic transactions.
The policy and procedures must also be consistent with the statutory and other legal responsibilities
of the officers and employees involved.
In addition, your governing board should fully understand the risks, costs and benefits of these
services. Legal counsel should review all agreements with service providers to ensure that your rights
and assets are adequately protected and that all procedures comply with the law.
Segregation of Duties
It is critical to have a proper segregation of duties for electronic transactions. Without it, the
risk increases that one person could commit a wrongdoing and conceal it. Each electronic transaction
should involve at least two individuals. Segregate the authorization and transmitting functions and,
if possible, delegate the recording function to someone who does not have either approval or transmitting
Generally, you should use the same controls for electronic payments through online banking that apply
to manual check preparation. EFT payments cannot circumvent laws, regulations and/or your internal
Electronic or Wire Transfers
Electronic or wire transfers of local government or school district funds are usually effective
within minutes of execution. More expensive wire transfers are commonly used for bond payments,
investments or other large-dollar settlements. Less expensive electronic transfers are frequently
used for small-dollar or repetitive transactions, such as federal, State or local aid, or grant payments.
You should control, authorize and frequently monitor access to in-house electronic or wire transfer
software due to the ease with which transfers can be made. Safeguards for initiating an electronic or
wire transfer include:
- Phoning the bank and using a password to authorize the transfer verbally,
- Hand-delivering a letter of authorization to the bank with the transfer instructions, or
- Sending a fax with the authorized signature and password.
Before opting to disburse funds by electronic or wire transfer, your governing board must sign a
written agreement with the bank or trust company in which your funds have been deposited, including
implementation of a security procedure. You should have a callback provision in your electronic or wire
instructions that requires the bank to call someone other than the person initiating the transaction to
validate the transfer. Also establish additional controls, such as a policy that doesn’t allow the bank
to initiate wire transfers out of the country or to banks other than the Depository Trust Company for
Internal controls must include procedures to document and report all transfers and disbursements of
funds by electronic or wire transfer. In addition, the bank or trust company must provide the officer
requesting the transfer with written confirmation of the transaction no later than the business day
after the day on which the funds were transmitted.
Local governments are authorized to accept a variety of payments via the internet as well as by
credit card. Reviewing Your Revenue Collection Process covers this topic in detail, including use of the State's Electronic Value Transfer Program.
Electronic Check Images
Most banks no longer provide cancelled paper checks to their customers, but instead offer electronic
check images online or on CD. You can accept these electronic images in lieu of cancelled checks required
by statute, upon authorization by your governing board.