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 duties.

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 control policies.

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 bond payments.


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.

Electronic Payments

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.


Updated 2016