Automation of Processes in Transactional Environments David Chulick Director of IT City of Gilroy, CA

Table of Contents What is ACH? What is Check 21? ACH E-Check Options Benefits of ACH and Check 21 Prior/New Check and Remittance Process Business Case Benefits Implementation Considerations Q&A

What is ACH? Automated Clearing House (ACH) Network –The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system which provide for the interbank clearing of electronic payments for participating depository financial institutions. –Learn more about ACH, see

ACH Payments Includes: Payroll, social security, and other Gov’t benefits, and tax refunds Consumer bills such as mortgages, loans, utility bills and insurance premiums Business-to-business payments E-checks E-commerce payments, “E-deposit” Federal, state and local tax payments

What is Check 21? Is a federal law that is designed to enable banks to handle more checks electronically. More Info:

ACH Electronic Check Options ARC ~ Accounts Receivable Check –Checks received - mail or drop box POP ~ Point of Purchase Check –Checks received - cash register or office WEB ~ Internet-initiated ACH Entries –Internet Payments no paper check needed TEL ~ Telephone-initiated ACH Entries –Phone Payments no paper check needed

ACH E-Check Volume (millions)

Benefits of ACH and Check 21 Accelerate cash flowAccelerate cash flow –Collect payments more quickly (24 hr) –Improve funds availability (Next Day) Improve the returned item processImprove the returned item process –Receive faster notification (Next Day) –Improve collection of returned items –Benefit from redeposit options for ACH returns, one more deposit on NSF NSF - INSUFFICIENT FUNDS

Benefits of ACH and Check 21 Reduce costsReduce costs –Labor costs reduced –Bank charges are reduced –Lower bad debt expense with improved collections

Overview City of Gilroy Located 25 miles south of San Jose “Garlic Capital” of the world! Population of 50K Servicing 13,000 Utility Billing (water and sewer) accounts Awarded “Lighthouse Award” in October 2006 for payment processing efficiencies using Checkmation

The Prior Check and Remittance Process

Four Easy Steps in using Checkmation Scan checks with remittances Verify checks with remittances Export information –Laserfiche –Bank –Financial System –Create Short-cuts to link Financial System to Laserfiche Data transmission

New Process ~ Step 1: Open and Scan Payments sent through the US mailPayments sent through the US mail Checks and remittances are scanned into batches of 50Checks and remittances are scanned into batches of 50 Batches stored in a databaseBatches stored in a database

New Process ~ Step 2: Verification Verify images are readableVerify images are readable –Check –Remittance (stub) Verify check dataVerify check data –Check routing number –Check account number –LAR and CAR amount Verify remittance data ~Verify remittance data ~ –Utility account number

New Process ~ Step 3: Export Data Automatically loads the images into LaserficheAutomatically loads the images into Laserfiche Creates text lockbox file to import into Financial SystemCreates text lockbox file to import into Financial System Creates ICL file which is FTPS’ed to bankCreates ICL file which is FTPS’ed to bank Create short-cuts quick accessCreate short-cuts quick access Text fileICL file

New Process ~ Step 4: Data Transmission Secure File Transfer Protocol (SFTP) the ICL file to the bank’s server Process the text file using the Financial System lockbox procedure Text file ICL file SFTPLockbox

Business Case Prior method: –Labor intensive –Potential for error Quick method of retrieving information Reducing bank fee Improved float benefits –removing “desk float” –receiving same-day credit for items

Business Case Cont. Costs software / hardware purchase –Software purchased from DataNet Solutions, contact Checkmation a division of DataNet Solutions –2 scanners purchased, $5K each (discounted) –Hardware maintenance costs 25% of the original cost. –Software maintenance is 25-33% of the original cost.

Benefits Significant labor savings –“One-touch” check process –Quick data retrieval – two clicks –No paper filing required –Easy method of destroying electronic records Reduced banking fees by 56% Same day posting of credit to account Able to “do more with less”

Implementation Considerations Notification ACH conversion –Managing opt-outs provision added to utility statement –Customer service and support related to ACH conversion Electronic cash letter implementation –Setup and certification process with provider can be lengthy –Up-front costs are expensive –ROI could be years depending on volume of checks processed

Implementation Considerations Cont. How images will be stored and accessed –Financial system will access Laserfiche images quickly to retrieve customer information (two clicks) –Security is established properly to limit access Check destruction practices –Setting up process to destroy after 30 days –Automating destruction of Laserfiche images after X years Accounting and reconcilement impacts

Demonstration

Q&A

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