BULLETIN NO. 94-07 VOLUME I RETENTION: December 31, 1995 TO: HEADS OF GOVERNMENT DEPARTMENTS AND AGENCIES AND OTHERS CONCERNED SUBJECT: RESPONSIBILITY FOR PAYMENT OF LOCKBOX ACCOUNT COSTS 1. PURPOSE This Bulletin prescribes responsibility for-- o Reimbursing banks in the Department of the Treasury's (Treasury's) Lockbox Network for lockbox services. o Ensuring that funds are not withdrawn prematurely from Treasury. I TFM 2-3300 and 4600 will be revised to reflect provisions in this bulletin, which supersedes Bulletin 92-07. 2. BACKGROUND In accordance with the Cash Management Improvement Act of 1990 (and 1992 amendments) the Treasury's policy is to collect funds through Electronic Funds Transfer (EFT) when doing so is-- o Cost effective. o Practicable. o Consistent with current statutory authority. In support of this policy, Treasury published a Final Rule in the Federal Register January 31, 1994, concerning the management of Federal Agency receipts and disbursements. This rule revised Title 31 CFR, Part 206, and requires Treasury to assist agencies in converting to EFT applications, if the above criteria are met. Provisions of this bulletin regarding lockbox service fees apply to-- o Collections operations not yet converted to EFT methods. o Agency collection flows that remain in the Lockbox Network. o New applications determined to be appropriate for lockbox. Treasury will pay for lockbox services if there is a net benefit (interest earnings derived from the accelerated collections exceed the cost of standard lockbox services) to the Treasury's General Account (TGA). 3. TYPES OF BANKING SERVICES The following categories of banking services are provided through the Lockbox Network: o Basic Depositary Services - Services (for instance, reporting deposits to Treasury, clearing checks, processing returned checks, and transferring funds to Treasury) that agencies would receive through a TGA in a commercial bank or in a Federal Reserve Bank (FRB). o Standard Lockbox Services - Services necessary for establishing and maintaining a post office box and lockbox, opening envelopes and extracting remittances, processing remittance advices, reconciling deposits to remittance advices, preparing credit memorandums for the bank and for Treasury, processing adjustments, providing collection data to an agency, developing or programming software to accomplish standard remittance processing requirements, and maintaining Basic Depositary Services as described above. o Ancillary Lockbox Services - Services beyond Standard Lockbox Services. To realize the cost advantage of negotiating for large volumes of services, Treasury negotiates prices for a wide array of Ancillary Lockbox Services with which it has experience. However, the agency will pay the associated costs for these and any other Ancillary Lockbox Services it uses (for instance, custom remittance sorting and custom remittance document packaging for mailing to the agency). 4. POLICY a. Availability of Deposited Funds - Funds must not be withdrawn from nor invested within Treasury before they are collected and available to Treasury. Eighty percent of funds may be considered by agencies to be available one business day after the deposit date and twenty percent may be considered available two business days after the deposit date (deposit date is the confirmed date on the SF 215: Deposit Ticket). Exceptions to this policy apply to Automated Clearing House (ACH) collections through the Lockbox Network, and electronic funds transfers directly to Treasury's account at the FRB. Funds collected through these mechanisms are deemed available to agencies on the settlement date of the funds transfer. b. Banking Service Fees for Lockboxes - FMS will provide a lockbox and pay costs for Standard Lockbox Services if benefits to the Treasury's account from the accelerated collection of funds will exceed such costs and it is determined to be the most cost effective method of collecting agency receipts, according to 31 CFR Part 206. If benefits to the Treasury's account will not exceed costs for Standard Lockbox Services, but the agency nonetheless requests a lockbox to obtain agency benefits that make the application cost-beneficial on a governmentwide basis, FMS will provide the lockbox and pay for Basic Depositary Services, but the agency must pay for all other services. Lockbox collections that are withdrawn from the Treasury's account, even for the purpose of investing the funds within Treasury, do not benefit Treasury. Agencies must pay all such lockbox costs, including those for Basic Depositary Services. 5. RESPONSIBILITY FOR PAYING COSTS OF LOCKBOX SERVICES Treasury will work with agencies to evaluate all cash flows for compliance with the following requirements for availability and to identify and evaluate cash flows that are candidates for accelerated collections: a. Treasury will pay costs for Standard Lockbox Services when the benefits to the TGA exceed the costs for those services. For example, if the estimated interest earnings from the accelerated collections of an agency program are $100,000 per year and costs for Standard Lockbox Services are estimated to be $90,000 per year, Treasury will establish the lockbox and pay those costs. b. If the benefits to the TGA from accelerated collection of the funds are less than the costs for Standard Lockbox Services, but the agency nonetheless desires a lockbox because of other, agency-specific benefits that make the application cost beneficial on a governmentwide basis, Treasury will provide the lockbox, but will pay only the costs for Basic Depositary Services. The agency will pay all other costs. Other benefits derived by an agency might include reduced processing costs or improved efficiency or timeliness. For example, if the estimated interest earnings from the accelerated collections of an agency program are $90,000 per year and costs for Standard Lockbox Services are estimated to be $100,000 per year, Treasury will provide the lockbox only if the agency pays all costs beyond those for Basic Depositary Services. As described in Section 3, Basic Depositary Services are a part of Standard Lockbox Services. From our example, costs for Basic Depositary Services might equal $30,000 of the $90,000 costs for Standard Lockbox Services. c. If, after deposit to the TGA, an agency invests available funds within Treasury or withdraws funds for investment outside of Treasury, there is no benefit to the Treasury from the accelerated collection. Accordingly, the agency will be required to pay all lockbox costs, including those for Basic Depositary Services. This is a clarification of policy defined in TFM Bulletin 92-07, which stated that only agencies that withdraw funds for investment outside of Treasury will pay these costs. For example, if an agency has Treasury invest all funds for the benefit of a trust fund, those lockbox collections would not benefit Treasury. The agency may request Treasury to establish a lockbox, but the agency would be required to pay all costs, including those for Basic Depositary Services. d. Costs for Ancillary Lockbox Services are not paid by Treasury. If an agency requires Ancillary Lockbox Services, it must pay the associated costs. 6. METHODS OF REIMBURSEMENT FMS will work with agencies to establish appropriate methods for paying agency lockbox costs. Methods being considered include reimbursement to the General Fund and direct payments to banks. 7. COMPLIANCE Effective immediately, all new applications to the Lockbox Network are evaluated for compliance with these guidelines. Existing lockbox accounts will be reviewed on an individual basis, and FMS will work with each agency to-- o Identify lockboxes that will remain in place. o Determine lockbox costs that must be transitioned to the agency, if the lockbox remains in place. o Identify lockboxes that must be phased out in favor of more cost effective EFT applications. Agencies that must pay lockbox costs will negotiate with FMS for a future conversion date to allow sufficient lead time for the agency to secure adequate funds through the budget process. 8. INQUIRIES Requests for waivers to these provisions and questions regarding this bulletin should be directed to-- Cash Management Policy and Planning Division Financial Management Service Department of the Treasury Liberty Center 401 - 14th Street, SW Washington, DC 20227 (Telephone: 202-874-6590) Date: March 1, 1994 Russell D. Morris Commissioner