Authorizing Electronic Transactions

(Under Public Act 738 of 2002)

WHEREAS, Electronic payments of public funds are required for some federally mandated transactions of public funds, and electronic payments have become a commonly accepted practice by banks and other financial institutions, and

WHEREAS, Public Act 738 of 2002, effective December 30, 2002, authorizes townships to make electronic transactions involving public funds by electronic payment, debit, or credit transfer processed through an automated clearing house, and

WHEREAS, PA 738 authorizes a township treasurer to enter into an ACH arrangement for a national and governmental organization that has authority to process electronic payments (ACH), including, but not limited to, the national automated clearing house association and the federal reserve system, and

WHEREAS, The _____________ Township Board deems that it is in the best interest of the township to make certain township financial transactions by electronic payments as described in PA 738.

NOW, THEREFORE BE IT HEREBY RESOLVED, That the _______________ Township Board authorizes the Township to utilize electronic transactions in compliance with the written procedures and internal controls developed and adopted by the Treasurer as the Township’s ACH policy and presented to the Township Board on ________________, 20__.

The foregoing resolution offered by Board Member ___________________________.
Second offered by Board Member _________________________________________.

Upon roll call vote the following voted:
"Aye": _________________________________
(list names of members voting "aye")
"Nay": __________________________________
(list names of members voting "nay")

The Supervisor declared the resolution adopted.
______________________
(Printed Name), Clerk

Resolution # (example 1993-12-02 or 12-05-98 or 98-1201 . . . 98-1202)

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A township shall not be a party to an ACH arrangement unless the township board has adopted a resolution to authorize electronic transactions and the township treasurer has presented a written ACH policy developed and adopted by the treasurer to the township board. This sample policy includes items that are required to be included in the ACH policy, and the treasurer may include in the ACH policy any other matters the treasurer considers necessary to oversee electronic transactions.

Sample Township Policy for Automated Clearing House (ACH)
Arrangements and Electronic Transactions of Funds

The following policy shall govern the use of electronic transactions and ACH arrangements for _____________ Township:

1. Definitions.
"Automated clearing house" or "ACH" means a national and governmental organization that has authority to process electronic payments, including, but not limited to, the national automated clearing house association and the federal reserve system.

An "ACH arrangement" means the agreement between the originator of the ACH transaction and the receiver of an ACH transaction.

An "ACH transaction" means an electronic payment, debit, or credit transfer processed through an automated clearinghouse.

An "ACH policy" means the procedures and internal controls as determined under this written policy developed and adopted by the township treasurer.

2. Authority to Enter into ACH Arrangements and Electronic Transfers of Public Funds. The township treasurer may enter into an ACH arrangement as provided by Public Act 738 of 2002, effective December 30, 2002.

_____________ Township shall not be a party to an ACH arrangement unless the ____________ Township Board has adopted a resolution to authorize electronic transactions and the ___________ Township Treasurer has presented a written ACH policy to the township board.

An ACH arrangement under PA 738 of 2002 is not subject to the Revised Municipal Finance Act, Public Act 34 of 2001 (MCL 141.2101, et seq.), or to provisions of law or charter concerning the issuance of debt by a local unit.

3. Responsibility for ACH Agreements. The _____________ Township Treasurer or _______________ (officer or employee position designated by the treasurer) is responsible for ____________ Township’s ACH agreements, including payment approval, accounting, reporting, and generally for overseeing compliance with the ACH policy.

The treasurer shall submit to the township board documentation detailing the goods or services purchased, the cost of the goods or services, the date of the payment, and the department levels serviced by each payment of public funds made by electronic transfer. This report may be contained in the township’s electronic general ledger software system or in a separate report to the township board.

4. Internal Accounting Controls to Monitor Use of ACH Transactions Made by Township. The following system of internal accounting controls will be used to monitor the use of ACH transactions made by __________ Township:

1) The treasurer shall prepare a list of vendors authorized to be paid by ach transaction and provide that list to the clerk.

2) The clerk initiates the transaction upon receipt of an invoice included on the authorized ACH list approved by the appropriate township official. ACH invoices must be approved before payment. The clerk signs the ACH invoice, which then acts as the warrant.

3) The clerk presents the warrants (or check if the clerk prepares the checks in a double signature system), a list of bills for payment, and a separate list of the electronic payments for township board approval. The board approves all transactions prior to disbursement. [If the township board has established a policy identifying specific payments that have pre-approved authorization (monthly utility bills, payroll), it must post-audit those payments and confirm their disbursement at the next board meeting following their disbursement. Include in the ACH policy the list of specific types of payments pre-authorized for post-approval by the board.

4) Following board approval, the treasurer signs the ACH warrant, initiates the electronic transaction with the vendor, and makes the actual transfer of funds. [A township may wish to consider using a separate bank account to accomplish ACH electronic transactions, effectively creating a "firewall" between the township’s funds and outsiders.]

5) The treasurer shall retain all ACH transaction documents for audit purposes.

6) The clerk shall retain all invoices for audit purposes.

Certification
I, (print name) , Treasurer of _____________ Township, certify that I developed and adopted the foregoing ACH policy and have presented it to the _______________ Township Board.
________________________________, Treasurer _____________________________, Date

This sample policy is provided for general information purposes and should not be construed as legal advice. Each township treasurer should refer to the provisions of Public Act 738 of 2002 and the township’s financial consultant (auditor, accountant) or legal counsel in developing a policy for the township.

Prepared by Michigan Townships Association, January 2003