June 95

Problem/Situation: State and local governments swamped in paper-based transactions.

Solution: Electronic data interchange.

Jurisdictions: Fairfax County, Va., Massachusetts, South Carolina, Texas .

Vendors: KPMG Peat Marwick, Sterling Software, Frank Gates Software Systems, EDS.

Contacts: Jan Key, South Carolina Department of Revenue, 803/737-4913; Nancy Burke, Massachusetts Office of State Comptroller, 617/727-5000 x391; Pat Cannon, Texas Workers' Compensation Commission, 512/440-3768

Mind your X12's

By Tod Newcombe

News Editor

In South Carolina, government agencies use electronic data interchange (EDI) for accepting individual and corporate tax filings and Workers' Compensation injury reports. In Massachusetts, the state is beginning to process purchase orders and invoices via EDI. Numerous other states are using EDI for similar projects. In fact, a large percentage of state governments are involved with EDI in one way or another.

But try to get a fix on the actual amount of EDI transactions taking place in state government and the numbers are hard to find. "The large amount of interest in EDI at the state and local government level hasn't translated into new systems," commented David Halwig, a partner with the public sector division of KPMG Peat Marwick.

The growth problem doesn't stem from a lack of knowledge. EDI has been around since the 1960s, when the transportation industry began pursuing computer-based techniques for exchanging routine business transactions, such as purchase orders, invoices, shipping and receiving reports as well as financial information, including payments. In the 1980s, a host of standards - commonly known as X12 - were developed, dozens of which pertain to government transactions.

Hard costs for developing EDI are also less of an issue. Thanks to more EDI software, choices abound for products that exchange and extract information. Commercial value-added networks for the secure transmission of EDI messages offer competitive rates. As a result, the amount of money a government agency must spend to send and receive EDI transactions is lower than ever.

The reason for the slow growth in EDI for state and local government has to do with change. In order for EDI to work, government bureaucracies have to retool existing computer systems so they can accept EDI transactions. Agencies have to reengineer work processes from the existing manual, paper-based approach to ones that are virtually electronic. "A fair degree of retrofitting must take place," said Howard Stern, director of EDI services at Sterling Software, "before any EDI user can benefit from the technology."

Equally daunting is the task of "mapping" the information on a paper document to the EDI standard. "Sometimes it's easier to put information on paper than try to figure out how to extract it electronically," said Pat Cannon, chief of planning and analysis in the records division of the Texas Workers' Compensation Commission. Simply because an EDI standard exists for transacting a particular type of business doesn't mean it's plug-and-play. "We're blazing new trails here," added Cannon.


Since the U.S. Internal Revenue Service began accepting returns electronically, states have benefitted by piggybacking their returns on the federal system. As of Fall 1994, more than 29 states were involved in the federal-state individual income tax filing program.

But persuading individual taxpayers to file electronically is not an easy job. Individuals must file their returns via a certified tax processing firm, such as H & R Block. The number of people who use this approach remains small.

Where states see a bigger payback is with business tax filings. Corporations file tax returns several times a year and their filings are complex, involving a variety of forms. Studies have shown that the six hours required to file a complex sales tax return can be cut to 30 minutes with