EXPANDING THE USE OF PURCHASING CARDS

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1 EXPANDING THE USE OF PURCHASING CARDS The Government has approved the use of a purchasing card in its purchasing processes. The purchasing card is intended to provide an efficient and convenient alternate method for the purchase of high volume, low value consumable goods and services, and for the payment of work related travel and accommodation expenses. The Purchasing Card Growth Project has been established to provide assistance to Public Authorities to achieve increased savings through the expanded use of the purchasing card. Savings, in this case, are measured by reduced administrative effort in terms of purchase-to-pay cycle, from placing an order to paying the supplier, and direct purchasing dollar savings. Purchasing Cards provide a real opportunity to maximise savings through the elimination of requisitions and approvals, and reduction of process costs, allowing purchasing officers (cardholders) to deal directly with suppliers, using pre-determined spending limits and consolidating invoices. When purchasing with a purchasing card is not made in-person, delivery of items can usually occur within a couple of days. Research has shown that the implementation of an Expense Management System to support the use of purchasing cards provides increased transparency of purchasing, increased opportunity for spend analysis and reporting, and increased budget compliance. As with any reengineering of business processes, the policies, guidelines and procedures underpinning purchasing processes within each Department or Public Authority will need to be examined and amended as appropriate. OPPORTUNITIES According to international benchmarks, the average savings achievable from use of a purchasing card over traditional Purchase-to- Pay processes is approximately $19 to $52 per invoice. Also, historically 90% of Government invoices processed are valued under $5,000. Using this information as the basis for a simple analysis would indicate there are opportunities for Public Authorities to realise significant savings. EXPENSES FOR GOODS & SERVICES Purchasing Cards provide a real opportunity to maximise savings through the elimination of requisitions and approvals, and reduction of process costs, allowing purchasing officers (cardholders) to deal directly with suppliers, using pre-determined spending limits and consolidating invoices. TRAVEL RELATED EXPENSES Travel and related expenditure is one area of focus identified to provide the opportunity to realise increased savings through the use of the purchasing card. This is also a preferred process for the payment of travel and related expenses within the Office of Shared Services.

2 Introduction to WA Government Purchasing Cards The Government has approved the use of a Purchasing Card in its purchasing processes. The Purchasing Card is intended to provide an efficient and convenient alternate method for the purchase of high volume, low value consumable goods and services, and for the payment of work related travel and accommodation expenses. The Purchasing Card Growth Project has been established to provide assistance to Public Authorities to achieve increased savings through the expanded use of the Purchasing Card. How do Purchasing Cards provide you with cost savings? Purchasing Cards provide a real opportunity to maximise savings through the elimination of requisitions and approvals, and reduction of process costs, allowing purchasing officers (cardholders) to deal directly with suppliers, using pre-determined spending limits and consolidating invoices. When purchasing with a Purchasing Card is not made in-person, delivery of items can usually occur within a couple of days. The provision of a purchasing card to staff for general expenditure signals to staff that they are highly valued and trusted in the use of the purchasing card for this purpose. The benefits to each Department from empowering staff can also be considerable. Research has shown that the implementation of an Expense Management System to support the use of Purchasing Cards provides increased transparency of purchasing, increased opportunity for spend analysis and reporting, and increased budget compliance. Why are the security benefits of Purchasing Cards? As the Purchasing Card is issued to an individual, every transaction can be tracked to that individual. Where spend exceeds normal limits (rogue behaviour), this can be easily identified and actioned accordingly in significantly less time compared traditional methods of payment. With purchase orders and direct invoices, it is often difficult to identify the person who authorised the transaction in the first instance. Often the only people associated with the transaction are the accounts processing staff. Why travel is perfect for Purchasing Cards Travel and related expenditure is one area of focus identified to provide the opportunity to realise increased savings through the use of the purchasing card. This is also a preferred process for the payment of travel and related expenses within the Office of Shared Services. Contact If you require any further information regarding Purchasing Cards, please contact: Nivia Pryor-Wright Contract Manager Department of Treasury and Finance Tel: (08)

3 Management Controls A common fear, is that issuing purchasing cards increases exposure to risk, and reduces controls over spend. Whilst discussions indicate a perception of risk of misuse / abuse with using a purchasing card as compared to a formal purchase order, there is in fact increased key management controls associated with the purchasing card use. This is due to the increased transparency of purchasing card transactions. Although some controls available through purchase orders are eliminated, purchasing cards have other compensating controls. Controls associated with Purchasing Cards: Monthly limits on purchases (Attempts to exceed the established limit results in purchases being automatically declined at the vendor, prior to completion of purchase). Card Administrators monitor card program and can provide assistance, advice or training to cardholders. Managers can receive, monitor and review statements of account to make sure purchases are legitimate and within delegated authority levels. The purchasing card has a formal dispute resolution process established. Additional Controls associated with use of an Expense Management System: Single purchase value guidelines, determined prior to issue of card, monitored through EMS Transactions are available to scrutiny the next day. High-risk purchases can raise alerts or result in notification being sent to managers. Notification of purchases over preset approval limits or purchase type can be automatically sent to managers for approval. Reports can be easily generated providing a variety of management information and be customised to the specific needs of management levels. Cardholders can reconcile invoices daily or weekly. Controls lost by not using formal purchase orders: Formal hard-copy documentation Multiple approval levels Centralised control over purchasing decisions Public Authorities should ensure that appropriate policies and procedures are established to provide management with reasonable assurance that key management controls will provide sufficient control against the possible occurrence of fraud, waste and abuse. There is little evidence to prove that rogue spending (business related purchases that exceed normal purchasing rules) is more prevalent on purchasing cards than for other payment methods. This is particularly the case where expense management systems are used in conjunction with the purchasing card. The benefit a purchasing card does provide is that as the card is issued to an individual, every transaction against a card can be tracked to that individual. Where spend exceeds normal limits (rogue behaviour), this can be easily identified and actioned accordingly. With purchase orders and direct invoices, it is often difficult to identify the person who authorised the transaction in the first instance. Often the only people associated with the transaction are the accounts processing staff.

4 Increased Management Controls A common fear of government and corporations, is that issuing cards increases their exposure to risk, and reduces their controls over spend. Whilst discussions indicate a perception of risk of misuse / abuse with using a purchasing card as compared to a formal purchase order, there is in fact increased key management controls associated with the purchasing card use. This is due to the increased transparency of purchasing card transactions. Although some controls available through purchase orders are eliminated, purchasing cards have other compensating controls. Controls lost by not using formal purchase orders Formal hard-copy documentation Multiple approval levels Centralised control over purchasing decisions Controls associated with Purchasing Cards Monthly limits on purchases (Attempts to exceed the established limit results in purchases being automatically declined at the vendor, prior to completion of purchase). Card Administrators monitor card program and can provide assistance, advice or training to cardholders. Managers can receive, monitor and review statements of account to make sure purchases are legitimate and within delegated authority levels. The purchasing card has a formal dispute resolution process established. Additional Controls associated with use of an Expense Management System Single purchase value guidelines, determined prior to issue of card, monitored through EMS Transactions are available to scrutiny the next day. High-risk purchases can raise alerts or result in notification being sent to managers. Notification of purchases over preset approval limits or purchase type can be automatically sent to managers for approval. Reports can be easily generated providing a variety of management information and be customised to the specific needs of management levels. Cardholders can reconcile invoices daily or weekly. How to support Purchasing Cards Appropriate policies, procedures and guidelines should be established to provide management with reasonable assurance that key management controls will provide sufficient control against the possible occurrence of fraud, waste and abuse. There is little evidence to prove that rogue spending (business related purchases that exceed normal purchasing rules) is more prevalent on corporate cards than for other payment methods. This is particularly the case where expense management systems are used in conjunction with the Purchasing Card. For assistance with policies, procedures and guidelines please refer to the contact details on the reverse.

5 Benefits The Government Purchasing Card saves time and money by reducing the need for requisitions, approvals, purchase orders, invoices and cheques, giving staff time to focus on more value-added activities. WA Government Purchasing Cards don t attract card fees or interest payments and offer a simplified cost-effective purchasing process. Purchasing Cards: Are free, simple to introduce and operate; Have been created as a result of a rigorous State Supply Commission compliant procurement process; Replace inefficient and outdated manual systems with option of implementing a streamlined electronic process (additional Expense Management System); Greatly reduce administration time and the cost of processing invoices and orders; Eliminate the potential for manual keying cost centre errors (automated coding for selection using Expense Management System); Protect the environment by reducing the use of paper; Generate invaluable management information about individual procurement activity and purchasing patterns (optional EMS); Promote financial transparency and accountability; Provide protection for purchaser and supplier; (not carrying cash, insurance against fraudulent use, fraud detection and control, guaranteed payment) Empower employees, giving them responsibility and authority to commit government to purchases; Make an important contribution to a range of Government policies aimed at increasing efficiency, modernisation, and sustainability; Ensure rapid payment to suppliers promoting enhanced relationships and improved performance; Utilise the vast Visa network of merchants and support systems; and Are fully endorsed by the Department of Treasury and Finance, and the Office of the Auditor General.

6 Inhibitors vs. Enabling Propositions Identified inhibitors to the expanded use of Purchasing Cards include: Lack of trust exhibited in staff to make appropriate purchasing decisions, demonstrated by the reluctance to issue cards and delegate purchasing authority to staff. Current cardholders being mainly senior staff. Autonomy of purchasing decision-making being restricted by and to managers. Managers concerns relating to exposure resulting from misuse of purchasing cards and fraudulent activity. The majority of administrative staff undertaking purchasing not being issued with purchasing cards. If required, they borrow a purchasing card from another cardholder. (This is a breach of the NAB terms and conditions of card use). Fear of misperception of legitimate expenditure levels by management, restricting use of purchasing cards by staff. Worried about the end of month report showing large $ spend. Lack of knowledge of appropriate use of purchasing cards by some administration staff limiting use of purchasing card. Lack of knowledge of opportunity to use cards when purchasing by administration staff. Current purchase-to-pay processes habitual, resulting in the use of the Purchasing Card not being the first option for low value purchasing. Staff may only require access to a Purchasing Card on a few occasions throughout the year, so issuance of a card not seen as necessary or required, or staff do not see a need to be issued with a card. Ordering systems not conducive to use of cards for payment at time of confirmation of order (i.e. GEM). Perception of increased time required reconciling statements at the end of the month. Worry over misplacement of supporting documentation. Preference for use of Petty Cash and travel allowances. Financial Policies and procedures unclear and outdated. PLEASE TURN OVER FOR ACTIONS THAT WILL OVERCOME THE ABOVE INHIBITORS

7 Inhibitors vs. Enabling Propositions Actions enabling the support and expansion of the use of Purchasing Cards include: Issue cards to all staff undertaking travel during the year. If managers are hesitant to issue a card full time, cards can be held centrally and signed out for the periods required. Identify and issue cards to those staff undertaking regular purchasing of goods and services regardless of role level. Card limits and monitoring of statements will reduce non-compliance. Run a regular series of short sessions with groups of administrative staff involved in purchasing to highlight opportunities to use card appropriately and provide support and encouragement in the use of the card. Work with procurement staff to identify opportunities for using the Purchasing Card for purchasing through Common Use Arrangements. Provide simple template to assist in the end of month reconciliation of the card statement and sign off by manager. Raise awareness of card use opportunities with Tip of the Month inclusion on the Intranet. Seek Managers agreement to raise Purchasing Card use at Team Meetings, promoting their support for the expanded use of the card. Seek Managers support to mandate the use of Purchasing Card for specific purchasing or for specific $ range. i.e. Travel, Catering, Venue hire, stationery, or any purchase under $500. Issue cards to regular users of Petty Cash. Work with systems area to identify opportunities and methods for using Purchasing Card through online purchasing systems.

8 Guide for Chief Finance Officers to Expand Use Action Revise policies to support the increased use of purchasing card Be mindful of purchasing card targets set by the Treasurer Consider an Expense Management System to assist in the management of purchasing cards Encourage Line Managers to issue purchasing cards for their staff making low value transactions What you need to do Identify any areas where the policies do not support the use of the purchasing card. Policies should be used to limit the exposure to potential risk, whilst remaining flexible enough to make the use of the card easy and desirable. Review and update policies where necessary to ensure best practice Ensure policies are accessible. Analyse purchasing behaviour in order to achieve targets for purchases under $5000 to be made on the purchasing card: Identify high volume, low value transactions that cardholders are not, yet should be using the purchasing card for. How does your agency plan to gather the data to report against the targets? Discuss with DTF the possibility of participating in the implementation of the NAB Expense Management System Implementation of an Expense Management System to support the use of purchasing cards provides: o Transparency of purchasing o Increased opportunity for spend analysis o Increased opportunity for reporting o Increased budget compliance Communicate with Line Managers that efficiencies and cost savings can be achieved through using purchasing cards

9 Guide for Managers to Expand Use Action Increase the number of cards Increase expenditure limits on the cards Review current transactions in order to identify new cardholders Review supplier relationships in order to maximize the benefit of the purchasing card Ensure training for cardholders What you need to do Identify those people responsible for undertaking purchasing, high petty cash users, and travelers to ensure they are issued cards. Purchasing cards should not be borrowed out to other staff therefore ensure necessary staff have been issued with purchasing cards. Purchasing Cards do not incur setup or ongoing fees therefore deployment should be for all staff making purchasing, however infrequent. Transactions under $5,000 should be encouraged to be made on the purchasing card Review expenditure by those making frequent low cost purchases and increase limit to make best use of the card. Individual card limits should ideally be set to suit buying patterns of staff. Identify staff making high volume, low cost transactions by purchase order or other paper based methods, and consider issuing them with a purchasing card. Provide reminders to cardholders that suppliers are encouraged to accept payment by purchasing card under their CUA. Encourage cardholders to raise discussion about the usage of purchasing cards with suppliers Check with CUA Contract Manager if merchant fees are required to be waived by the supplier. This will negate any surcharges associated with using purchasing cards. Organise training sessions so that cardholders are comfortable using purchasing cards Make training material available on the intranet Administrators will be experienced with the electronic statements/ems, therefore ensure that their knowledge is available to other staff

10 Guide for Cardholders to Expand Use Action How do I get a purchasing card? What you need to do If you undertake travel or regular purchasing activities in your role, you should talk with your manager about being issued with a purchasing card for these activities. Your manager can contact the agency card Administrator, for the appropriate application forms. Examine all purchasing to identify which transactions the purchasing card is applicable for Identify suppliers who will accept payment by purchasing card Let suppliers know that you prefer to pay by purchasing card Use the card to pay and gain savings for prompt payment Review all transactions to identify other purchases the card can be made for Review the value of transactions and the total monthly spend Dms Transactions under $5000 are encouraged to be made on the purchasing card Read through your agency s policies around the use of purchasing cards and use as the preferential method pf payment where applicable Identify a list of suppliers who accept payment on purchasing cards. Use the purchasing card when making purchases with these suppliers. The transactional efficiencies available from using purchasing cards can benefit suppliers as well as public authorities. o The most significant for the supplier is that payment is guaranteed to occur within 48 hours. Suppliers may be prepared to give better terms and discounts for prompt payment, above and beyond any charge they incur for accepting purchasing card payments. Work with your suppliers to gain better price savings or better service terms. All transactions under $5000 should be reviewed in order to determine if the purchasing card is a suitable method of payment It may be necessary to request the limit of your card be increased to ensure all suitable transactions are made on the purchasing card Transaction limits and monthly limits can be set therefore ensure you have the scope to make all necessary purchases.