PART 1
ITEM NO.
REPORT OF THE STRATEGIC DIRECTOR CUSTOMER AND SUPPORT SERVICES
TO THE CORPORATE ISSUES SCRUTINY MEETING ON
22nd FEBRUARY 2010
TITLE:
Purchase Cards
RECOMMENDATIONS:
It is recommended that Members consider the response to the Internal Audit
Report (7331/V3.00/2009/10)
EXECUTIVE SUMMARY:
This report details background information on purchasing cards and updates the
progress against the recommendations in the report, detailed, above.
BACKGROUND DOCUMENTS:
(Available for public inspection)
Internal Audit Report (7331/V3.00/2009/10)
Reports to the Lead Member for Customer and
Support Services
ASSESSMENT OF RISK:
Medium – Effective control processes are required to mitigate financial risk to the
council
SOURCE OF FUNDING:
Not applicable
LEGAL ADVICE OBTAINED:
Not applicable
FINANCIAL ADVICE OBTAINED:
Report prepared by the Finance Division
CONTACT OFFICERS:
Tony Hennessy, Exchequer Manager
Tel. 793 3279
Geoff Topping, Head of Accountancy & Exchequer
Tel: 793 3240
WARD(S) TO WHICH REPORT RELATE(S)
KEY COUNCIL POLICIES:
All
All
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Introduction
As part of the drive to improve the efficiency of financial processes and the service to suppliers,
purchase cards were implemented at Salford City Council in October 2005 and are now one of the
council's preferred methods of ordering and paying for goods and services. The cards work in a
similar way to personal credit cards and have helped reduce the number of steps involved in the
procure to pay process and reduce the volume and cost of processing invoices whilst at the same
time generating income to the council and its partners in the form of a rebate.
Since the introduction of the scheme 803 purchasing cards have been activated throughout the
council and the total expenditure processed, to date, financial year 2009/10, is approximately £4.5
million.
The Royal Bank of Scotland (RBS) supply the purchase cards to the council and partners who
provide access to ‘Smart Data On Line’ (SDOL) provided by MasterCard and RBS. This enables the
council, cardholders, budget managers and administrators to examine the total expenditure incurred
on the cards, details of individual purchasers, review the accuracy of transactions, including charges
billed to cost centres, and hence, provides a suitable monitoring tool for the system.
All cards are strictly controlled and can only be provided to staff on the approval of respective line
managers and Assistant Directors. Purchase card spend analysis is also reported monthly to
responsible budget managers. All cards are controlled by both transaction and monthly limits as
determined by the council’s standing orders and financial regulations. Since the operation of the
purchasing card scheme there has been no evidence of fraud or card misuse by officers of the
council.
Purpose of Purchase Cards
The majority of major public and private organisations are attempting to drive out paper and
bureaucratic payment processes in favour of streamlined electronic solutions and purchase cards
provide a good solution as long as effective controls underpin the process.
Undertaking a transaction using a purchase card can provide the council with significant cost
savings and improve the service for staff, partners and suppliers. Purchase cards also help to
reduce the number of steps traditionally involved in buying goods and services. At Salford City
Council the use of purchase cards has led to the following efficiencies:
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Less paperwork as the traditional paper order / delivery note / invoice is not required for
processing.
Faster delivery times for goods and services improving service efficiency in key areas such
as City Wide (catering), Children’s Homes, the Homelessness Unit, Supported Tenancies,
Library Services and schools
Improved efficiency for front line service staff as less time is spent in placing orders or
making claims for reimbursement of expenses
Guaranteed payment for the supplier, particularly important and relevant within the current
economic climate. Suppliers are typically paid within 3 days of the card transaction.
Reduced order processing costs. It is estimated (based on industry averages) that there is a
£33 efficiency saving per transaction compared to the traditional order to invoice process.
Based on 2008/9 transactions this equates to approx £1M.
Quicker upload of transactions to the council’s financial system SAP leading to improved
financial controls.
Income to the council and partner organisations in the form of rebate based on annual
purchase card spend.
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Purchase cards can be used with any organisation that takes Mastercard payment by credit or debit
card. Other key areas where cards have been used so far include:
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Foodstuffs
Petty cash
Training courses
Travel & expenses
Books and publications
Licenses
Purchasing Card Usage at Salford
Detailed, below, is the number of cards currently in operation by directorate and partner
organisation:
SCC Directorate / Partner
Children's Services
Customer and Support Services
Environment
Chief Executives
Community Health & Social Care
Sustainable Regeneration
Urban Vision
Schools
Salix Homes
Salford Community Leisure Limited
Master & Lodged with merchant
Total
No of cards
289
142
138
48
38
30
4
68
27
6
13
803
Value of card transactions in each financial year since launch with associated rebate
Detailed, below, is the value of purchase card spend by the council and partners since
implementation of the scheme in 2005. As can be seen from the table, below, there has been an
incremental increase in rebate overall totalling £42k. Rebate is received on a sliding percentage
scale depending on purchase card spend.
Year
2005/06
2006/07
2007/08
2008/09
2009/10 to Q3
Total
Purchase card
spend by
Salford CC &
Partners
£701,968
£4,278,756
£4,562,063
£5,004,472
£4,346,397
£18,893,656
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Rebate
£702
£8,558
£9,124
£12,511
£10,866
£41,761
Controls over cards and transactions
Application process and controls
The purchase card approval process involves the completion of an application form by the
officer applying, authorisation by the respective line manager and Assistant Director (or higher
level). The form is then checked by a member of the Finance e-Trading team prior to submitting to
RBS. The card is normally received from the RBS within four weeks by the e-Trading Team who
arrange training before the card is handed to the cardholder who must sign a purchasing card
declaration outlining usage procedure.
Processing of transactions and reporting of card transactions
Since December 2008, budget managers have been provided with SAP Business Intelligence (BI)
reports on a monthly basis which shows details of each card transaction against individual cost
centres by cardholders. Cardholders and budget managers also have access to Smart Data OnLine
(SDOL) provided by Mastercard and RBS to scrutinise transactions.
Responsibility for ensuring payments are approporiate
The Council’s budget monitoring process involves reviewing budget reports generated from
SAP, and all level 2 and 3 (full VAT information) purchase card transactions are uploaded directly
into SAP on a daily basis. The bank provides access to SDOL for all cardholders, who are then able
to view their transactions within 2 or 3 days of making the purchase. This provides sufficient
information to enable users to determine what has been purchased on the card. The responsibility
for ensuring the purchasing card transactions are appropriate is mandated to the respective budget
holder.
Receipts and VAT recovery process
The VAT on purchases can only be reclaimed when the e-Trading team receive the
VAT receipt for the purchase. For some suppliers (level 2 &3), the receipt is not required as the
relevant data is sent directly to RBS and this reduces the amount of work involved in reclaiming
VAT for such suppliers. However, some suppliers (level 1) do not offer this facility and a receipt is
required in order for the council to reclaim the VAT. Delays are occasionally encountered in officers
forwarding receipts to the e -Trading team, potentially, resulting in a loss of revenue to the council.
The e -Trading team is investigating a number of new processes to strengthen the recovery of VAT
receipts.
Response to the Internal Audit Report
The recent audit of purchase cards was the first since the implementation of the card program in
2005 and has been useful to further strengthen financial and operational controls for this process.
Of the 15 recommendations, 4 were regarded as high with 11 deemed medium.
Of the high risk recommendations, the main issues primarily focused on mitigating potential risks
within card administration and financial controls;
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Compliance to the City Council’s standing order and financial regulations for Authorised
Signatories and Delegated Limits – This has subsequently been reviewed and all
authorised signatory lists will be up to date by the end of February 2010.
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Procedures for staff leaving the Council or moving to another role – Procedures have
been bolstered in conjunction with the FSG Payroll Team to improve the communication
process by providing a list of leavers on a weekly basis. Developments within SAP are
also imminent whereby a sequence of events will trigger notification to key officers when
staff leave the organisation or change position to take appropriate action in relation to the
purchase card, e.g. cancellation, change of default cost centres
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Communication and guidance of purchase card usage – Officers are aware that purchase
cards are strictly for Council business use only and any misuse will be acted upon,
potentially, through the disciplinary procedure. This is stressed within the Purchasing
Card Manual and communicated via a number of channels including the intranet and SAP
business intelligence reports distributed on a monthly basis to budget managers.
Purchase card transaction reports will also be sent to a nominated senior manager and
Principal Group Accountant for each directorate commencing in February 2010. It should
be stressed there is no evidence of non council spend since implementation of the
scheme in 2005, however, it is agreed that any payment process needs to be robustly
controlled to mitigate potential risk.
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The need to recover VAT – This issue is stressed to all officers who have purchase cards,
particularly, where VAT receipts are required for reclamation of monies through HM
Customs and Revenues. The majority of officers fully comply with this process and this
will be stressed further within the Purchasing Card Manual and memos. Any officers
habitually not complying with this request will have purchase cards withdrawn.
Whilst determined as medium risk recommendations, actions have been taken appropriately to
ensure any potential risk is mitigated;
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The blocking of card use for certain transactions such as fuel purchase – Although there
is no evidence of such spend, arrangements have been put in place with RBS to block
this merchant category. The Purchasing Card Manual has been updated to reinforce this
issue and avoid any potential confusion.
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Inadvertent use of purchase cards – There have been a couple of occasions where cards
have been used inadvertently used for non-council purchases although reimbursement of
funds has subsequently been received. The respective officers contacted the e-Trading
Team to explain their actions and were re-educated in card usage and informed there
should be no repetition.
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Councillors with purchase cards – Although only four councillors hold purchase cards
there is now a procedure in place to monitor councillors’ card spend to ensure there is
consistency within the process. All councillor transactions are reviewed and monitored by
the Strategic Director of Customer and Support Services.
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Purchase cards and budget monitoring – Purchase card spend can be easily identified
within the SAP financial system and this has been further enhanced by monthly purchase
card reports breaking down transactional data to cost centre level. This enables the
budget manager to monitor spend monthly and identify any areas of concern early within
the process. This is now further reinforced with a copy of these reports being made
available to a senior manager and Principal Group Accountant for each directorate.
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‘Dormant’ purchase cards – As part of the review for authorised signatories and delegated
limits, there will be an annual check on ‘inactive’ cards in conjunction with the respective
cardholders’ manager to determine whether the card is required as part of the officer’s
duties. A process has also been implemented to identify to budget managers ‘non usage’
in the past 12 months.
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Subsistence claims using purchase cards – The Purchase Card Manual has been
updated to include the latest Council subsistence rates with a clear message that any
expenditure over the threshold must be reimbursed via deduction through salary. Once
again, whilst it is important more robust measures are implemented, there is no significant
evidence of inappropriate use.
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Preferred payment methods – Certain suppliers have agreed payment methods in place
for efficiency purposes that are detailed on the intranet. As part of the audit there were
instances of purchase card usage where another solution was considered more
appropriate – This issue has now been communicated and although not carrying any risk
it is important the most cost effective payment solution is been used.
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Purchase card training – In progress. A work request has been submitted to ICT to create
an e-learning module. Cardholders will be encouraged to undertake this training. It is felt
there is a danger of making this process more complicated than it needs to be as there
are no major training issues being reported. Card usage is embedded in society and is
now commonplace in the workplace. However, any significant changes to usage would
warrant re-education rather than formal training which can be addressed in an alternative
way as detailed, above. Commencing February 2010, information will be sent to
cardholders quarterly with useful purchase card information, particularly, operational
changes, and a link to the purchasing made easy intranet pages.
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Updating of the Purchase Card Manual – In progress. It is anticipated the Purchasing
Card Manual will be updated and made available to all card holders and on the intranet by
the end of February 2010.
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Cancellation of cards on ‘Smart Data on Line’ – A process is now in place to ensure cards
are cancelled on the SDOL system.
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Purchase card transaction and monthly limits – The Purchasing Card Manual has been
updated to reinforce to card holders to use cards within the agreed limits. It is worth
noting there is no major evidence of Officers ‘splitting’ transactions to get around
transactional limits.
Conclusion
As can be seen from the actions taken above management within the Finance Division have acted
seriously and quickly on the recommendations by Internal Audit and have made significant progress
implementing administrative and financial controls to mitigate as far as possible any risk in the use
of purchase cards. It should be noted that purchase cards play a vital role in the procurement
activity of many major organisations and as the Internal Audit report summarises, there is ‘moderate
assurance’ that the control mechanisms in place at Salford City Council are effective which appear
consistent with this payment method.
From the Finance perspective, this process will be regularly reviewed to ensure adequate controls
are in place in terms of applications, training, and budget monitoring within the Business Plan for
2010/11.
Recommendation
Members are requested to note the contents of this report and acknowledge the progress made to
ensure purchase cards are used to the benefit of the council, partner organisations and suppliers
whilst at the same time mitigating as far as possible potential for inappropriate use.
Alan Westwood
Strategic Director of Customer and Support Services
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