Procurement Cards Minimizing Risk, Maximizing
Reward
Thursday, May 16 2013
Illinois ASBO 62nd Conference
Renaissance Hotel & Convention
Center
Speakers
Jim Grammas, Vice President Government
Team, BMO Harris Bank N.A., BOE Niles ESD
71
Member since 03/2010
Ronald R. O'Connor, Asst. Dir./Finance,
Batavia USD 101. Member since 08/2009
Holly Wallace, Member Relations Specialist,
Illinois Association of School Business Officials,
BOE DeKalb CUSD 428 Member since
09/2005
Session Overview
• What are p-Cards and how do they
operate
• BOE and the Law
• How do school districts use p-Cards
• The Illinois ASBO p-Card program
What are p-Cards?
A Purchasing Card (P-Card) is a type of
Commercial Card that allows organizations to
take advantage of the existing credit card
infrastructure to make electronic payments for a
variety of business expenses (e.g., goods and
services). In the simplest terms, a P-Card is a
charge card, similar to a consumer credit card.
However, the card-using organization must pay
the card issuer in full each month, at a
minimum. P-Cards are also known as
Procurement Cards (ProCards), Payment
Cards, Purchase Cards or similar terms.
Who Uses P-Cards?
Organizations that use P-Cards come from
the Corporate, Education and Government
sectors and are often called "end-users."
The individual employees who are issued a
P-Card to initiate transactions/payments
on behalf of their employer (the end-user
organization) are known as "cardholders."
What Does A P-Card Look
Like?
P-Cards are not limited to plastic
cards; they can also take the form of nonplastic account numbers. The term "card" is
typically used within the industry when
describing any type of Commercial Card
product, regardless of whether or not a
plastic card is issued.
Types of p-Cards
• Personalized Card
• Department Card
• Ghost Card
Other Types of Commercial
Cards
P-Cards are just one category of Commercial Card. Other Commercial Card products
include the following. Each is intended to address different types of purchases and/or
spend categories.
• Corporate Card – commonly used by organizations for employee travel and
entertainment (T&E) expenses; also referred to as a Travel Card
• One Card – a single charge card that combines procurement with T&E and, in some
cases, fleet charges
• Fleet Card – a card product used by organizations to pay for fuel, maintenance,
repair and related expenses on company vehicles
• Prepaid Card – debit-based card, allowing the user to pay now versus later, as the
card transaction amounts are deducted from a funded account; for example, a Payroll
Card "loaded" with an employee's earned wages
• Declining Balance Card – a card that typically does not require a pre-funded
account; a spending limit and/or expiration date are established up-front, giving it a
specific "shelf life" to accommodate a specific project budget or spend allowance; for
example, a Meeting Card
• Business Card – a credit card targeted for smaller businesses (in lieu of a P-Card),
commonly used for a variety of expense types (e.g., goods, services, travel, etc.); the
end-user organization may be allowed to carry a balance
Why Use p-Cards?
The traditional procure-to-pay process is costly
• The transactional, or process cost, of using a
traditional procure-to-pay process—often involving
a requisition, purchase order, invoice and check
payment—is the same regardless of the dollar
amount of the purchase. In other words, the
process cost of a $25 purchase is the same as a
$10,000 purchase. Often, the process cost
exceeds the value of the item being acquired (e.g.,
the cost to acquire a $25 wrench may exceed
$100). Estimates of the process cost of the
traditional process range from $50 to $200.
Why Use p-Cards?
A P-Card program simplifies the process
• Most organizations recognize that a large
number of check payments are made for lowvalue items to a large number of suppliers—a
costly, inefficient process. When the payment
method is switched from the traditional
process to a Purchasing Card
process, efficiency savings range from 55%
to 80% of the traditional process cost.
Why Use p-Cards?
• Overall, P-Cards provide a means for streamlining
the procure-to-pay process, allowing organizations
to procure goods and services in a timely manner,
reduce transaction costs, track expenses, take
advantage of supplier discounts, reduce or redirect
staff in the purchasing and/or accounts payable
departments, reduce or eliminate petty cash, and
more. Originally, P-Cards were targeted for these
low-value transactions, but their use has
expanded as the industry has grown
p-Cards Also Benefit
Suppliers
Suppliers that accept P-Cards for payment can reap considerable
benefits to outweigh the costs related to card acceptance. Benefits
include:
• cost reductions, such as eliminating invoice creation, handling and
mailing; depositing payments and collection activities
• electronically deposited funds
• faster receipt of payments and improved cash flow
• increased sales, as many organizations solicit only suppliers that
accept P-Cards as payment
• customer satisfaction
• potential staff reductions within accounts receivable and the ability to
redirect staff to more value-added activities
The p-Card Process and Key
Players
Purchasing Cards (P-Cards) or non-plastic account
numbers are issued to employees (i.e., cardholders)
responsible for making purchases or payments on
behalf of their employer; for example, cardholders
can order and pay for office supplies via a supplier’s
website. Suppliers accept P-Cards for payment,
utilizing the existing credit card infrastructure for
payment processing. Transaction data is captured
by a supplier’s point-of-sale (POS) system and
transmitted through the card network
• The level of transmitted data depends on
the supplier’s process and technology
systems; data levels include:
Date
Level I
Standard
Level II
Variable Data
Level III
Detailed Data
Supplier
Transaction
Amount
CustomerSales Tax
Defined
Code
X
X
X
X
X
X
X
X
X
X
X
X
X
Line-Item
Detail
X
The p-Card Process and Key
Players
In addition to cardholders and suppliers, other parties are involved with the P-Card payment process:
•
Issuers work directly with end-users to implement and grow programs, issue cards and invoice
posted P-Card transactions. The issuer uses the services of the networks and processors to
facilitate card issuance, authorize transactions and provide data. Many financial institutions are
issuers. Issuers are sometimes referred to as card "providers."
•
Merchant acquirers enroll suppliers in the card acceptance process and implement equipment
and software solutions related to this purpose. In addition, they facilitate payment flow, including
payment to suppliers. A merchant acquirer is sometimes referred to as a supplier’s bank.
•
Networks facilitate the movement of transactional data between the issuer and merchant acquirer
and set the rules pertaining to card acceptance by suppliers. Organizations in this role include
Visa, MasterCard and American Express. (Note: American Express also assumes the roles of
issuer and merchant acquirer.) Networks are sometimes referred to as "associations" (an outdated
term) or the card brand.
•
Processors provide various services to card issuers and merchant acquirers, which may include
card production, statement printing, authorization and data delivery.
How P-Cards Work
The card issuer typically
provides a single electronic
invoice to the end-user
organization—at a minimum of
once per month—reflecting all
cardholders and their respective
P-Card transaction totals plus a
grand total. An organization does
not carry a balance, instead
paying its card issuer in full (at a
minimum of one payment per
month) for all cardholders’
transactions. The organization
processes the invoice, creating
accounting entries and
facilitating payment to the card
issuer.
How p-Cards Work
With P-Cards, the end-user organization
assumes liability for payment—the
cardholder neither owes the card issuer
nor makes payments. However,
cardholders are expected to follow their
organization’s policies and procedures
related to P-Card use, including
reviewing and approving transactions
according to a set schedule (at least
once per month). The organization can
implement a variety of controls for each
P-Card; for example, a single-purchase
dollar limit, a monthly limit, Merchant
Category Code (MCC) restrictions and so
on. In addition, a cardholder’s
P-Card activity should be reviewed
periodically by someone independent of
the cardholder.
Board of Education and the
Law
• Illinois School Code 23: Section 100.70
If a school board has obtained and issued
credit cards or procurement cards for the use of
board members, the superintendent, or other
district employees or officials to pay certain jobrelated expenses or to make purchases on
behalf of the board or district or any student
activity funds, or for purposes that would
otherwise be addressed through a conventional
revolving fund, then the board shall adopt a
written credit card policy that at least:
• 1)identifies the allowable types of purchases;
• 2) provides for the issuing bank to block the cards’ use at
unapproved merchants;
• 3) limits the amount a card-holder can charge in a single
purchase or within a given month;
• 4) provides specific guidelines on purchases via telephone,
fax, and the Internet;
• 5) indicates the consequences for unauthorized purchases;
• 6) requires card-holders to sign a statement affirming that
they are familiar with the board’s credit card policy;
• 7) requires review and approval of purchases by someone
other than the card-holder or user;
• 8) requires submission of original receipts to document
purchases;
• 9) forbids the use of a card to make purchases in a manner
contrary to the requirements of Section 10-20.21 of the
School Code [105 ILCS 5/10-20.21]; and
• 10) indicates how financial or material rewards or rebates are
to be accounted for and treated.
Other Legal Requirements
• Statement of Affairs
• 1099 Reporting
• Tax Deferred Purchases
• Board Approval to enter into Contract
BOE Expectations
•
•
•
•
•
•
•
Compliance with Law
Cost to Run Program
Controls Available
Checks and Balances in Place
Policy and Procedural Manuals
Reporting
Ease of Use
Policy and Procedure Manual
•
•
•
•
•
Policies and procedures for use
Policies and procedures for MISuse
Parts can be individualized
Samples of paperwork
Tutorials
Ideas
•
•
•
•
•
•
Overview of program
How to obtain a card
Guidelines for us
How to process card use
Consequences
Samples of paperwork
Check List To Start A Program
• Discussion with
Superintendent/Board/Bus. Office
• Research available programs
• Develop Procedure Manual
• Present to Board for Approval
• Application/Implementation
Start Up!
• Start with a pilot group – start small
• Re-evaluate procedure
• Increase card Use
• Re-evaluate program
Ideas for Growing Your
Program
Analyze your spending habits
Look at your check registry
Get cards into the people who are doing the spending
• Secretaries
• Buildings and Grounds/Maintenance
• High School Departments
Look at your big purchases
• Energy
• Transportation
• Food
• Books
• Technology
Manage Your Program
How the p-Cards work in Batavia
Background
•
•
•
•
•
700+ employees, 100 Procurement Cards
Wide array of limits
Majority of transactions from B&G
$70,000-$90,000 on average per month
Supervisory systems in place
Obtaining A P-Card
• Supervisor recommendation
– Limit
• Understanding through discussion/video
– Training
– What constitutes a legitimate purpose?
• Signing agreement
• Explanation of receipts
– Description
Purchase Process
• Approved by
supervisor?
• Receipts (Itemized,
tax-free)
• Supervisors (vendor,
date of purchase,
time, items
purchased, price, tax?
Initial if OK)
• Details Online
Auditing Procedures
• All receipts
• Supervisor initials
– “Gold Standard”
• Account codes
• Receipt matches
Details Online
• Transaction Report
Transaction Report
•
•
•
•
•
•
Name
Account code
Vendor
Price
Description of purchase
Reviewed at Finance
Committee
All p-Card programs are NOT alike!
Advantages of an Association
Sponsored Program
•
•
•
•
•
•
•
Single Contract
Creates a user group/support network
Negotiation clout
Due diligence costs eliminated
No Costs
No Fees
No Charges
Only 3 Possible costs to
participating school
• Late fee
• ATM Charge – IF cash advance
option is selected
• Interest owed on any cash advance
Billing Cycle Requirements
• School District may choose a billing cycle
cut-off of the 5th or the 20th.
• Payment is due at Harris Bank within
chosen grace (7,14,21 or 27) days of
billing cycle cut-off.
Customized Card design can
display:
•
•
•
•
•
•
Card holder name
School District name and number and/or
Tax ID
2 Lines of text per card
Department Cards
Ghost Cards
Specific card use parameters
can be established for each card
•
Transaction limits per charge
•
Monthly limits
•
Preferred Supplier Restriction
Billing and Payment
• Monthly Billing Statements
– Available online
• Payment Methods
– Automated Clearing House
– Check
Benefits of a p-Card Program
Easier on Accounts Payable
• Submit one monthly payment vs. multiple payments
to multiple vendors
• Reduction in paperwork
• Fraud prevention and protection through the Bank
and MasterCard
• Detailed reporting available 24 x 7
• Easy online administration and dedicated customer
support
• Control on spending limits and accepted vendors
More Information
For information, application documents,
tutorials and other tools, please visit:
www.illinois-pcard.com.