Use of Procurement Use of Procurement Cards - Including Cards - Including

Control and AuditingControl and Auditing

Use of Procurement Use of Procurement Cards - Including Cards - Including

Control and AuditingControl and Auditing

PASBO ConferencePASBO ConferenceMarch 9, 2006March 9, 2006

Presented by:Presented by:

Daniel R. McConachieDaniel R. McConachiedmcconachie@msn.comdmcconachie@msn.com

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•How to integrate procurement card purchases into your purchasing system

•How to build internal controls for effective program implementation

•Implementation issues

•Questions

Agenda

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Why Use Procurement Cards

• NIGP Survey Indicates that 81% of Public Entities are Using Procurement Cards in 2005

• Benefits Received:– Reduction in Number of Small Dollar Purchase Orders

– Improved “Processing Efficiency”

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Aligning card usage with state laws

• Sealed competitive bids are required for purchase of more than $10,000 of similar types of materials from a single vendor during the same budget year.

• Board authorization for use of cooperative purchasing agreements (i.e. use of state contract pricing, etc.) in place of the sealed bid requirement.

• Price quotations solicited from multiple vendors if the anticipated expenditures for the specified types of materials will exceed $4,000 but is below $10,000 for a single purchase.

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Sealed Bid – Term Contract

• Create term contracts through the sealed bid procedure to cover credit card purchases that may exceed $10,000 from a single vendor

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Sealed Bid – Multiple Vendor Awards

• Make multiple awards to all vendors that meet the requirements of the terms and conditions for the term contracts through the sealed bid procedure

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Board Resolution – Cooperative Purchasing

Agreement• Cooperative purchasing agreements may be

established by Board Resolution with other governmental entities that have entered into term contracts through the sealed bid procedure

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Board Resolution – Use of State Contracts

• Use of state contracts have been established by the legislature as an alternative to the sealed bid procedure for school districts making purchases exceeding $10,000

• It is recommended that a Board Resolution be approved authorizing purchases in excess of $10,000 using state contract pricing

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Why Use Procurement Cards – Practical

Example• Purchase Orders issued in 2004

– 14,570 purchase orders

– Average order value $1,593

• Procurement Card Transactions in 2004

– 27,501 purchases

– Average purchase amount $167

• 65% of the Total Transactions Involved only 16% of the Expenditures

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Planning the Controls for the Implementation

• The Hierarchy (reporting levels)• The Merchant Category Code Groups• Access/Restrictions (by dollar amount, number of

transactions and/or MCC codes)• Declining Balance Cards• The Application• The Employee Usage Agreement

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The Hierarchy (reporting levels)

• Up to seven levels– District

– Department

– School/Office

– Program

– User

• Summary statement for each level

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What is a Merchant Category Code

• Four digit MCC code• Used by VISA to

identify type of products or services provided by vendor

• Only one MCC code per charge station/ cash register

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The Merchant Category Code Groups

• Assigned to cards on an individual basis

• Establish the categories of vendors from which the card user is allowed to make purchases

• Established selectively for each type of employee assignment

• Pittsburgh MCC Groups– Office Staff

– School Staff (general)

– School Staff (home ec)

– School Staff (special ed)

– Tradesmen (each trade)

– Repair Shops

– School Safety

– Gasoline/Diesel Fuel

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Office Staff MCC Group

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Home Ec MCC Group

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Merchant Category Code restrictions

• Access to Merchant Category Code (MCC) groups are assigned to each card individually

• Up to nine different MCC groups may be assigned to each individual card

• The Merchant Category Codes assigned to each MCC group limit the categories of products / stores for which a specific procurement card may be used

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Dollar limits—single transactions and cycle

limits

• Spending limits may be established for each individual transaction, based on a daily spending allowance or total expenditures within a monthly billing cycle

• Pittsburgh has established spending limits for most procurement cards at $500 per single transaction and $5000 per month

• Limits may also be established for the maximum number of transactions allowed each day or within the billing cycle

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Declining balance cards versus standard

procurement cards• Declining balance cards are limited by all the

same dollar limit, transaction limit and MCC code restrictions as a standard procurement card

• However, the cycle dollar limit for the declining balance card does not replenish with each new monthly cycle

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The Application• User Information

• Establish Restrictions:– Dollar Limits

– Transaction limits

• Reporting Level

• MCC Group Access

• Default Budget Account

• Authorized Signature

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The Usage Agreement• Establish the criteria under

which the card is to be used

• Designate that the use of the procurement card is for business purposes only

• Identify the responsibilities of the card holder in using the card

• Make clear that the card is and remains the property of the School District

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Update / Change Card Profile

• Require written documentation from users for all changes requested to their account

• Develop standard format for notifying card provider of commonly requested changes in card account controls– Move to a new school or office (default account

number, statement address, place in hierarchy)– Change last name for user– Cancel a procurement card account

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Daily Decline Report

• Reason for Charge Being Rejected• MCC Code of the Rejected Vendor• Amount of the Attempted Transaction

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Annual card maintenance• Change default account number to reflect

changes to the account codes in the new budget year.

• Update expenditure level for declining balance procurement cards (in Pittsburgh, updates to the expenditure level are allowed just once in each budget year.

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•Assignment of cards to individuals•Restrict the obtaining of cash•Monthly credit or usage limit•Single transaction limit•Merchant category code (MCC)•Employee reconciliation of purchases to billing statements•Statement/sales receipt retention procedure•Cardholder report of activity to management•Supervisor review/sign off approval

Elements that should be included in a board policy on

procurement cards

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•Procurement card transactions will undergo extensive scrutiny:

•Local auditor•Internal auditor (if applicable)•Auditor General

•Monthly review process is key to the success of the program

Holding end users accountable

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Questions