backnext program setup & internal controls 2013 ncasbo annual conference

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Program Setup & Program Setup & Internal ControlsInternal Controls

2013 NCASBO Annual

Conference

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Purchasing/Procurement Cards

What is a P-Card?– A credit card issued by financial

institution specifically for purchases instead of issuing a purchase order for every purchase

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How does the CCS P-Card function?Just like a credit card, but with the limitations of a debit card.

QQualified purchases are made without the need for a requisition or purchase order.

In ISIS, the P-Card has the characteristics of a blanket purchase order.

Purchasing/Procurement Cards

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What we will cover……

1. Developing parameters for your P-Card Program

2. Selling the P-Card program to your Superintendent and School Board

3. Choosing a P-Card provider for your school system

4. Establishing Internal Controls5. Training & Training materials6. Analyzing Data7. Preventing Fraud & Misuse

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Developing Developing Parameters for your Parameters for your

P-Card ProgramP-Card Program

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Developing Parameters

There are three basic questions that need to be answered before entertaining the idea of a P-Card program

1. How will I incorporate the P-Card into my existing purchasing process?

2. Who will I allow to be issued P-Cards?

3. How am I going to implement the P-Card program?

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Developing Parameters

It is a valuable tool for quickly and efficiently purchasing and paying for small-dollar expenditures.

The P-Card rules should be a subset of your normal Purchasing Policy and procedures.

Determine when the P-Card would be required and when a requisition must be completed.

Investigate opportunities of where the P-Card could be used for larger, regular purchases. (Fuel is an example)

Incorporating the P-Card in your existing Purchasing process

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Developing ParametersIncorporating the P-Card in your

existing Purchasing process

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• Need to determine how you want the P-Card embossed (school/dept names, individuals, or combination of both)

• Determine the maximum number of P-Cards should 1 person be responsible for

• Determine if you have locations that are not secure enough for P-Card to be stored

• Ask yourself the question…”Do I trust this person with a credit card?”

• Determine if contractors or other non-employees will be issued a P-Card (My suggestion is NO!!!!)

Developing ParametersWho will I allow to have P-Cards?

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• Develop an implementation schedule beginning with approval to start a program through full implementation (this could be as long as a year depending on your situation)

• Start with a trial period of schools, departments, and individuals you trust that would actually use the P-Card (most first-time users are very afraid)

• Document the processes in the trial period for use when training goes system-wide

• Know what you want your end result to be and have the patience to see it through

Developing ParametersHow am I going to implement

the P-Card program?

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Developing ParametersHow am I going to implement the P-Card

program?

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Selling the P-Card Selling the P-Card Program to your Program to your

Superintendent & Superintendent & BoardBoard

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Selling the P-Card Program

Convincing your Superintendent and Board that a P-Card program is a viable purchasing

option is probably the toughest task.

Do your research, stick to the facts, and don’t get involved with emotional arguments.

The political and public fallout of an incident of fraud or misuse is the biggest fear most of

them would have in giving employees P-Cards.

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Positive items to help sell the P-Card program

1. Operational Cost Savings

2. The Rebate

3. Data Analysis on Spending

4. Happy Vendors

5. Employee Satisfaction

6. Reduction of cash at schools

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Operational Cost Savings

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• Requires fewer steps than the traditional purchase order method

• Staffing re-allocation and/or reduction because of fewer purchase orders to create and invoices to pay

• Small savings on items like checks, envelopes, and postage

• Increased cash flow (can hold on to the money as much as 45 days before payment to the financial institution)

• Becoming a more accepted way of doing business (in US, approximately 75% of organizations use P-Cards)

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CASWELL COUNTY SCHOOLSP-Card Historical Cycle Data

FISCAL YEAR P-CARD HISTORICAL INFORMATION Year # Transactions $ Amount Per Trans. Avg. Review Rate

2009-2010 162 $21,363.06 $131.87 100.00% 2010-2011 2,804 $689,264.38 $245.81 99.73% 2011-2012 3,336 $1,317,245.85 $394.86 99.87% 2012-2013 2,037 $812,216.45 $398.73 100.00%

Totals: 8,339 $2,840,089.74 $340.58 99.86%

FISCAL YEAR PUCHASE ORDER HISTORY / EFFICIENCY SAVINGS Year # of POs Issued Difference Administrative Cost Savings:

$71 per PO Reduced 2008-2009 1,311 N/A 2009-2010 1,492 181 2010-2011 420 (1,072) $76,112.00 2011-2012 408 (12) $852.00

Totals: 3,631 (903) $76,964.00


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Selling the P-Card ProgramThe Rebate

Most financial institutions will provide a rebate incentive based on how much is spent using the P-Card and/or how often you remit the payment.

Don’t get very specific with rebate numbers because that will be decided when you choose a vendor, but let your Superintendent and Board know it will be a part of the criteria in evaluating proposals and emphasize it will provide additional revenue if targets are met.

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Selling the P-Card ProgramThe Rebate

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Data Analysis on Spending

Most P-Card software can provide a wide variety of standard reports to analyze spending.

The ability to create customized reports is also available in most programs.

Transactions are broken down into 3 levels of data transmitted to the credit card companies.

The vendor’s point-of-sale technology depends on what level of data is transmitted.

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Data Analysis on SpendingLevel I

Standard Data

Level II

Variable Data

Level III

Detailed Data

X X X Date

X X X Supplier Name

X X X Transaction Amount

X X Tax Amount

X X Customer-Defined

Code

X X Supplier Postal Code

and State

X Ship From/To Postal

Codes

X Freight Amount

X Line-Item Detail

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Happy Vendors

Vendors that accept card payments get their money within 2-3 days and it helps increase their cash flow.

Operational savings with invoicing and collection activities.

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Employee Satisfaction

Allows schools and departments to purchase the items they need quickly to serve teachers & students.

Employees feel empowered to complete their jobs more efficiently by providing flexibility in where to purchase the goods.

How effectively they do their purchasing can result in huge overall savings for the school system.

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Reduction of Cash in the schoolsReplacing Petty Cash funds in schools and

departments reduce the possibility of misappropriation or theft.

EXAMPLE:Charlotte-Mecklenburg used to issue petty cash checks to all site coordinators in the After School program and switched to using P-Cards at these sites for purchases of supplies and materials. The program produced better controls on spending because the coordinators knew people were tracking the purchases.

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Choosing the right P-Card Choosing the right P-Card provider for your school provider for your school

systemsystem

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Choosing a P-Card Provider

Once a decision is made to begin a P-Card program, the following items must be discussed to ensure the school system is getting the best all-around financial institution:

1.What credit card companies issue P-Cards?

2.What financial institutions offer P-Cards?

3.What options do I have in choosing a provider?

4.What criteria do I use to get the best provider?

5.What features do I want in the program?

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What credit card companies issue P-Cards?

There are 3 basic credit card companies that issue P-Cards to financial institutions:

VISA

MasterCard

American Express

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What financial institutions offer P-Cards?

Many major financial institutions offer P-Cards as a product of their credit/corporate card programs. Some examples are as follows:

Bank of America (State Contract Vendor)American ExpressWells FargoBB & TSunTrust (Caswell County’s Vendor)JP Morgan ChaseCommerce BankHSBCUS Bank

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What options do I have in choosing a provider?

P-Card programs are services being provided by a financial institution so therefore you have a wide range of options listed below:

Choose the State Contract vendorPrepare a Request for QualificationsIssue a formal Request for ProposalCompare and choose (not recommended)

Whatever route is chosen please make sure you have a good idea on how much annual spending will be.

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What criteria do I use to get the best provider?

Establishing criteria for provider selection is crucial to how you view the program operating in the most efficient manner. I like to break down the criteria in 3 different areas:

1.Critical Assessment Factors

2.Other Assessment Factors

3.Rebate Details

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Critical Assessment Factors

1. Control & Data Capture

2. Financial Offers & Incentives

3. General Ledger Interface Capabilities

4. Strength of the Relationship (Customer Service)

5. Ability to provide all the required services

6. Ability to provide requested optional services

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Other Assessment Factors

1. Ability to put your logo on the P-Card

2. Disaster Recovery Plan

3. Card Management process

4. Payment Terms

5. Length of transaction details availability

6. Fraud prevention measures (data-mining software)

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Rebate Details

1. Minimum card spend to earn a rebate

2. Rebates can be tied to how often provider is paid

3. Spending thresholds

4. Changes in rebate terms

5. State contract issues

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Establishing Internal Establishing Internal ControlsControls

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Establishing Internal Controls

Internal Controls must be established in order allow a P-Card program to function as a successful, long-term purchasing solution.

Effective internal controls will make card users accountable and responsible while reducing the opportunity for collusion and fraud.

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Internal Control needing to be addressed

1. Structure of approval roles

2. Blocks and Restrictions

3. Calendar of Events

4. Penalties for Non-compliance

5. Audits and Reviews

6. Support Documents

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Structure of Approval RolesP-Card programs must have a system of checks and balances where multiple levels are approving transactions to prevent misuse or fraud.

The roles in a P-Card program should be clearly defined in both policy and the day-to-day operations.

CCS has 4 levels of approvals per transaction:

P-Card Coordinator – Admin Asst., School TreasurerCardholder Manager – Principal, Department DirectorP-Card Manager/Administrator – Purchasing Dept.Accounting Administrator – Finance Officer

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Structure of Approval Roles

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Blocks and Restrictions

Allowing P-Cards to be used at certain merchants or only purchasing specified items must be a part of the internal controls.

Most card providers have multiple ways you can institute blocks on P-Cards.

School systems should also define what purchases would and would not be allowed on P-Cards.

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Most commonly used blocks from card providers

1. Merchant Commodity Codes (MCC)

This is a 4 digit number that defines the type of merchant and the school system would define which are valid for use.

2. Credit Limits / Spending Limits

Most card providers can allow multiple dollar limits on card use such as monthly or transaction limits.

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Most commonly used restrictions

1. Who is allowed to use a card

2. Budget Code restrictions

3. Different MCCs for specific departments or individuals

4. Equipment or items being purchased via State Contract

5. Items for personal use

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Calendar of Events

Creating a calendar of events is a good internal control feature because users know that certain program expectations have to be met and that non-compliance could result in P-Card program penalties.

CCS combines our P-Card calendar with our Accounts Payable calendar since both are related in getting the bills paid.

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Calendar of Events

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Penalties for Non-compliance

Accountability and Responsibility are two critical factors in effective internal controls for your P-Cards.

P-Card programs must have enforceable penalties so card users understand that having a P-Card is a privilege and not a right.

CCS uses a P-Card Violation Form each time a P-Card is not used within the program rules.

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Penalties for Non-complianceCCS Types of P-Card Violations:

• Failure to Review or provide documentation on time

• Lack of documentation• Splitting transactions to

circumvent card limits or bidding requirements

• Inappropriate purchase• Personal purchase

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Penalties for Non-compliance

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Penalties for Non-complianceCCS Standard Suspension Process:

• 30 Days at 3rd violation of the current fiscal year

• 60 Days at 4th violation of the current fiscal year

• Indefinitely at 5th violation of the current fiscal year– Cardholder Manager may apply for

reinstatement of privileges in writing to the P-Card Manager after 75 days.

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Audits & Reviews

Periodic audits and reviews of P-Card transactions also adds to the internal controls by providing a “second look” of suspected transactions beyond the approval process and helps when there could be a possibility of collusion to commit fraud.

CCS uses reports and data in our card provider’s program to help determine if any transactions need more detailed reviews.

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Audits & Reviews

Items to look for in Audits & Reviews

1. Proper documentation of the transaction

2. Any unusual items on the receipt

3. Maintaining their transactions on some type of ledger to track card balances

4. Are approvals being done on a regular basis

5. Login frequency to the card provider’s program

6. P-Card location is known at all times

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Support DocumentsHaving documents throughout the P-Card program are good internal controls to support the activity from start to finish.

Documents should be established in every area of the program so each card user understands their responsibility in the success of the whole program.

Support Documents also provide information to outside entities that the program does have processes in place to protect the taxpayer’s interest.

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Support Documents

Examples of Support Documents used by CCS

1. Cardholder Agreement

2. Online Training Completion

3. P-Card Tracking Log

4. Food Pre-approval

5. P-Card Ledger

6. Missing Documentation

7. Encumbrance Request

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Training & Training Training & Training MaterialsMaterials

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Training & Training Materials

If you expect the P-Card program to succeed, then the training and training materials you provide to the employees will be the determining factor.

Training must be looked at as an ongoing process and must be updated periodically as the program grows and becomes more efficient.

Training materials must be readily available and serve as a knowledge base to employees.

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Caswell tries to provide some type of training class every quarter and most of the time is spent going over problems we see in the program.

While in Charlotte-Mecklenburg, I held training sessions once a month and it open to any card user to come and get problems solved and to create a bond of success.

It is incumbent that card users are provided a positive atmosphere of success. They must believe that you will not let them fail if they do their part.

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Examples of Training Materials used by CCS

1. P-Card Website

2. Online Training

3. Tutorials

4. Newsletters

5. Card Provider’s Help inside their program

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ESP Tutorial forP-Card Coordinators

How to approve a transaction

ESP Tutorial for Cardholder Managers

Information, Support, & Requirements

P-Card Ledger Tutorial

P-Card Ledger & Reconciliation

P-Card Forms Tutorial

Instructions for all P-Card forms

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Analyzing DataAnalyzing Data

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Analyzing Data

Analyzing the data received after you begin your P-Card program is critical to how you want to grow your program and become more efficient and maximizing the rebate potential.

Your P-Card provider should have a wide variety of reports that can be run to analyze data.

Develop your own documents that focus on what you really want to achieve and can provide simple information to your Superintendent and Board.

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Analyzing Data

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Preventing Fraud & MisusePreventing Fraud & Misuse

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Preventing Fraud & Misuse

Make no mistake, there is no 100% way to prevent fraud or misuse in your P-Card program.

A combination of all the items we have discussed today go a long way in preventing fraud and misuse or helping in discovering it early.

If card users know all the processes in place to prevent it, then it is unlikely to be an employee.

Take the time to train your card users in identity theft so they can be aware of their surroundings when using the P-Card.

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Examples of items used by CCS

1. Requirement of Training before issuing a P-Card to an employee

2. Cardholder Agreement

3. P-Card Log

4. Card Sleeves

5. Confidentiality in reporting

6. Daily logins to SunTrust

7. Reviews of declined transactions

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Preventing Fraud & MisuseNot What You Want!!!

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Good Resource for more Good Resource for more information:information:National Association of Purchasing National Association of Purchasing

Card Providers (NAPCP)Card Providers (NAPCP)

www.napcp.orgwww.napcp.org

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Questions and Questions and DiscussionDiscussion

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Documents

pcard program slide

pcard andor

pcard provider

pcard rules

credit card

ccs pcard function

pcard program positive

debit card