Procurement
July 10, 2012

Tied up in red tape: Survey shows tangled purchasing card process

Purchasing card (P-card) systems provide decreased costs per transaction, higher purchasing efficiency and other benefits touted by credit card providers.  A rough and simple survey of North American public procurement departments provides some hard data on how widespread the usage and how efficient these P-card systems are across public agencies.

What prompted us to look at this? It all started with a simple book sale. A U.S. state agency recently tried to purchase a $50 book from our web store. This is a frequent occurrence for us and doesn’t usually merit much attention. Credit card info comes in. We process it. Book is shipped out. Easy.

This particular state agency, however, raised our eyebrows. We were shocked to discover how much work was required to process a simple credit card payment. The agency required no less than 13 separate emails (see Figure 1) requesting additional information to complete the transaction. Because of this agency’s accounting and procedural constraints, they could not use their P-card to complete a simple $50 book purchase transaction. Instead, the purchaser was required to ask the bookseller to register as a vendor and provide a tax form, after which they sent out a fax (yes, a fax!) purchase order. The agency then needed to have the invoice revised to accommodate their system’s constraints.  

Needless to say this made us take pause and wonder if other public agencies implement their P-card systems in such a way as to actually eliminate many of the cost/time/efficiency savings.

The survey
Our survey was not designed to be scientific. We sent our database of public procurement agencies across North America a simple question: can you use a P-card to make a $50 book purchase? If yes, can you provide any details as to how the process works? If no, why not? We received 279 responses of which 261 had actual usable data.    

What we found was encouraging: 81 percent of our respondents actually have P-card systems in place. The remaining 19 percent, though, did not have any P-card system at all.  

Of those that did have P-card systems, we categorized the respondents as “High Red Tape” or “Low Red Tape” based on whether the use of the P-card also required additional paperwork processing such as requisitions, vendor registrations and/or purchase orders.  

Low Red Tape responses had a very simple P-card use process: order book online using P-card number; keep the receipt; log it to a monthly reconciliation report.

High Red Tape responses required additional extra paperwork similar to our nightmare book purchase example. These included additional steps such as requiring the purchaser to file a purchase requisition first and obtain sign off on a particular form before obtaining and filing the vendor registration/tax information and/or creating a purchase order in the system.

Roughly half of the Low Red Tape P-card system respondents also provided information to indicate that although they don’t use elaborate requisition, vendor registration or purchase order add-ons, they do require a monthly credit card reconciliation report. Some of these required senior managers to sign off. Some required the purchasers to code and input their list of monthly purchases into the agency accounting database. Most had some sort of budgetary accountability assigned to the cardholder and/or imposed credit value limits (from $500 to $10,000). Most required receipts to be attached, but that was it.

It was interesting to note how varied the responses were. On the Low Red Tape side, one respondent said that they were required to submit a budget for anticipated P-card expenses for the year and once the budget was set/approved, they could only use P-cards to make the allotted purchases. In fact, in this agency’s case, purchase orders were forbidden.

Several Low Red Tape users stressed the importance of training and boundary set-up to the success of their P-card systems. Setting up the card for individuals and getting them to understand their limits are key factors in the efficient use of a P-card program.

Of the High Red Tape users, some of their additional paperwork requirements (vendor registration and purchase orders in particular) seemed to be attributable to their accounting software constraints (sorry SAP users, but this was the system most cited as having lots of constraints that diminished P-card system efficiencies). As one High Red Tape purchaser said, “the SAP system requires that a REQ be created in the system to offset the credit card transaction and then a PO is created to do the reconciliation.”

This left us to wonder, as we did in the case of our 13-step book order, whether these agencies were achieving any of the benefits from P-card usage. As one user stated quite plainly: “We use the P-card for the payment only… it really doesn’t cut back on any paperwork.”

Summary
It’s important to stress that our findings are meant to provide a rough snapshot of P-card system usage. This is not a scientific survey based on a multi-step, pre-weighted questionnaire. Nonetheless, we hope you find the results as interesting as we did.

Surprisingly, 19 percent of our responses still don’t have P-card systems, good or bad. About half of the 80 percent of agencies that do use P-cards seem to have gotten the spirit of P-card usage, which is to save time and money. The other half seem to have a P-card system in name only. There may be many, many reasons for this (pre-existing accounting software system constraints, legal or procedural requirements), but it’s clear that there is room for improvement.  

Michael Asner is an independent consultant specializing is public procurement (michael@rfpmentor.com). Sharon Sheppard is a freelance writer and editor (sharons1963@me.com).

SIDEBAR
“Yes, we can but we need to fill out some forms. As transactions are placed, the cardholder logs them and includes a short business justification for each. At the conclusion of the billing period, the cardholder creates a requisition in SAP that matches his/her statement and includes all of their transaction receipts. The package is sent to Purchasing and a PO is then created for that account. Payables pays the statement referencing the PO as Invoice Receipt only. The cardholder also has to specify how the cost was considered to be fair and reasonable. We don’t need to have the vendor in our master records but we recommend it. If we register the vendor, the cardholder requests the vendor be added and sends the vendor the required forms. The vendor submits them to our Master Data Office. We limit transactions for goods and services to under $5,000.”

  ~  One respondent’s description of how a P-card would be used for a $50 book sale transaction

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