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EXPANDING THE USE OF PURCHASING CARDS

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					  EXPANDING THE USE OF PURCHASING CARDS
The Government has approved the use of a         As with any reengineering of business processes,
purchasing card in its purchasing processes.     the policies, guidelines and procedures
The purchasing card is intended to provide an    underpinning purchasing processes within each
efficient and convenient alternate method for    Department or Public Authority will need to be
the purchase of high volume, low value           examined and amended as appropriate.
consumable goods and services, and for the
payment of work related travel and
accommodation expenses.                          OPPORTUNITIES
                                                 According to international benchmarks, the
The Purchasing Card Growth Project has been      average savings achievable from use of a
established to provide assistance to Public      purchasing card over traditional Purchase-to-
Authorities to achieve increased savings         Pay processes is approximately $19 to $52 per
through the expanded use of the purchasing       invoice. Also, historically 90% of Government
card. Savings, in this case, are measured by     invoices processed are valued under $5,000.
reduced administrative effort in terms of        Using this information as the basis for a simple
purchase-to-pay cycle, from placing an order     analysis would indicate there are opportunities
to paying the supplier, and direct purchasing    for Public Authorities to realise significant
dollar savings.                                  savings.
Purchasing Cards provide a real opportunity to
maximise savings through the elimination of
                                                 EXPENSES FOR GOODS & SERVICES
requisitions and approvals, and reduction of
                                                 Purchasing Cards provide a real opportunity to
process costs, allowing purchasing officers
                                                 maximise savings through the elimination of
(cardholders) to deal directly with suppliers,
                                                 requisitions and approvals, and reduction of
using pre-determined spending limits and
                                                 process costs, allowing purchasing officers
consolidating invoices. When purchasing with
                                                 (cardholders) to deal directly with suppliers,
a purchasing card is not made in-person,
                                                 using pre-determined spending limits and
delivery of items can usually occur within a
                                                 consolidating invoices.
couple of days.

Research has shown that the implementation
of an Expense Management System to support       TRAVEL RELATED EXPENSES
the use of purchasing cards provides increased   Travel and related expenditure is one area of
transparency    of    purchasing,    increased   focus identified to provide the opportunity to
opportunity for spend analysis and reporting,    realise increased savings through the use of the
and increased budget compliance.                 purchasing card.     This is also a preferred
                                                 process for the payment of travel and related
                                                 expenses within the Office of Shared Services.
Introduction to WA Government Purchasing Cards
The Government has approved the use of a           opportunity for spend analysis and reporting,
Purchasing Card in its purchasing processes.       and increased budget compliance.
The Purchasing Card is intended to provide an
efficient and convenient alternate method for      Why are the security             benefits     of
the purchase of high volume, low value             Purchasing Cards?
consumable goods and services, and for the
payment of work related travel and
                                                   As the Purchasing Card is issued to an
accommodation expenses.
                                                   individual, every transaction can be tracked to
                                                   that individual. Where spend exceeds normal
The Purchasing Card Growth Project has been
                                                   limits (rogue behaviour), this can be easily
established to provide assistance to Public
                                                   identified    and   actioned    accordingly  in
Authorities to achieve increased savings through
                                                   significantly less time compared traditional
the expanded use of the Purchasing Card.
                                                   methods of payment.
How do Purchasing Cards provide you                With purchase orders and direct invoices, it is
with cost savings?                                 often difficult to identify the person who
                                                   authorised the transaction in the first instance.
Purchasing Cards provide a real opportunity to     Often the only people associated with the
maximise savings through the elimination of        transaction are the accounts processing staff.
requisitions and approvals, and reduction of
process costs, allowing purchasing officers        Why travel is perfect for Purchasing
(cardholders) to deal directly with suppliers,     Cards
using pre-determined spending limits and
consolidating invoices. When purchasing with a
                                                   Travel and related expenditure is one area of
Purchasing Card is not made in-person, delivery
                                                   focus identified to provide the opportunity to
of items can usually occur within a couple of
                                                   realise increased savings through the use of the
days.
                                                   purchasing card.     This is also a preferred
                                                   process for the payment of travel and related
The provision of a purchasing card to staff for
                                                   expenses within the Office of Shared Services.
general expenditure signals to staff that they
are highly valued and trusted in the use of the
purchasing card for this purpose. The benefits     Contact
to each Department from empowering staff can
also be considerable.                              If you require any further information regarding
                                                   Purchasing Cards, please contact:
Research has shown that the implementation of      Nivia Pryor-Wright
an Expense Management System to support the        Contract Manager
use of Purchasing Cards provides increased         Department of Treasury and Finance
transparency    of   purchasing,   increased       Tel: (08) 9222 5538
                            Management Controls
A common fear, is that issuing purchasing cards            automatically sent to managers for
increases exposure to risk, and reduces controls           approval.
over spend.       Whilst discussions indicate a        •   Reports can be easily generated providing
perception of risk of misuse / abuse with using a          a variety of management information and
purchasing card as compared to a formal purchase           be customised to the specific needs of
order, there is in fact increased key management           management levels.
controls associated with the purchasing card use.      •   Cardholders can reconcile invoices daily
This is due to the increased transparency of               or weekly.
purchasing card transactions.      Although some
controls available through purchase orders are      Controls lost by not using formal
eliminated, purchasing cards have other             purchase orders:
compensating controls.
                                                       •   Formal hard-copy documentation
Controls associated with Purchasing                    •   Multiple approval levels
Cards:                                                 •   Centralised control over purchasing
                                                           decisions
   •   Monthly limits on purchases (Attempts to
       exceed the established limit results in      Public    Authorities   should    ensure    that
       purchases being automatically declined at    appropriate policies and procedures are
       the vendor, prior to completion of           established to provide management with
       purchase).                                   reasonable assurance that key management
   •   Card Administrators monitor card program     controls will provide sufficient control against
       and can provide assistance, advice or        the possible occurrence of fraud, waste and
       training to cardholders.                     abuse.
   •   Managers can receive, monitor and review
       statements of account to make sure           There is little evidence to prove that rogue
       purchases are legitimate and within          spending (business related purchases that
       delegated authority levels.                  exceed normal purchasing rules) is more
   •   The purchasing card has a formal dispute     prevalent on purchasing cards than for other
       resolution process established.              payment methods. This is particularly the case
                                                    where expense management systems are used in
Additional Controls associated with use             conjunction with the purchasing card.
of an Expense Management System:
                                                    The benefit a purchasing card does provide is
   •   Single purchase value guidelines,            that as the card is issued to an individual, every
       determined prior to issue of card,           transaction against a card can be tracked to
       monitored through EMS                        that individual. Where spend exceeds normal
   •   Transactions are available to scrutiny the   limits (rogue behaviour), this can be easily
       next day.                                    identified and actioned accordingly. With
                                                    purchase orders and direct invoices, it is often
   •   High-risk purchases can raise alerts or
                                                    difficult to identify the person who authorised
       result in notification being sent to
                                                    the transaction in the first instance. Often the
       managers.
                                                    only people associated with the transaction are
   •   Notification of purchases over preset
                                                    the accounts processing staff.
       approval limits or purchase type can be
                 Increased Management Controls
A common fear of government and corporations,       Additional Controls associated with use
is that issuing cards increases their exposure to   of an Expense Management System
risk, and reduces their controls over spend.           •   Single purchase value guidelines,
Whilst discussions indicate a perception of risk           determined prior to issue of card,
of misuse / abuse with using a purchasing card             monitored through EMS
as compared to a formal purchase order, there
                                                       •   Transactions are available to scrutiny the
is in fact increased key management controls
                                                           next day.
associated with the purchasing card use. This is
                                                       •   High-risk purchases can raise alerts or
due to the increased transparency of purchasing
                                                           result in notification being sent to
card transactions.
                                                           managers.
                                                       •   Notification of purchases over preset
Although some controls available through
                                                           approval limits or purchase type can be
purchase orders are eliminated, purchasing
                                                           automatically sent to managers for
cards have other compensating controls.
                                                           approval.
                                                       •   Reports can be easily generated providing
Controls lost by not using formal                          a variety of management information and
purchase orders                                            be customised to the specific needs of
   •   Formal hard-copy documentation                      management levels.
   •   Multiple approval levels                        •   Cardholders can reconcile invoices daily
   •   Centralised control over purchasing                 or weekly.
       decisions
                                                    How to support Purchasing Cards
Controls associated with Purchasing                 Appropriate policies, procedures and guidelines
Cards                                               should be established to provide management
   •   Monthly limits on purchases (Attempts to     with    reasonable     assurance   that     key
       exceed the established limit results in      management controls will provide sufficient
       purchases being automatically declined       control against the possible occurrence of
       at the vendor, prior to completion of        fraud, waste and abuse.
       purchase).
   •   Card Administrators monitor card             There is little evidence to prove that rogue
       program and can provide assistance,          spending (business related purchases that
       advice or training to cardholders.           exceed normal purchasing rules) is more
   •   Managers can receive, monitor and            prevalent on corporate cards than for other
       review statements of account to make         payment methods. This is particularly the case
       sure purchases are legitimate and within     where expense management systems are used in
       delegated authority levels.                  conjunction with the Purchasing Card.
   •   The purchasing card has a formal dispute
       resolution process established.              For assistance with policies, procedures and
                                                    guidelines please refer to the contact details on
                                                    the reverse.
                                      Benefits
The Government Purchasing Card saves time and money by reducing the need for
requisitions, approvals, purchase orders, invoices and cheques, giving staff time to focus
on more value-added activities. WA Government Purchasing Cards don’t attract card
fees or interest payments and offer a simplified cost-effective purchasing process.

Purchasing Cards:

  • Are free, simple to introduce and operate;
  • Have been created as a result of a rigorous State Supply Commission compliant
    procurement process;
  • Replace inefficient and outdated manual systems with option of implementing a
    streamlined electronic process (additional Expense Management System);
  • Greatly reduce administration time and the cost of processing invoices and orders;
  • Eliminate the potential for manual keying cost centre errors (automated coding for
    selection using Expense Management System);
  • Protect the environment by reducing the use of paper;
  • Generate invaluable management information about individual procurement activity and
    purchasing patterns (optional EMS);
  • Promote financial transparency and accountability;
  • Provide protection for purchaser and supplier; (not carrying cash, insurance against
    fraudulent use, fraud detection and control, guaranteed payment)
  • Empower employees, giving them responsibility and authority to commit government to
    purchases;
  • Make an important contribution to a range of Government policies aimed at increasing
    efficiency, modernisation, and sustainability;
  • Ensure rapid payment to suppliers promoting enhanced relationships and improved
    performance;
  • Utilise the vast Visa network of merchants and support systems; and
  • Are fully endorsed by the Department of Treasury and Finance, and the Office of the
    Auditor General.
             Inhibitors vs. Enabling Propositions
Identified inhibitors to the expanded use of Purchasing Cards include:
  •   Lack of trust exhibited in staff to make appropriate purchasing decisions, demonstrated by the
      reluctance to issue cards and delegate purchasing authority to staff.
  •   Current cardholders being mainly senior staff.
  •   Autonomy of purchasing decision-making being restricted by and to managers.
  •   Managers’ concerns relating to exposure resulting from misuse of purchasing cards and
      fraudulent activity.
  •   The majority of administrative staff undertaking purchasing not being issued with purchasing
      cards. If required, they ‘borrow’ a purchasing card from another cardholder. (This is a breach of
      the NAB terms and conditions of card use).
  •   Fear of misperception of legitimate expenditure levels by ‘management’, restricting use of
      purchasing cards by staff. Worried about the end of month report showing large $ spend.
  •   Lack of knowledge of appropriate use of purchasing cards by some administration staff limiting
      use of purchasing card.
  •   Lack of knowledge of opportunity to use cards when purchasing by administration staff.
  •   Current purchase-to-pay processes habitual, resulting in the use of the Purchasing Card not
      being the first option for low value purchasing.
  •   Staff may only require access to a Purchasing Card on a few occasions throughout the year, so
      issuance of a card not seen as necessary or required, or staff do not see a need to be issued with
      a card.
  •   Ordering systems not conducive to use of cards for payment at time of confirmation of order
      (i.e. GEM).
  •   Perception of increased time required reconciling statements at the end of the month.
  •   Worry over misplacement of supporting documentation.
  •   Preference for use of Petty Cash and travel allowances.
  •   Financial Policies and procedures unclear and outdated.


PLEASE TURN OVER FOR ACTIONS THAT WILL OVERCOME THE ABOVE INHIBITORS
            Inhibitors vs. Enabling Propositions

Actions enabling the support and expansion of the use of Purchasing Cards include:


 •   Issue cards to all staff undertaking travel during the year. If managers are hesitant to issue a
     card full time, cards can be held centrally and signed out for the periods required.

 •   Identify and issue cards to those staff undertaking regular purchasing of goods and services
     regardless of role level. Card limits and monitoring of statements will reduce non-compliance.

 •   Run a regular series of short sessions with groups of administrative staff involved in purchasing
     to highlight opportunities to use card appropriately and provide support and encouragement in
     the use of the card.

 •   Work with procurement staff to identify opportunities for using the Purchasing Card for
     purchasing through Common Use Arrangements.

 •   Provide simple template to assist in the end of month reconciliation of the card statement and
     sign off by manager.

 •   Raise awareness of card use opportunities with ‘Tip of the Month’ inclusion on the Intranet.

 •   Seek Managers’ agreement to raise Purchasing Card use at Team Meetings, promoting their
     support for the expanded use of the card.

 •   Seek Managers’ support to mandate the use of Purchasing Card for specific purchasing or for
     specific $ range. i.e. Travel, Catering, Venue hire, stationery, or any purchase under $500.

 •   Issue cards to regular users of Petty Cash.

 •   Work with systems area to identify opportunities and methods for using Purchasing Card through
     online purchasing systems.
Guide for Chief Finance Officers to Expand Use
Action                                              What you need to do
                                                    •   Identify any areas where the policies do not
Revise policies to support the increased use of         support the use of the purchasing card.
purchasing card                                     •   Policies should be used to limit the exposure to
                                                        potential risk, whilst remaining flexible enough
                                                        to make the use of the card easy and
                                                        desirable.
                                                    •   Review and update policies where necessary to
                                                        ensure best practice
                                                    •   Ensure policies are accessible.

                                                    •   Analyse purchasing behaviour in order to
Be mindful of purchasing card targets set by the        achieve targets for purchases under $5000 to
Treasurer                                               be made on the purchasing card:
                                                    •   Identify high volume, low value transactions
                                                        that cardholders are not, yet should be using
                                                        the purchasing card for.
                                                    •   How does your agency plan to gather the data
                                                        to report against the targets?

                                                    •   Discuss with DTF the possibility of participating
Consider an Expense Management System to assist         in the implementation of the NAB Expense
in the management of purchasing cards                   Management System
                                                    •   Implementation of an Expense Management
                                                        System to support the use of purchasing cards
                                                        provides:
                                                        o Transparency of purchasing
                                                        o Increased opportunity for spend analysis
                                                        o Increased opportunity for reporting
                                                        o Increased budget compliance

                                                    •   Communicate with Line Managers that
Encourage Line Managers to issue purchasing cards       efficiencies and cost savings can be achieved
for their staff making low value transactions           through using purchasing cards
              Guide for Managers to Expand Use
Action                                               What you need to do
                                                     •   Identify those people responsible for undertaking
Increase the number of cards                             purchasing, high petty cash users, and travelers to
                                                         ensure they are issued cards.
                                                     •   Purchasing cards should not be ‘borrowed out’ to
                                                         other staff therefore ensure necessary staff have
                                                         been issued with purchasing cards.
                                                     •   Purchasing Cards do not incur setup or ongoing fees
                                                         therefore deployment should be for all staff making
                                                         purchasing, however infrequent.

                                                     •   Transactions under $5,000 should be encouraged to
Increase expenditure limits on the cards                 be made on the purchasing card
                                                     •   Review expenditure by those making frequent low
                                                         cost purchases and increase limit to make best use
                                                         of the card.
                                                     •   Individual card limits should ideally be set to suit
                                                         buying patterns of staff.

                                                     •   Identify staff making high volume, low cost
Review current transactions in order to identify         transactions by purchase order or other paper
new cardholders                                          based methods, and consider issuing them with a
                                                         purchasing card.

                                                     •   Provide reminders to cardholders that suppliers are
Review supplier relationships in order to maximize       encouraged to accept payment by purchasing card
the benefit of the purchasing card                       under their CUA.
                                                     •   Encourage cardholders to raise discussion about the
                                                         usage of purchasing cards with suppliers
                                                     •   Check with CUA Contract Manager if merchant fees
                                                         are required to be waived by the supplier. This will
                                                         negate any surcharges associated with using
                                                         purchasing cards.

                                                     •   Organise training sessions so that cardholders are
Ensure training for cardholders                          comfortable using purchasing cards
                                                     •   Make training material available on the intranet
                                                     •   Administrators will be experienced with the
                                                         electronic statements/EMS, therefore ensure that
                                                         their knowledge is available to other staff
           Guide for Cardholders to Expand Use
                    Action                            What you need to do
                                                      •   If you undertake travel or regular purchasing
How do I get a purchasing card?                           activities in your role, you should talk with your
                                                          manager about being issued with a purchasing card
                                                          for these activities.
                                                      •   Your manager can contact the agency card
                                                          Administrator, for the appropriate application
                                                          forms.

                                                      •   Transactions under $5000 are encouraged to be
Examine all purchasing to identify which                  made on the purchasing card
transactions the purchasing card is applicable for    •   Read through your agency’s policies around the use
                                                          of purchasing cards and use as the preferential
                                                          method pf payment where applicable

                                                      •   Identify a list of suppliers who accept payment on
Identify suppliers who will accept payment by             purchasing cards.
purchasing card                                       •   Use the purchasing card when making purchases
                                                          with these suppliers.

                                                      •   The transactional efficiencies available from using
Let suppliers know that you prefer to pay by              purchasing cards can benefit suppliers as well as
purchasing card                                           public authorities.
                                                          o The most significant for the supplier is that
                                                             payment is guaranteed to occur within 48 hours.

                                                      •   Suppliers may be prepared to give better terms and
Use the card to pay and gain savings for prompt           discounts for prompt payment, above and beyond
payment                                                   any charge they incur for accepting purchasing card
                                                          payments.
                                                      •   Work with your suppliers to gain better price
                                                          savings or better service terms.

                                                      •   All transactions under $5000 should be reviewed in
Review all transactions to identify other purchases       order to determine if the purchasing card is a
the card can be made for                                  suitable method of payment

                                                      •   It may be necessary to request the limit of your
Review the value of transactions and the total            card be increased to ensure all suitable
monthly spend                                             transactions are made on the purchasing card
                                                      •   Transaction limits and monthly limits can be set
                                                          therefore ensure you have the scope to make all
                                                          necessary purchases.
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Description: EXPANDING THE USE OF PURCHASING CARDS