Better Understanding How Money Is Actually Spent Procurement Cards – p-Cards – have existed in the private and public sectors for many years. They represent an evolution of the credit card brought about by applying new technology to an emerging e-commerce world that now includes schools. The purpose of this presentation is to provide information about a unique p-Card application created to maximize the benefits for schools and potentially also help Associations. These purposes are specifically: To describe how p-Cards operate in today’s environment to improve the efficiency and effectiveness of the school business office and schools as they go about acquiring products and services needed to support teachers teaching and students learning. The unique nature of a multi-state program created by Illinois ASBO will be explained and the advantages of the economy of scale such a system provides will be explained. The basic steps for schools to participate will be outlined, and, The process for local school district implementation and monitoring of card usage will be illustrated.

Myth: The more paper, the better the paper trail Those who have worked in governmental agencies like school districts are very familiar with the process of using paper purchase orders and manually processing the procurement process from beginning to end. We are more than familiar with the delays, bottlenecks, time wasted, duplication and costs associated with the old paper intensive process. Only recently has technology for schools become available that allows for the stream-lining of this process and a significant reduction in the paper flow. p-Cards can change the procurement culture. p-Cards will NOT eliminate all paper NOR will they eliminate the need for and use of purchase orders. They will reduce the paper usage, remove the myth that the more paper we use the better the paper trail and internal control and help the school district identify all of the small transactions created each month and consolidate most of those into ONE payment.

In good times schools spend money! In bad times schools spend money! Fact: In good times schools spend money! In bad times schools spend money!

What does it actually cost to process a PP from beginning to end? Fact: It costs money to spend money! Question: What does it actually cost to process a PP from beginning to end?

The Traditional PO Process Can Be Painful… Paper Intensive / Mountains of Paper Multiple Departments Involved Same Process Regardless of Transaction Value High Average Per Transaction Cost to School District High Average Per Transactions Cost to the Vendor Not Cost-Effective for Small Purchases (Less than $2500) While purchase orders were created to represent “current best practices” years ago and their processing has been streamlined over time, the fact remains that CURRENTLY the manual process of PO’s AND methods of payment used by schools is PAINFUL – WASTEFUL – AND EXPENSIVE TO SCHOOLS AND TO THE COMPANIES AND BUSINESS DOING BUSINESS WITH US.

What does it actually cost to process a PO from start to finish? Requisition Approval Purchasing Receiving Accounts Payable The bottom line for school business officials is basically to understand how much it costs to process each procurement transaction. Everyone needs to understand that schools must spend money when it spends its money and these expenditures/costs are reality HUGE. From start to finish these are the 5 major processes or steps EVERY transaction follows – BIG OR SMALL.

The beauty of a p-Card is that every district can pick and choose the best features that can change the procurement culture in their district the way want it to; and change the troublesome steps in purchasing while leaving the other steps that may be functioning well – leave these ALONE. The “X”ed out steps are not required elimination, BUT do represent the POTENTIAL efficiency that schools may wish to incorporate.

What are the Experts Saying? “The average cost of processing a purchase order manually is between $75 - $200.” “Automating procurement reduces that cost to between $10 - $40... The Return-On-Investment (ROI) is amazing.” Deloitte Consulting Accenture US Bank Fifth/Third Bank American Express The research and articles published on the subject of what does it cost from start to finish to obtain and pay for every item we need to operate the schools is clear. The research is surprisingly consistent regardless of the source like: Deloitte Consulting, Accenture, US Bank, Fifth/Third Bank, American Express, CPS, Rockford SD and Elgin SD U-46. NOT ONLY DO THESE DIFFERENT SOURCES REVEAL SIMILAR RESULTS, THEY ALSO CONFIRM THAT THE STEPS AND COSTS ARE THE SAME REGARDLESS OF THE DOLLAR VALUE OF THE TRANSACTION. Every purchase that involves a PO carries a sur-charge from $40 - @00. To illustrate, assume that in our SD it costs us $100. Then to buy a $200 piece of equipment, REALLY costs us $300. A $2500 piece of furniture REALLY costs us $2600 and a $25 box of graph paper really costs $125. Clearly the smaller the purchase, the larger the percentage the surcharge is.

Real reduction in paperwork (Naperville, IL SD# 203) 2001 - 9,847 PO’s 2006 - 4,724 PO’s 5,123 PO’s Reduction Here is a real example – not a hypothetical. Naperville SD 203 in Illinois – the year before p-Cards – issued 9,800 PO’s. 5 years later, the number was just over 4,700 – a reduction of 5,100. This reduction took place during a period of rapid student and staff growth. The results are similar in other SD.

The reduction of checks written (Naperville, IL SD# 203) Savings of 8,265 Checks! Take the Naperville experience one step further. The number of non-payroll checks processed by the Accts. Paybale department the year before p-Cards was approximately 17,000 – 5 years later the number had shrunk to 8,700 - a reduction of nrealy 8,300 checks. THESE ARE REAL! Whether you wish to calculate the cost reductions in hours of labor or cash or some combination of both – the cost reductions are HUGE – these cost reductions allow for the labor hours to be eliminated and/or used in other ways and cash saved can be deployed in other ways.

Bench Marking Questions How many non-payroll checks are written each month? What percentage are for less than $500? What do we know about the checks that are used to pay our monthly bills? There are 3 basic questions that if haven’t asked already thought about, you should. How many non-payroll checks are written each month? What percentage are for less than $100? What percentage are for less than $500?

Why is the Streamlining of Small Purchases Significant? The majority of transactions in most school districts are for relatively small amounts 55 – 60% of AP checks are for less than $500 Sometimes we get so busy and involved in the day-to-day operations of the school district that we loose sight of what is going on right in front of us. We lose sight of the magnitude of the little things to the degree that these little things add up to be big things. Take check writing for example. We all know that each month we write lots of small non-payroll checks. This is true in large districts and small. Some times we think that larger districts only get involved in large transactions but they do lots of small transactions as the evidence in these two LARGE school districts demonstrate.

Could all of these small transactions each month be consolidated into one payment? What would have to change in your business operations to significantly reduce the number of these small transactions and what savings in time and money could result. How could these savings be deployed in other needy areas? What if a large majority of these small obligations could be consolidated into ONE monthly check – ONE MONTHLY CHECK!

It is time to streamline your accounts payable process – take it to the next level Measurable cost savings Customized cardholder controls Internet based program management Dedicated program support

School districts have several options when it’s time to pay the bills Write checks Petty cash Credit cards/emergency checks Imprest funds Reimburse employee purchases P-Cards Wire transfer/ACH In reality all of these result in checks being written

The Bottom Line Here is a state of the art best practice for school accounts payable processing Is free Provides comprehensive reports Provides general ledger coding Generates integrated transaction data Has simplified program administration Implementation support Technical support Cardholder support Ongoing education User Group Seminars Rebates

School Districts can continue the status quo or look at innovative ideas that will discover the key to unlock school district potential, improve efficiency and effectiveness and allow decision makers to practice the “efficient substitution of resources.”

P-Cards – Your Options Create reasons NOT to implement this current best practice Negotiate/bid a p-Card option as part of total banking services Negotiate/bid a p-Card option separate from banking services Form a consortium Form a state wide consortium Join a multi state consortium

If you are a small rural isolated school district the only way to truly get p-Card services with all the bells and whistles available to large districts in the consortium route

P-Cards Should Not/Will Not Eliminate all of the Purchase Orders a district uses – whether paper or electronic! (Only the many small PO’s will be eliminated) Change what you buy Who you buy from When you buy

What are Procurement Cards? Have been used in the private sector for years They look and operate similar to credit cards They do not carry a revolving line of credit Usage and authorization parameters can be reviewed, revised and managed via the internet by district administration on a 24/7 basis One must be careful NOT to confuse true p-Cards with a standard credit card or a business card issued by a bank. A p-Card is not just another fancy name for the credit cards we already use. True p-Cards – especially those customized to fit the legal requirements governing public sector spending – passes these basic characteristics and capabilities: They operate like a credit card in that when it is used and the vendor asks whether the card is a credit or debit – the correct response is credit. They do not carry a revolving line of credit – the monthly balance must be paid in full each month. Each card is customized to limit the purchasing authority and spending levels. Most p-Card programs give 24/7 access to daily card activity using internet access.

P-Cards customized to the needs of each employee Transaction limit per charge Monthly limits Preferred supplier restrictions Use can be monitored 24/7 Usage parameters set by school district Usage parameters changed online Card user monthly bill reconcilement

P-Cards customized to the needs of the district 2 lines – 24 characters Card holder name Name of school district Tax ID Department name Department account code Budget Code

Three Options: Individual Name Department Ghost Card

No card cancellation fee No fee to issue initial or replacement cards Costs: No set up fees No annual card fee No monthly billing fee No online access fee No card cancellation fee No fee to issue initial or replacement cards There are 2 lines of 24 characters including spaces which districts can put on the cards. For MOST school districts, the 1st line will be used for the name of the card holder. It may contain 24 characters, including spaces. The 2nd line is for the name of the school and/or school district and the tax ID number if the district chooses. This will be a maximum of 21 characters. IF THE SCHOOL QUALIFIES FOR THE TAX RELIEF. If you have other ideas as to what information you would like as the card, these can be discussed with your implementation officer when you are trained how to order cards.

Special Features: Rebate Fraud Protection 100% locally administered

Other special features Pinpoint expense reporting 24/7 Better cash flow planning Better investment of idle funds Better tracking of procurement patterns MIS (details online) to drive decisions AND provide information to help negotiate better volume discounts

No Charges OTHERS MAY CHARGE FOR: Central billing Over limit fee Over night delivery of replacement cards Monthly report fee Cost per individual bill Average transaction size (NOT a factor)

Billing and Payment Monthly Billing Statements Consolidated Billing Statement (Available online) Cardmember Report (available online) Individual Reports Payment Methods Automated Clearing House Check When the school district sets up its contract for p-Card services, it can elect to have a consolidated bill mailed to the district p-Card administrator monthly or simply go on line, and download it. This is the preferred method. You can have each individual user download their own and reconcile it themselves if you prefer. IT’S YOUR CHOICE. Payment choices are pretty simple send ONE check or set-up an ACH payment system. This is preferred – it is the best way to assure payment is received ON TIME.

Only 3 Possible costs to participating school Late fee ATM Charge – IF cash advance option is selected Interest owed on any cash advance Earlier in this presentation, the benefits of the Illinois programs were enumerated. These included: No costs, No fee, No out of district cash payments to be involved – THIS IS TRUE FOR THE TOTAL PROGRAM, however; there are three service charges a district MAY create. The first is the late payment penalty. The other two involve a feature of the card that districts DO NOT NEED TO USE unless they want. This feature is the CASH ADVANCE. Currently zero districts allow card holders to have cash advances, the feature is there. The district agrees to pay the ATM fee per advance (usually $1-2) and they pay the prevailing interest rate on the money borrowed/advanced from the day of withdrawal to the date the next payment is received. Other than these three charges, everything else is at NO COST TO THE DISTRICT – I REPEAT – NO COST.

Why was MasterCard selected? Superior vision with technology and e-commerce Fraud Protection insurance Dedicated group to sign up suppliers Customized card design displaying the name of card holder, school district and/or tax exempt number Illinois ASBO went through a very detailed and rigorous due diligence process using an RFP. We received 12 proposals, analyzed each carefully and interviewed 3 finalists. The technology platform and rebate plan that was selected was MasterCard thru Harris Bank (Chicago) which is a subsidiary of the Canadian Bank – Bank of Montreal (BMO). They were selected primarily for the reasons shown on the screen.

Vendor Benefits Reduces paper processing/billing Reduces vendors’ time/costs of processing/depositing payments Reduces vendor transaction costs Vendor paid by Harris within 48 hours of shipment/pick-up Reduces the issues of partially filled orders Reduces vendors time/costs of processing & depositing of payments But the schools are not the only beneficiaries. This is good business for vendors. It costs vendors money to process your orders and payments. p-Cards get them paid within 48 hours of shipping or the items being picked-up. No longer will vendors need to wait until the next board meeting OR later to get paid. Keep in mind that they are also processing your SMALL purchases. The cost to the vendor is in the transaction fee they have already negotiated with MC and MOST OF THE BUSINESSES YOU ALREADY DEAL WITH ACCEPT THE MC.

Benefits of a p-Card Program for Management 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 The items listed on this screen basically review the major points of interest we have tried to make in this presentation.

Side Benefits More time on task Less wasted time Reduction in the publication of the annual “Statement of Affairs” Reduction in time/cost of monthly bank statement reconciliation Better investing/cash management We thought we understood al of the benefits that school districts would receive from p-Card use – BUT WE HAVE DISCOVERED OTHER SIDE BENEFITS THERSE ARE BUT A FEW – WE KNOW THERE ARE MORE.

Key to Consolidating Small Purchases into one payment: As a minimum - Get p-Cards into the hands of employees who are currently making small purchases/ generating PO’s of less than $1,000. The average monthly spend should exceed $10,000 (not per card but total for all cards). This seems simple enough but experience demonstrates that some districts that currently have a few credit cards in use and replace these with p-Cards will not generate the savings and efficiencies talked about earlier. p-Cards for 1 or 2 top administrators will NOT change the procurement process. It is not about getting p-Cards into the hands of 2-3 employees who make 5 or 6 purchases per month totaling $5-10,000. It IS about finding the 20% or more of your employees who make 100’s of purchases each month each of which is for less than $2500.

Rebate Distribution Rebates are calculated in April and distributed in May to Illinois ASBO We then turn around and distribute to each partner 100% of rebate generated by their schools as scheduled in the Memorandum of Understanding. While the rebates are calculated individually on each school participant, ONE reimbursement payment is made to Illinois ASBO. Our rebate year is May 1 – April 30. During May, the rebate is sent to Illinois ASBO. In June, the state partners receive 100% of their generated share. Each partnering affiliate will determine its own policies and procedures for distributing rebates to districts and determining how much it will retain for marketing and administration expenses and non-dues revenue for the Association. Whatever that amount might be, keep in mind that what remains will still be higher than if the participating school was going it alone.

p-Cards: A way to move away from the traditional check issuance – payment methodologies (costly, time consuming, labor intensive)

p-Cards for Schools: Streamline Your Procurement and Accounts Payable Process Procurement Cards – p-Cards – have existed in the private and public sectors for many years. They represent an evolution of the credit card brought about by applying new technology to an emerging e-commerce world that now includes schools. The purpose of this presentation is to provide information about a unique p-Card application created to maximize the benefits for schools and potentially also help Associations. These purposes are specifically: To describe how p-Cards operate in today’s environment to improve the efficiency and effectiveness of the school business office and schools as they go about acquiring products and services needed to support teachers teaching and students learning. The unique nature of a multi-state program created by Illinois ASBO will be explained and the advantages of the economy of scale such a system provides will be explained. The basic steps for schools to participate will be outlined, and, The process for local school district implementation and monitoring of card usage will be illustrated.

Holly Wallace 815.753.9083 (tel) 815.753.9367 (fax) hwallace@iasbo.org