What is the GSA SmartPay® 2 Purchase Card Program? Elizabeth Skolnik Camesha Everett Office of Charge Card Management General Services Administration June 2009

Value to the Customer Learn about the GSA SmartPay® purchase charge card program Learn about relevant legislation and regulations Understand specific roles and responsibilities Learn about fraud and misuse of charge cards, indicators, and preventative measures Learn and share best practices of charge card program management

Agenda GSA SmartPay® Program Overview Introducing GSA SmartPay® 2 Purchase Charge Card Overview Legislation, Regulations, and Oversight Roles and Responsibilities Purchase Charge Card Misuse/Abuse and Fraud Best Practices for Managing Your Purchase Charge Card Program

GSA SmartPay® Program Overview GSA SmartPay®, established in 1998, is the largest government charge card program in the world The GSA SmartPay® program enables over 350 Federal agencies, organizations, and Native American tribal governments to obtain charge card products and services through Master Contracts that GSA has currently established with three banks: JP Morgan Chase, U.S.Bank, and Citibank. Agencies issue task orders against these existing Master Contracts to obtain charge card products and services

Evolution of the GSA SmartPay® Program Epoch 1 Epoch 2 Epoch 3 Dramatic increase in the number of cards: Cardholders empowered to use cards to conduct Government business Assisted with workload management/loss of acquisition personnel Focus shifted to accountability and compliance: Improved card utilization (reduction in number of purchase cards) Increased internal controls Cards evolve as strategic business tool: Strategic sourcing: leveraging buying power of the government to achieve savings and best value procurement New products and services: greater “business intelligence” Enhanced security

Program Stakeholders Agencies/organizations Use charge card products and services to support their missions and operations GSA Office of Charge Card Management (OCCM) Provide overall program management and advocacy Banks (Bank of America, Citibank, JPMorgan Chase, Mellon Bank, and US Bank) Provide charge card products and services through GSA Master Contracts Associations (MasterCard and VISA) Partner with the banks to issue GSA SmartPay® charge cards Office of Management and Budget (OMB) Perform oversight of the government-wide charge card program

Business Lines Purchase Cards Travel Cards Fleet Cards Use to purchase supplies and services in support of agency/organization missions and operations Travel Cards Cover travel and travel-related expenses Only GSA SmartPay® 2 cardholders can access the City Pair Program Fleet Cards Use to purchase government vehicle fuel and maintenance services Issued to vehicles, rather than individuals Integrated Cards Offers functionality of two or more of the three business lines

Charge Card Benefits Administrative savings and efficiency; In FY08 agencies/organizations reported $1.72 billion in savings, up from $1.67 billion in FY07 Travel cards provide access to the City Pair program 72% average discount off comparable commercial fares Rebates based on dollar volume and payment performance Electronic transaction data, enabling better reporting and ability to detect waste, abuse, and fraud Currently working to obtain Point-of-Sale discounts from various vendors and merchants GSA SmartPay® provides program-wide representation on regulations and issues impacting the program

Tax Exemption Government purchases are tax exempt, although some merchants may still apply taxes to the purchases Each state has different policies and procedures around the tax exemption of purchases made with GSA SmartPay® cards The GSA SmartPay® website provides information on each state’s requirements; often cardholders will need to print a “tax exemption” certificate to give to the merchant Visit the GSA SmartPay® website and click on “tax information” The Office of Charge Card Management (OCCM) has requested updated information from states for GSA SmartPay® 2; this information is posted to the website Tax exemption and recovery plans and processes are an important part of managing your charge card program. For tax questions contact Camesha Everett at camesha.everett@gsa.gov.

Introducing GSA SmartPay® 2 On November 30, 2008 agencies/organizations transitioned to the new GSA SmartPay® 2 charge card and began processing transactions through one of the GSA SmartPay® 2 banks: Citibank JPMorgan Chase US Bank All major customers, with the exception of DHS travel and purchase, transitioned successfully to GSA SmartPay® 2 on or before November 30, 2008; DHS travel and purchase will transition on February 28, 2009 (DHS fleet has already transitioned)

GSA SmartPay® 2 Enhanced Products and Services Contactless cards – faster transactions, the card does not leave the hand of the cardholder Pre-paid (stored value) cards – capability to load and reload cards with specific dollar values; cards can be issued with required value on short notice Cardless accounts – provides established vendor-specific charge accounts without physical cards Convenience checks – improved ability to issue and reconcile checks online such as: Electronic transaction records that must include merchant name Online imaging of cleared checks

GSA SmartPay® 2 – New Products and Services Continued Increased security requirements – increased emphasis on security of both personally identifiable information (PII) and procurement data to minimize risk to individual cardholders and to agencies Detailed minimum security standards including FISMA and Payment Card Industry (PCI) security standards GSA has conducted bank security system reviews and determined that bank Electronic Access Systems (EAS) are Certified and Accredited (C&A), and are Section 508 compliant Increased data requirements – more focus on Level 3 data, which provides better insight into the program for agencies/organizations and GSA SmartPay®

GSA SmartPay® 2 – New Products and Services Continued Improved Program Technology Increased capability of bank EAS systems to provide flexibility in reporting and account management, including the ability to: Generate ad hoc reports Change category block templates (e.g., MCC blocking) Dispute transactions electronically Enable A/OPCs to turn cards “on” and “off” Data mining tools provided by associations – such as MasterCard’s Expert Monitoring System (EMS) and VISA’s Intellilink – offer additional insight into card program data and trends Transaction monitoring to detect misuse, fraud, waste, and abuse (e.g., email alert service)

GSA SmartPay® 2 Purchase Card

Purchase Charge Card Overview The purchase card program provides cards to federal employees to make official government purchases for supplies, goods, and services under the micropurchase threshold of $3,000 The purchase charge card is both a procurement and payment mechanism for micropurchases For purchases above the micropurchase threshold, the purchase card may be used as an ordering and payment mechanism, not a contracting mechanism The following items may not be purchased with the purchase card, as per the GSA SmartPay® 2 Master Contracts: Long-term rental or leasing of land or buildings Travel or travel-related expenses Cash advances

Purchase Charge Card Overview (continued) All purchase card accounts are Centrally Billed Accounts (CBA), and the liability for transactions made by authorized cardholders is borne by the government Use of the card by a person other than the cardholder, who does not have actual, implied, or apparent authority for such use, is not the liability of the government If the card is used by an authorized cardholder to make an unauthorized purchase, the government is liable for payment and the agency/organization is responsible for taking appropriate action against the cardholder

Purchase Charge Card Program Performance FY08 In FY 2008 purchase charge cards: Generated over $19.8 billion in spend up from $18.7 in FY07 Processed 25.4 million transactions Were utilized by 276,000 cardholders Annual spend volume has almost doubled since FY98 (approximately $10 billion to $19.8 billion in FY08) The government saves on processing costs and generates revenue through volume refunds: Productivity refunds: based on the timeliness and/or frequency of payments to the bank (faster payments = higher refunds) Sales refunds: based on the dollar or spend volume during a specified time period Corrective refunds: payments made to the agency/organization to correct improper or erroneous payments on an invoice

Convenience Checks Convenience Checks provide increased flexibility to acquire supplies and services, when the purchase card is not accepted These transactions are similar to purchase card transactions in that they are listed as line items in the monthly statement and invoice A/OPCs are responsible for the implementation of the appropriate internal controls and oversight of convenience check activity There is no authorization process for convenience checks; agencies/organizations may have a dollar limit printed on the check, but there is no automated process to pre-approve the amount of the purchase

Relevant Statutes and Legislation American Recovery and Reinvestment Act of 2009: Enacted in February 2009; the bill includes a section on the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). The bill delays the withholding of tax on government contractors until December 31, 2011. This is a one-year delay from the original date. P.L. 109-222 Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA): Section 511 mandates a three percent tax withholding on all payments made to government contractors. Given commercial charge card payment model, concerned withholding cannot be accomplished in a sensible manner. GSA/OCCM is participating in OMB/OFFM Section 511 working group. FAR Case 2006-026 Government-wide Commercial Purchase Card Restriction for Treasury Offset Program Debts: The Office of Charge Card Management provided comments to the FAR Secretariat – comment period closed February 29, 2008. Proposed rule would prohibit use of purchase card as a payment tool under contracts held by vendors with a Federal debt until such time as the debt is resolved. In the meantime, contract payments would be processed using a method subject to levy. S. 789 Credit Card Abuse Prevention Act of 2007: OCCM has provided multiple sets of comments to OMB and Hill staff. Latest draft of legislation is an improvement.

Public Laws and Regulations for Purchase Cards Office of Management and Budget (OMB) Circular A-123, Appendix B: Establishes standard minimum requirements and best practices for improving the management of government charge card programs For more information, visit: http://www.whitehouse.gov/omb/circulars/a123/a123_appendix_b.pdf Federal Acquisition Regulations (FAR): http://www.acquisition.gov/far/ Agency/organization-specific policies and established procedures

Responsibilities of the A/OPC Agency/Organization Program Coordinators (A/OPCs) are primarily responsible for overseeing the agency’s/organization’s purchase charge card program in support of its mission and operations A/OPCs work with the Office of Charge Card Management (OCCM), GSA SmartPay® banks, cardholders, and agency/organization management A/OPC responsibilities are outlined in the GSA SmartPay® Master Contract and will vary among agencies/organizations “Level 1” A/OPCs are the highest ranking A/OPC within the agency/organization and the primary agency/organization point of contact with OCCM

Responsibilities of the A/OPC (continued) A/OPC responsibilities may include tasks such as: Promoting appropriate use of purchase charge card by cardholders Ensuring cardholders receive appropriate training Monitoring account activity and managing delinquencies Taking appropriate action regarding charge card fraud, misuse or abuse Working with the bank to ensure agency and cardholder needs are met Resolving any technical and operational problems between the bank and the cardholder as necessary Managing agency/organization post-transition challenges or issues with the new GSA SmartPay® 2

Responsibilities of Cardholders Use of the charge card appropriately, in accordance with agency/organization policy, laws, and governmental regulations Keep up to date with required training, including refresher training Look out for communications from A/OPCs and take appropriate action

Responsibilities of Approving Officials (AO) Approving Officials are responsible for: Ensuring that all purchases made by the cardholder are appropriate and charges are accurate Resolve all questionable purchases with the cardholder Certifying the monthly invoice resulting from the purchases of the cardholders within his/her account structure Verifying receipt of the purchase

What is Purchase Card Misuse/Abuse and Fraud? The use of a purchase card for anything other than official federal government goods and services is considered to be misuse/abuse of the card, and depending on the facts, may involve fraud Common examples of misuse/abuse include: Personal use or unauthorized purchases Use for or by someone other than the cardholder Purchases from an unauthorized merchant

Non-Cardholder Fraud Non-cardholder fraud involves use of the card or cardholder data by an unauthorized person High-risk situations for non-cardholder fraud include: The card was never received The card was lost The card was stolen Altered or counterfeit cards Account takeover

Possible Indicators of Misuse/Abuse or Fraud Merchant Category Code (MCC) appears to be outside the cardholder’s general area of responsibility The account has been closed due to fraud and a new card has been reissued The cardholder frequently disputes transactions The cardholder has had multiple authorizations declined The cardholder makes transactions on non-work days The cardholder consistently hits his/her monthly limit The merchant address appears to be a home address

Possible Indicators of Misuse/Abuse or Fraud (continued) The cardholder has several transactions with the same merchant within a short period of time (e.g., 48 hours), and the transactions total more than $3,000 (micropurchase threshold) The cardholder is unable to provide proof of purchases such as receipts The cardholder has multiple transactions of even dollar limits (e.g., $20, $100) The cardholder repeatedly does business with the same merchants (minimal rotation of sources)

Addressing Misuse/Abuse and Fraud A/OPCs have the responsibility to report any suspected or actual fraud to the appropriate authorities within the government If fraud is suspected of a cardholder, merchant, or other third party, A/OPCs may file a complaint with the agency’s Inspector General for investigation Many agencies/organizations provide a fraud hotline number for reporting misuse/abuse and fraud

Consequences of Misuse/Abuse and Fraud Reprimand Counseling Cancellation of card Notation in employee performance evaluation Suspension of employment Termination of employment Criminal prosecution

General Charge Card Program Management Best Practices Engage management at the highest levels Train A/OPCs and cardholders Review credit limits and lower as appropriate Use the bank’s Electronic Access System (EAS), data mining tools, and/or agency/organization technology to run reports for reviewing questionable transactions and monitor charge card spending

General Charge Card Program Management Best Practices (continued) Provide the GSA SmartPay® card-sized booklet, “Helpful Hints for Purchase Card Use”, with each cardholder application Publish frequently asked questions (FAQs) related to the purchase card on your agency’s/organization’s website Create a monthly newsletter to reinforce agency/organization charge card policies and procedures Eliminate manually performing data analysis by developing ad hoc reports that can be generated as needed Perform an annual review of all issued cards to determine if each cardholder meets the criteria for continued participation in the federal government purchase charge card program

Best Practices for Convenience Checks The number of convenience check accounts and the number of checks on hand should be limited to reduce risk Checks should be secured at all times Before a check is issued, every reasonable effort should be made to use the purchase card Cardholders should record the date, check number, payee and amount of each check in their files

Best Practices for Preventing Misuse/Abuse and Fraud Set reasonable spend limits Restrict use through MCC Blocks Deactivate cards as appropriate Review cardholder activity through reports generated from bank Electronic Access Systems

Set Reasonable Spend Limits Monthly credit limits should correspond to historical spend patterns and the requirements of the job Limits may be raised easily to accommodate special circumstances Higher credit limits increase risk of fraud and misuse/abuse Restrict Use Through MCC Blocks Block certain merchant category codes (MCC) to prevent unauthorized use Remember: MCC blocks are NOT foolproof! Work with merchants/contractors to correct inaccurate MCCs

Deactivation Deactivate purchase charge cards when not in frequent use by cardholders A/OPCs may quickly deactivate/reactivate cards electronically or through the bank’s customer service If a card is deactivated, authorizations will be declined at the point of sale Notify cardholder of deactivation, and communicate procedures to re-activate (e.g., who to call, when to call) Be wary of automatic billing (e.g. magazine subscriptions) and forced transactions (e.g. vendor manually charges card) Close purchase charge card accounts for employees/cardholders who leave the agency

Cardholder Activity Review Segregate questionable transactions Look for patterns of suspicious behavior Decline transactions could indicate misuse Review questionable transactions through Exception Reports

Training Best Practices Provide a comprehensive face-to-face cardholder training as orientation for new cardholders Address standards of conduct/ethics and clearly state consequences for misuse Discuss agency/organization policy Ensure cardholders and A/OPCs fulfill the required refresher training requirements at a minimum every three years, or more frequently as per agency/organization policy Ensure that training is easily accessible

Training Resources Purchase-specific GSA SmartPay® online training: Cardholders: Charting the Course (http://fss.gsa.gov/webtraining/trainingdocs/smartpaytraining/index.cfm) A/OPCs: (http://apps.fss.gsa.gov/webtraining/trainingdocs/aopctraining/index.cfm) Agency/organization-provided training Bank-provided training GSA SmartPay® Annual Training Conference Materials (available online, and hard copies may be ordered by visiting http://apps.fss.gsa.gov/cmls): Blueprint for Success: A Guide for Purchase Card Oversight Mini card-sized brochure – “Helpful Hints for Purchase Card Use”

Questions? Elizabeth Skolnik Elizabeth.skolnik@gsa.gov (703) 605-5736 Camesha Everett camesha.everett@gsa.gov (703) 605-2799 You will find a wealth of contract and program information, training, publications, the GSA SmartPay® 2 Master Contract, and points of contact at our website: www.gsa.gov/gsasmartpay