1. Use of Procurement Cards - Including Control and Auditing PASBO Conference March 9, 2006 Presented by: Daniel R. McConachie dmcconachie@msn.com

2. 2 How to integrate procurement card purchases into your purchasing system How to build internal controls for effective program implementation Implementation issues Questions Agenda

3. 3 Why Use Procurement Cards NIGP Survey Indicates that 81% of Public Entities are Using Procurement Cards in 2005 Benefits Received: –Reduction in Number of Small Dollar Purchase Orders –Improved “Processing Efficiency”

4. 4 Aligning card usage with state laws Sealed competitive bids are required for purchase of more than $10,000 of similar types of materials from a single vendor during the same budget year. Board authorization for use of cooperative purchasing agreements (i.e. use of state contract pricing, etc.) in place of the sealed bid requirement. Price quotations solicited from multiple vendors if the anticipated expenditures for the specified types of materials will exceed $4,000 but is below $10,000 for a single purchase.

5. 5 Sealed Bid – Term Contract Create term contracts through the sealed bid procedure to cover credit card purchases that may exceed $10,000 from a single vendor

6. 6 Sealed Bid – Multiple Vendor Awards Make multiple awards to all vendors that meet the requirements of the terms and conditions for the term contracts through the sealed bid procedure

7. 7 Board Resolution – Cooperative Purchasing Agreement Cooperative purchasing agreements may be established by Board Resolution with other governmental entities that have entered into term contracts through the sealed bid procedure

8. 8 Board Resolution – Use of State Contracts Use of state contracts have been established by the legislature as an alternative to the sealed bid procedure for school districts making purchases exceeding $10,000 It is recommended that a Board Resolution be approved authorizing purchases in excess of $10,000 using state contract pricing

9. 9 Why Use Procurement Cards – Practical Example Purchase Orders issued in 2004 –14,570 purchase orders –Average order value $1,593 Procurement Card Transactions in 2004 –27,501 purchases –Average purchase amount $167 65% of the Total Transactions Involved only 16% of the Expenditures

10. 10 Planning the Controls for the Implementation The Hierarchy (reporting levels) The Merchant Category Code Groups Access/Restrictions (by dollar amount, number of transactions and/or MCC codes) Declining Balance Cards The Application The Employee Usage Agreement

11. 11 The Hierarchy (reporting levels) Up to seven levels –District –Department –School/Office –Program –User Summary statement for each level

12. 12 What is a Merchant Category Code Four digit MCC code Used by VISA to identify type of products or services provided by vendor Only one MCC code per charge station/ cash register

13. 13 The Merchant Category Code Groups Assigned to cards on an individual basis Establish the categories of vendors from which the card user is allowed to make purchases Established selectively for each type of employee assignment Pittsburgh MCC Groups –Office Staff –School Staff (general) –School Staff (home ec) –School Staff (special ed) –Tradesmen (each trade) –Repair Shops –School Safety –Gasoline/Diesel Fuel

14. 14 Office Staff MCC Group

15. 15 Home Ec MCC Group

16. 16 Merchant Category Code restrictions Access to Merchant Category Code (MCC) groups are assigned to each card individually Up to nine different MCC groups may be assigned to each individual card The Merchant Category Codes assigned to each MCC group limit the categories of products / stores for which a specific procurement card may be used

17. 17 Dollar limits—single transactions and cycle limits Spending limits may be established for each individual transaction, based on a daily spending allowance or total expenditures within a monthly billing cycle Pittsburgh has established spending limits for most procurement cards at $500 per single transaction and $5000 per month Limits may also be established for the maximum number of transactions allowed each day or within the billing cycle

18. 18 Declining balance cards versus standard procurement cards Declining balance cards are limited by all the same dollar limit, transaction limit and MCC code restrictions as a standard procurement card However, the cycle dollar limit for the declining balance card does not replenish with each new monthly cycle

19. 19 The Application User Information Establish Restrictions: –Dollar Limits –Transaction limits Reporting Level MCC Group Access Default Budget Account Authorized Signature

20. 20 The Usage Agreement Establish the criteria under which the card is to be used Designate that the use of the procurement card is for business purposes only Identify the responsibilities of the card holder in using the card Make clear that the card is and remains the property of the School District

21. 21 Update / Change Card Profile Require written documentation from users for all changes requested to their account Develop standard format for notifying card provider of commonly requested changes in card account controls –Move to a new school or office (default account number, statement address, place in hierarchy) –Change last name for user –Cancel a procurement card account

22. 22 Daily Decline Report Reason for Charge Being Rejected MCC Code of the Rejected Vendor Amount of the Attempted Transaction

23. 23 Annual card maintenance Change default account number to reflect changes to the account codes in the new budget year. Update expenditure level for declining balance procurement cards (in Pittsburgh, updates to the expenditure level are allowed just once in each budget year.

24. 24 Assignment of cards to individuals Restrict the obtaining of cash Monthly credit or usage limit Single transaction limit Merchant category code (MCC) Employee reconciliation of purchases to billing statements Statement/sales receipt retention procedure Cardholder report of activity to management Supervisor review/sign off approval Elements that should be included in a board policy on procurement cards

25. 25 Procurement card transactions will undergo extensive scrutiny: Local auditor Internal auditor (if applicable) Auditor General Monthly review process is key to the success of the program Holding end users accountable

26. 26 Questions