purchase card basics and beyond presented by: jeff carter, the iridium group stephen stire, the...
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Purchase Card Basics and Beyond
Presented By:
Jeff Carter, The Iridium GroupStephen Stire, The Iridium Group
02/24/2007
2010 Annual Conference of the National Association of State Auditors, Comptrollers
and Treasurers (NASACT) 2010 Annual Conference of the National Association of
State Auditors, Comptrollers and Treasurers (NASACT)Purchase Card Basics and Beyond
Presented By:
Jeff Carter, The Iridium GroupStephen Stire, The Iridium Group
02/24/2007sponsored by:
Changing Perspectives on Commercial Cards
Presented By:
Jeff Carter, The Iridium GroupStephen Stire, The Iridium Group
8/9/2010
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The Iridium Group LLC
Broad commercial card experience Public sector emphasis, including experience with
international, federal, state and local governments, and higher education card programs
Focus on integration of people, process, and technology to optimize systems and drive best practices within an organization
Strategic alliance with Visa Inc.
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Industry Overview:Why Organizations Use P-Cards?
Save times Saves money Empowers employees Gives greater flexibility Captures valuable data Offers enhanced reporting Provides liability protection, product insurance and other
value adds
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Industry Overview:Why Organizations Use P-Cards?
Typically 60% of an organization’s payments are less than $1,000 and represent less than 5% of spending
The traditional purchase order process costs between $50 to $200 per transaction (average $89)
50% of suppliers are used only once per year 80% of suppliers are used only twice per year
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Industry Overview:Why Organizations Use P-Cards?
Average cost of P-Card process: $22 (versus $89) 68% reduction in procurement cycle time 31% reduction in number of suppliers in AP Master File Reduced number of invoices for AP to process P-Cards save the typical AP department three to five days per
month in documentation activities
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Industry Overview:Transaction Size vs. Payment Type
Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010
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Industry Overview:Growth in Purchasing Card Spending
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Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010
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Industry Overview:Most Common P-Card Spend Categories
Office equipment & supplies Advertising, marketing, printing services Maintenance & repairs Telecommunications Mail, transport and delivery Food/groceries/catering Computers, peripherals, software Clothing/uniforms Construction materials Services Inventory Capital assets
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Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010
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Industry Overview:The Participants & Their Roles
Public Sector Entity (Employer) Cardholder (Employee or Buyer) Issuing Bank
Sets up program, issues cards, and provides invoices Card Association/Brand
The network which facilitates transactions by moving data between the Issuing Bank and Acquirer
Processors Provides services to Issuing Bank including card production,
statement printing, and data management Acquirer
Provides Merchant with equipment and software to process transactions
Merchant (Supplier)
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Industry Overview:The Participants & Their Roles
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Industry Overview:How a Transaction is Authorized
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Industry Overview:Data Levels
Data is organized into three levels: Level I – Financial data
Level II – Extended financial data
Level III – Enhanced data
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Industry Overview:Data Levels (continued)
Level I Account number (required) Transaction date (required) Purchase amount (required) Supplier category code Supplier name (required) City State ZIP code
Level II Level I data elements Sales tax amount Sales tax indicator Customer code Purchase ID Purchase ID format
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Industry Overview:Data Levels (continued)
Level III - Summary Data Level I and II data elements
plus: Ship to/from ZIP code Destination country code VAT invoice reference number VAT tax amount/rate Discount amount Freight/shipping amount Duty amount Order date
Level III - Line Item Detail Item description Level I and II data elements
plus: Item quantity Item unit of measure Item total Item commodity code Item product code Item unit cost Item VAT tax amount/rate
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Industry Overview:Merchant Category Codes (MCCs)
A four-digit number used to classify merchants by market segment/business type
Approximately 600 MCCs MCCs can be ‘blocked’ to help prevent unauthorized charges If a purchase is attempted with a vendor whose MCC is
blocked, the purchase will be declined at the point of sale MCC blocking should be applied with discretion MCCs can help card program administrators categorize
spend and purchasing data MCC assignment facilitates 1099 reporting for services
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Strategies for Success
Internal controls Reconciliation Data Mining Metrics Audits Training and communication
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Internal Controls
Before the purchase: Documented procedures Mandated training Card issuance process Transaction limits Monthly limits Restricted MCCs Restricted commodities Restricted vendors Span of control
After the purchase: Certification/reconciliation
process management Record retention Audit procedures and tools Refresher training
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Reconciliation:Stop Gaps
Cardholder review at time of purchase: Correct pricing Tax exempt status Supporting documentation
Cardholder review of statement against cardholder log: Valid transaction Correct pricing Receipt of all items purchased
Approving officer review of transactions: Suspicious vendors Trends in credits
Electronic review of transactions against program criteria
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Fraud, Abuse, & Misuse:Definition of Each
Fraud – The theft of identity/card information or intentional use of a P-Card by the cardholder for personal gain
Abuse – Intentionally or unintentionally violating policies and procedures for personal gain
Misuse – Intentionally or unintentionally violating policies and procedures for work related gain
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Fraud, Abuse, & Misuse:Government and Non-Profit Metrics
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Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010
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Data Mining Identify transaction data set Identify filter criteria
Questionable vendors Name (high-end or upscale, inappropriate or unsupported) MCC
Weekend and holiday purchases Split transactions Trends
Frequency Transactions by vendor
Statistical samples
Fraud, Abuse, & Misuse:Prevention & Detection
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Program structure Accounts and cardholders Approving officials and department coordinators Hierarchy ratios
Volume Spend Transactions Average dollars per transaction
Credit limit Ratio of credit limit to spend
Card activity Cards with no transactions Cards with excessive transactions or credit activity
Metrics:Program Management
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Metrics:Program Management
Vendors Number of vendors utilized Transactions per vendor Transactions between a cardholder and same vendor
Reconciliation Unreconciled transactions processed Accountable property transactions logged Transactions from approved suppliers Transactions reconciled using default funding Split purchase occurrences
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Audits
Internal audits ensure that the program is realizing the benefits and efficiencies associated with the cards
Audit representative samples of transactions and performance against goals
Audit transactions within 60-90 days Review span of control
Transactions to approver Cardholders to approver
Typically conducted on a semi-annual or annual basis Utilize auditing tools to maximize the ROI Focus resources on areas of weakness or opportunity
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Audits
Combine filter development and automation of monthly review process
Streamlines review and audit process Eliminates the need for 100% transaction review Documents the review process Ensures timely review of transactions within the span of control Improves the recovery potential
Improve communication of audit findings to card program participants
Increases awareness of oversight Develop a sampling audit strategy for current cycle
transactions Eliminates the 100% transaction review process
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Training:Educating the Organization
Make training a priority Educate at various levels in your organization Develop training materials and distribution strategy Create behavioral change
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Training:Educate Various Levels
Executive level Senior & middle management Card program administrator Approving officer Departments/business unit administrators Cardholders Functional areas:
Purchasing Finance Tax Internal control Human resources Information technology
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Current Legislative Activities
TIPRA - “3%” provision requires Federal /State/ some local governments to also report merchandise and withhold 3% on all (service and merchandise) payments starting in 2012. Visa is working on minimizing the impact.
Various proposals could require: Certified TINs, TIN Matching, and “on-demand” withholding Reporting on payments to corporations Governments to report merchandise payments
Increase in info reporting penalties almost enacted--still in play
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Acquirer Reporting
New Internal Revenue Code Section 6050W(C)(2) Banks and other payment settlement services will need to report
gross annual receipts for each merchant. The income reporting will apply to "any transaction in which a payment card is accepted as payment" Thus, banks and other financial service providers will be reporting the total, gross amount of credit card and debit card payments for the year for each merchant.
Exception for De Minimis Payments No information report will be required if
a merchant's total payment transactions for the year does not exceed $20,000, and
the total number of transactions does not exceed 200.
The law takes effect January 1, 2011
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Growing Your Program:A Changing Mindset
The mindset has changed from
‘What can we put on the card?’ to
‘Why are we not putting this on the card?’