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BACKNEXT Program Setup & Internal Controls 2013 NCASBO Annual Conference.

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Presentation on theme: "BACKNEXT Program Setup & Internal Controls 2013 NCASBO Annual Conference."— Presentation transcript:

1 BACKNEXT Program Setup & Internal Controls 2013 NCASBO Annual Conference

2 BACKNEXT Purchasing/Procurement Cards What is a P-Card ? –A credit card issued by financial institution specifically for purchases instead of issuing a purchase order for every purchase

3 BACKNEXT How does the CCS P-Card function? Just like a credit card, but with the limitations of a debit card. Q Qualified purchases are made without the need for a requisition or purchase order. In ISIS, the P-Card has the characteristics of a blanket purchase order. Purchasing/Procurement Cards

4 BACKNEXT What we will cover…… 1.Developing parameters for your P-Card Program 2.Selling the P-Card program to your Superintendent and School Board 3.Choosing a P-Card provider for your school system 4.Establishing Internal Controls 5.Training & Training materials 6.Analyzing Data 7.Preventing Fraud & Misuse

5 BACKNEXT Developing Parameters for your P-Card Program

6 BACKNEXT Developing Parameters There are three basic questions that need to be answered before entertaining the idea of a P-Card program 1.How will I incorporate the P-Card into my existing purchasing process? 2.Who will I allow to be issued P-Cards? 3.How am I going to implement the P-Card program?

7 BACKNEXT Developing Parameters It is a valuable tool for quickly and efficiently purchasing and paying for small-dollar expenditures. The P-Card rules should be a subset of your normal Purchasing Policy and procedures. Determine when the P-Card would be required and when a requisition must be completed. Investigate opportunities of where the P-Card could be used for larger, regular purchases. (Fuel is an example) Incorporating the P-Card in your existing Purchasing process

8 BACKNEXT Developing Parameters Incorporating the P-Card in your existing Purchasing process

9 BACKNEXT Need to determine how you want the P-Card embossed (school/dept names, individuals, or combination of both) Determine the maximum number of P-Cards should 1 person be responsible for Determine if you have locations that are not secure enough for P-Card to be stored Ask yourself the question…Do I trust this person with a credit card? Determine if contractors or other non-employees will be issued a P-Card (My suggestion is NO!!!!) Developing Parameters Who will I allow to have P-Cards?

10 BACKNEXT Develop an implementation schedule beginning with approval to start a program through full implementation (this could be as long as a year depending on your situation) Start with a trial period of schools, departments, and individuals you trust that would actually use the P-Card (most first-time users are very afraid) Document the processes in the trial period for use when training goes system-wide Know what you want your end result to be and have the patience to see it through Developing Parameters How am I going to implement the P-Card program?

11 BACKNEXT Developing Parameters How am I going to implement the P-Card program?

12 BACKNEXT Selling the P-Card Program to your Superintendent & Board

13 BACKNEXT Selling the P-Card Program Convincing your Superintendent and Board that a P-Card program is a viable purchasing option is probably the toughest task. Do your research, stick to the facts, and dont get involved with emotional arguments. The political and public fallout of an incident of fraud or misuse is the biggest fear most of them would have in giving employees P-Cards.

14 BACKNEXT Selling the P-Card Program Positive items to help sell the P-Card program 1.Operational Cost Savings 2.The Rebate 3.Data Analysis on Spending 4.Happy Vendors 5.Employee Satisfaction 6.Reduction of cash at schools

15 BACKNEXT Selling the P-Card Program Operational Cost Savings

16 BACKNEXT Selling the P-Card Program Operational Cost Savings Requires fewer steps than the traditional purchase order method Staffing re-allocation and/or reduction because of fewer purchase orders to create and invoices to pay Small savings on items like checks, envelopes, and postage Increased cash flow (can hold on to the money as much as 45 days before payment to the financial institution) Becoming a more accepted way of doing business (in US, approximately 75% of organizations use P-Cards)

17 BACKNEXT Selling the P-Card Program CASWELL COUNTY SCHOOLS P-Card Historical Cycle Data FISCAL YEAR P-CARD HISTORICAL INFORMATION Year# Transactions$ AmountPer Trans. Avg.Review Rate $21,363.06$ % ,804$689,264.38$ % ,336$1,317,245.85$ % ,037$812,216.45$ % Totals:8,339$2,840,089.74$ % FISCAL YEAR PUCHASE ORDER HISTORY / EFFICIENCY SAVINGS Year# of POs IssuedDifferenceAdministrative Cost Savings: $71 per PO Reduced ,311N/A , (1,072)$76, (12)$ Totals:3,631(903)$76, Operational Cost Savings

18 BACKNEXT Selling the P-Card Program The Rebate Most financial institutions will provide a rebate incentive based on how much is spent using the P-Card and/or how often you remit the payment. Dont get very specific with rebate numbers because that will be decided when you choose a vendor, but let your Superintendent and Board know it will be a part of the criteria in evaluating proposals and emphasize it will provide additional revenue if targets are met.

19 BACKNEXT Selling the P-Card Program The Rebate

20 BACKNEXT Selling the P-Card Program Data Analysis on Spending Most P-Card software can provide a wide variety of standard reports to analyze spending. The ability to create customized reports is also available in most programs. Transactions are broken down into 3 levels of data transmitted to the credit card companies. The vendors point-of-sale technology depends on what level of data is transmitted.

21 BACKNEXT Selling the P-Card Program Data Analysis on Spending Level I Standard Data Level II Variable Data Level III Detailed Data XXX Date XXX Supplier Name XXX Transaction Amount XX Tax Amount XX Customer-Defined Code XX Supplier Postal Code and State X Ship From/To Postal Codes X Freight Amount X Line-Item Detail

22 BACKNEXT Selling the P-Card Program Happy Vendors Vendors that accept card payments get their money within 2-3 days and it helps increase their cash flow. Operational savings with invoicing and collection activities.

23 BACKNEXT Selling the P-Card Program Employee Satisfaction Allows schools and departments to purchase the items they need quickly to serve teachers & students. Employees feel empowered to complete their jobs more efficiently by providing flexibility in where to purchase the goods. How effectively they do their purchasing can result in huge overall savings for the school system.

24 BACKNEXT Selling the P-Card Program Reduction of Cash in the schools Replacing Petty Cash funds in schools and departments reduce the possibility of misappropriation or theft. EXAMPLE: Charlotte-Mecklenburg used to issue petty cash checks to all site coordinators in the After School program and switched to using P-Cards at these sites for purchases of supplies and materials. The program produced better controls on spending because the coordinators knew people were tracking the purchases.

25 BACKNEXT Choosing the right P-Card provider for your school system

26 BACKNEXT Choosing a P-Card Provider Once a decision is made to begin a P-Card program, the following items must be discussed to ensure the school system is getting the best all-around financial institution: 1.What credit card companies issue P-Cards? 2.What financial institutions offer P-Cards? 3.What options do I have in choosing a provider? 4.What criteria do I use to get the best provider? 5.What features do I want in the program?

27 BACKNEXT Choosing a P-Card Provider What credit card companies issue P-Cards? There are 3 basic credit card companies that issue P-Cards to financial institutions: VISA MasterCard American Express

28 BACKNEXT Choosing a P-Card Provider What financial institutions offer P-Cards? Many major financial institutions offer P-Cards as a product of their credit/corporate card programs. Some examples are as follows: Bank of America (State Contract Vendor) American Express Wells Fargo BB & T SunTrust (Caswell Countys Vendor) JP Morgan Chase Commerce Bank HSBC US Bank

29 BACKNEXT Choosing a P-Card Provider What options do I have in choosing a provider? P-Card programs are services being provided by a financial institution so therefore you have a wide range of options listed below: Choose the State Contract vendor Prepare a Request for Qualifications Issue a formal Request for Proposal Compare and choose (not recommended) Whatever route is chosen please make sure you have a good idea on how much annual spending will be.

30 BACKNEXT Choosing a P-Card Provider What criteria do I use to get the best provider? Establishing criteria for provider selection is crucial to how you view the program operating in the most efficient manner. I like to break down the criteria in 3 different areas: 1.Critical Assessment Factors 2.Other Assessment Factors 3.Rebate Details

31 BACKNEXT Choosing a P-Card Provider What criteria do I use to get the best provider? Critical Assessment Factors 1.Control & Data Capture 2.Financial Offers & Incentives 3.General Ledger Interface Capabilities 4.Strength of the Relationship (Customer Service) 5.Ability to provide all the required services 6.Ability to provide requested optional services

32 BACKNEXT Choosing a P-Card Provider

33 BACKNEXT Choosing a P-Card Provider What criteria do I use to get the best provider? Other Assessment Factors 1.Ability to put your logo on the P-Card 2.Disaster Recovery Plan 3.Card Management process 4.Payment Terms 5.Length of transaction details availability 6.Fraud prevention measures (data-mining software)

34 BACKNEXT Choosing a P-Card Provider What criteria do I use to get the best provider? Rebate Details 1.Minimum card spend to earn a rebate 2.Rebates can be tied to how often provider is paid 3.Spending thresholds 4.Changes in rebate terms 5.State contract issues

35 BACKNEXT Choosing a P-Card Provider

36 BACKNEXT Establishing Internal Controls

37 BACKNEXT Establishing Internal Controls Internal Controls must be established in order allow a P-Card program to function as a successful, long-term purchasing solution. Effective internal controls will make card users accountable and responsible while reducing the opportunity for collusion and fraud.

38 BACKNEXT Establishing Internal Controls Internal Control needing to be addressed 1.Structure of approval roles 2.Blocks and Restrictions 3.Calendar of Events 4.Penalties for Non-compliance 5.Audits and Reviews 6.Support Documents

39 BACKNEXT Establishing Internal Controls Structure of Approval Roles P-Card programs must have a system of checks and balances where multiple levels are approving transactions to prevent misuse or fraud. The roles in a P-Card program should be clearly defined in both policy and the day-to-day operations. CCS has 4 levels of approvals per transaction: P-Card Coordinator – Admin Asst., School Treasurer Cardholder Manager – Principal, Department Director P-Card Manager/Administrator – Purchasing Dept. Accounting Administrator – Finance Officer

40 BACKNEXT Establishing Internal Controls Structure of Approval Roles

41 BACKNEXT Establishing Internal Controls Blocks and Restrictions Allowing P-Cards to be used at certain merchants or only purchasing specified items must be a part of the internal controls. Most card providers have multiple ways you can institute blocks on P-Cards. School systems should also define what purchases would and would not be allowed on P-Cards.

42 BACKNEXT Establishing Internal Controls Blocks and Restrictions Most commonly used blocks from card providers 1.Merchant Commodity Codes (MCC) This is a 4 digit number that defines the type of merchant and the school system would define which are valid for use. 2.Credit Limits / Spending Limits Most card providers can allow multiple dollar limits on card use such as monthly or transaction limits.

43 BACKNEXT Establishing Internal Controls Blocks and Restrictions

44 BACKNEXT Establishing Internal Controls Blocks and Restrictions

45 BACKNEXT Establishing Internal Controls Blocks and Restrictions Most commonly used restrictions 1.Who is allowed to use a card 2.Budget Code restrictions 3.Different MCCs for specific departments or individuals 4.Equipment or items being purchased via State Contract 5.Items for personal use

46 BACKNEXT Establishing Internal Controls Blocks and Restrictions

47 BACKNEXT Establishing Internal Controls Blocks and Restrictions

48 BACKNEXT Establishing Internal Controls Calendar of Events Creating a calendar of events is a good internal control feature because users know that certain program expectations have to be met and that non-compliance could result in P- Card program penalties. CCS combines our P-Card calendar with our Accounts Payable calendar since both are related in getting the bills paid.

49 BACKNEXT Establishing Internal Controls Calendar of Events

50 BACKNEXT Establishing Internal Controls Penalties for Non-compliance Accountability and Responsibility are two critical factors in effective internal controls for your P-Cards. P-Card programs must have enforceable penalties so card users understand that having a P-Card is a privilege and not a right. CCS uses a P-Card Violation Form each time a P-Card is not used within the program rules.

51 BACKNEXT Establishing Internal Controls Penalties for Non-compliance CCS Types of P-Card Violations: Failure to Review or provide documentation on time Lack of documentation Splitting transactions to circumvent card limits or bidding requirements Inappropriate purchase Personal purchase

52 BACKNEXT Establishing Internal Controls Penalties for Non-compliance

53 BACKNEXT Establishing Internal Controls Penalties for Non-compliance CCS Standard Suspension Process: 30 Days at 3 rd violation of the current fiscal year 60 Days at 4 th violation of the current fiscal year Indefinitely at 5 th violation of the current fiscal year –Cardholder Manager may apply for reinstatement of privileges in writing to the P-Card Manager after 75 days.

54 BACKNEXT Establishing Internal Controls Audits & Reviews Periodic audits and reviews of P-Card transactions also adds to the internal controls by providing a second look of suspected transactions beyond the approval process and helps when there could be a possibility of collusion to commit fraud. CCS uses reports and data in our card providers program to help determine if any transactions need more detailed reviews.

55 BACKNEXT Establishing Internal Controls Audits & Reviews Items to look for in Audits & Reviews 1.Proper documentation of the transaction 2.Any unusual items on the receipt 3.Maintaining their transactions on some type of ledger to track card balances 4.Are approvals being done on a regular basis 5.Login frequency to the card providers program 6.P-Card location is known at all times

56 BACKNEXT Establishing Internal Controls Support Documents Having documents throughout the P-Card program are good internal controls to support the activity from start to finish. Documents should be established in every area of the program so each card user understands their responsibility in the success of the whole program. Support Documents also provide information to outside entities that the program does have processes in place to protect the taxpayers interest.

57 BACKNEXT Establishing Internal Controls Support Documents Examples of Support Documents used by CCS 1.Cardholder Agreement 2.Online Training Completion 3.P-Card Tracking Log 4.Food Pre-approval 5.P-Card Ledger 6.Missing Documentation 7.Encumbrance Request

58 BACKNEXT Training & Training Materials

59 BACKNEXT Training & Training Materials If you expect the P-Card program to succeed, then the training and training materials you provide to the employees will be the determining factor. Training must be looked at as an ongoing process and must be updated periodically as the program grows and becomes more efficient. Training materials must be readily available and serve as a knowledge base to employees.

60 BACKNEXT Training & Training Materials Caswell tries to provide some type of training class every quarter and most of the time is spent going over problems we see in the program. While in Charlotte-Mecklenburg, I held training sessions once a month and it open to any card user to come and get problems solved and to create a bond of success. It is incumbent that card users are provided a positive atmosphere of success. They must believe that you will not let them fail if they do their part.

61 BACKNEXT Training & Training Materials Examples of Training Materials used by CCS 1.P-Card Website 2.Online Training 3.Tutorials 4.Newsletters 5.Card Providers Help inside their program

62 BACKNEXT Training & Training Materials

63 BACKNEXT Training & Training Materials

64 BACKNEXT Training & Training Materials

65 BACKNEXT Training & Training Materials

66 BACKNEXT Training & Training Materials

67 BACKNEXT Training & Training Materials

68 BACKNEXT Analyzing Data

69 BACKNEXT Analyzing Data Analyzing the data received after you begin your P-Card program is critical to how you want to grow your program and become more efficient and maximizing the rebate potential. Your P-Card provider should have a wide variety of reports that can be run to analyze data. Develop your own documents that focus on what you really want to achieve and can provide simple information to your Superintendent and Board.

70 BACKNEXT Analyzing Data

71 BACKNEXT Analyzing Data

72 BACKNEXT Preventing Fraud & Misuse

73 BACKNEXT Preventing Fraud & Misuse Make no mistake, there is no 100% way to prevent fraud or misuse in your P-Card program. A combination of all the items we have discussed today go a long way in preventing fraud and misuse or helping in discovering it early. If card users know all the processes in place to prevent it, then it is unlikely to be an employee. Take the time to train your card users in identity theft so they can be aware of their surroundings when using the P-Card.

74 BACKNEXT Preventing Fraud & Misuse Examples of items used by CCS 1.Requirement of Training before issuing a P- Card to an employee 2.Cardholder Agreement 3.P-Card Log 4.Card Sleeves 5.Confidentiality in reporting 6.Daily logins to SunTrust 7.Reviews of declined transactions

75 BACKNEXT Preventing Fraud & Misuse

76 BACKNEXT Preventing Fraud & Misuse

77 BACKNEXT Preventing Fraud & Misuse Not What You Want!!!

78 BACKNEXT Preventing Fraud & Misuse

79 BACKNEXT Good Resource for more information: National Association of Purchasing Card Providers (NAPCP)

80 BACKNEXT Questions and Discussion


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