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Purchase Card Basics and Beyond Presented By: Jeff Carter, The Iridium Group Stephen Stire, The Iridium Group 02/24/2007 2010 Annual Conference of the.

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Presentation on theme: "Purchase Card Basics and Beyond Presented By: Jeff Carter, The Iridium Group Stephen Stire, The Iridium Group 02/24/2007 2010 Annual Conference of the."— Presentation transcript:

1 Purchase Card Basics and Beyond Presented By: Jeff Carter, The Iridium Group Stephen Stire, The Iridium Group 02/24/2007 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 Group Stephen Stire, The Iridium Group 02/24/2007 sponsored by: Changing Perspectives on Commercial Cards Presented By: Jeff Carter, The Iridium Group Stephen Stire, The Iridium Group 8/9/2010

2 sponsored by:2 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.

3 sponsored by:3 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

4 sponsored by:4 Industry Overview: Why Organizations Use P-Cards? Typically 60% of an organizations 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

5 sponsored by:5 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

6 sponsored by:6 Industry Overview: Transaction Size vs. Payment Type Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010

7 sponsored by: Industry Overview: Growth in Purchasing Card Spending 7 Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010

8 sponsored by: 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 8 Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010

9 sponsored by:9 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)

10 sponsored by:10 Industry Overview: The Participants & Their Roles

11 sponsored by:11 Industry Overview: How a Transaction is Authorized

12 sponsored by:12 Industry Overview: Data Levels Data is organized into three levels: Level I – Financial data Level II – Extended financial data Level III – Enhanced data

13 sponsored by:13 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

14 sponsored by:14 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

15 sponsored by:15 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

16 sponsored by:16 Strategies for Success Internal controls Reconciliation Data Mining Metrics Audits Training and communication

17 sponsored by:17 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

18 sponsored by:18 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

19 sponsored by:19 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

20 sponsored by: Fraud, Abuse, & Misuse: Government and Non-Profit Metrics 20 Source: Purchasing Card Benchmark Survey Report, R. Palmer and M. Gupta, RPMG Research, 2010

21 sponsored by:21 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

22 sponsored by:22 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

23 sponsored by:23 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

24 sponsored by:24 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

25 sponsored by:25 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

26 sponsored by:26 Training: Educating the Organization Make training a priority Educate at various levels in your organization Develop training materials and distribution strategy Create behavioral change

27 sponsored by:27 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

28 sponsored by:28 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

29 sponsored by: 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 29

30 sponsored by:30 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?


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