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

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. 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. 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

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

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

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

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. Industry Overview: The Participants & Their Roles

11. Industry Overview: How a Transaction is Authorized

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. 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. 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. 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. Strategies for Success
Internal controls
Reconciliation
Data Mining
Metrics
Audits
Training and communication

17. Internal Controls Before the purchase: After 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. 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
Receipt of all items purchased
Approving officer review of transactions:
Suspicious vendors
Trends in credits
Electronic review of transactions against program criteria

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

21. Fraud, Abuse, & Misuse: Prevention & Detection
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

22. Metrics: Program Management
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

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. 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 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. 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. 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. 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. 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 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. 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. 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?’