Purchasing Card Policies in Action
By: Matthew D. Trine with contributions from Sarah Buccigross, Norman Eckstein, Chas Fadrigo, Mark Krawczyk, and Brad Wilson
“Purchasing card programs provide an efficient, cost-effective method of purchasing and paying for small-dollar and high-volume purchases,” according to GFOA best practice, Using Purchasing Cards to Streamline the Purchasing Process. The main goals of such a program are to improve the ability of authorized users to efficiently and effectively purchase small tangible goods, office supplies, and services, which are usually routine in nature. Purchasing card programs act as a replacement for small checks and petty cash transactions. Furthermore, they facilitate transactions with local merchants, where traditional invoices are generally not available. Essentially, when properly implemented, they reduce the costs and time barriers associated with larger transactions. However, this same guidance includes some warnings. Challenges in program implementation include compliance, reporting, reconciliation timing, and “front page” risk, among others.
This last risk has become apparent in the county within which my local government jurisdiction resides, and within or surrounding areas of the small governments represented on the SGF Newsletter Subcommittee. Unfortunately, transactions of very small amounts can become large issues when examined publicly through the lens of time. Most purchases that would rise to the level of public interest are, by design, heavily documented through internal controls requiring advanced purchase orders, subsequent invoice submittals, and checks written to authorized vendors. All of these steps have a series of procedures with separation of duties and undergo an external audit more readily due to their propensity to generate material transactions. As time moves away from a purchase card transaction, the context of the transaction, the parties involved, as well as the disposition of the purchased good or service can be lost, forgotten, or misconstrued. This provides an opportunity for the compliance of purchases to be misconstrued or to lose the context of necessity.
The problem proposed is, how does a small government utilize a purchasing card program to take advantage of implicit benefits, while avoiding the pitfalls of real and perceived detection and documentation controls?
GFOA best practices indicate aligning the purchasing card policy as a component within the entire purchasing policy, and in compliance with state and local law. At a minimum, the program should:
- Define the scope of allowable purchases
- Address fraud prevention
- Require and define training for users (with a documented manual)
- Have a card provider selection process
Many of the members of the newsletter subcommittee have graciously provided their policies in support of this article. These policies contain many practical components, which go further than best practices in this area. Most important is the documentation of the purpose of the purchase, and the disposition of the items or goods purchased, as most concerns in public forums after the fact address these issues. These details, combined with a concurrent or periodic review at the appropriate level of supervision, can enhance and preserve the trust of the public, the auditors, and those charged with governance. In reviewing these policies, other suggested policy provisions include:
- Require each user to sign an agreement outlining purchase limitations, repercussions, reconciliation responsibility, processing instructions, and audit provisions
- Link or include your purchasing card policy in the purchase program
- Define appropriate travel use and limits
- Include training and prepare user guidelines
- Define consequences of non-compliance
- Define the process and deadlines of statement remuneration
- Define purchase limits and the periods covered
- Define prohibited transactions and uses
- Define emergency uses and limitations
- Require the details of each transaction for future reference
- Define the approval / review / ratification process
- For card issuer selection:
Define the control process for establishing and limiting accounts
Require the ability to implement category restrictions on purchases
Establish individual card and cumulative limits
Require the ability to generate meaningful reports
- Keep the appropriate leadership informed
Hold all users to the same responsibility
Require annual or as appropriate review of the policies and procedures
- Ensure those charged with governance understand the program and review the policy
View GFOA best practices and sample policies on purchasing cards here.