Procurement Cards part 1 – is there a problem?

I’m going to start with a public sector comment, but please don’t switch off if you’re a private sector reader – this is relevant to everyone, I would suggest.

It is getting to be a regular tabloid sport - let’s have a go at public sector Procurement Card spend. Doughnuts here were in the Telegraph's firing line. The latest round came with the publication of central Government GPC spend, which did show an overall drop in expenditure of £45 million on cards over the last year. (But how much of that just moved into requisition or other spend routes? We’ll never know).

I’m a supporter of Procurement Cards. But there is one strategic – and behavioural - issue which I do think we need to face as a procurement profession.

If you have a weak purchase to pay process, then Cards are a step forward, even just for ad hoc buying. Because if a budget holder can merely place an order and sign off the invoice when it arrives, then you have no control whatsoever within that process, and precious little audit trail. At least the Card gives a clear record of what was bought and from whom. We know that a number of public sector workers have been fired for misuse of the Card – at least they were identified. How many people have been fired for abuse within “traditional” procurement processes? Very few, I would surmise, because it is so difficult to detect that type of fraud.

But outside fraud,  the remaining big question is this.

“Do Procurement Cards just make it too easy to spend money – even if the money is going on purchases that can be justified”?

My colleague, Jason Busch refers to the issue (and it is not just Card related ) of spend that isn’t fraudulent but isn’t essential, as “procurement’s dirty little secret”. Although of course it isn’t really procurement’s issue, it is the entire organisation’s.

I’ve also recently heard a major P2P provider talking about how introducing a proper controlled ordering system / process can reduce spend overnight in some categories by  5-10%, purely from people not buying stuff they would have when it was less controlled. That’s not to say it was fraudulent spend – but neither is it true “demand management”, which I consider to be a controlled process for questioning all demand. This is just people deciding that, if they have to go through a formal approval process, then perhaps they just won’t bother to spend that money.

So a potential downside with Procurement Cards may be that staff may feel it is just very easy to spend, particularly if they feel it won’t be challenged up front or even after the event. Yes, you can avoid some of this by having good approval processes, but that is always going to be after the event.

If we take some of the public sector examples, might people just have thought twice if they had to go through a PO process and get authorisation in advance of spending the money?

This all applies to Cards being used for “ad hoc” type purchases.  The alternative approach is to use Cards as the payment mechanism with specific designated suppliers. (This is the approach that American Express for instance have been pushing, as they have made efforts to break into the public sector over the last couple of years). Cards can then be an effective and efficient payment option for all parties - budget holder in terms of convenience, finance and procurement functions in terms of control and data provision, and supplier in terms of rapid payment.

That’s fine, I hear you say, but we still have genuine ad hoc low value purchases. If we don’t have Cards, then surely you don’t want to have to onboard new suppliers and go through a whole req to cheque process for a one-off £10 spend? No, but there are other options – use of catalogues with simple automated ordering; or staff using their own cash or cards and claiming back on expenses (although that route is fraught with issues as well).

When it comes to Travel and Subsistence type claims, it is the same principle. It’s difficult here to get authorisation in advance – but what about if people had to use their own cards and claim expenses back after the event? Might it make them think twice about the meals and hotels they’re charging?

And if you decide that there is a role for Cards? How then can you make the programme as successful as possible – and avoid some of the pitfalls? My view is that you can make people think twice before they use the Card - but it requires a strong approach to process, policy and compliance. We’ll come back to that tomorrow.

Voices (2)

  1. George Owens:

    Scrutiny, like fraud costs money. Businesses need ever quicker, robust and effective means to execute spend because the process itself costs money. Yes, all this has to be done while yielding maximum value for money, hence the existence of eminent procurement professionals like Mr Smith.

    Not wishing to give anybody a lawyers answer re my view and experience of purchasing cards…….’it depends on….’ They are absolutely an essential and effective tool, they just need the right level of professional expertise to find the most appropriate solution for that particular business becasue the application is extremly flexible .e.g. from locking up one single high transactional volume supplier, called off from various sites 24/7, to expenses and travel needing to be reconciled by the individual monthly.

  2. Ian Makgill:

    This is an issue of scrutiny. As the recent fall in GPC spend has shown, when purchases are subjected to detailed scrutiny, then more thought goes into making a purchase.

    It doesn’t really matter whether the payment is made by a card, or whether the scrutiny occurs before or after the purchase is made, just the act of being watched enforces different behaviour.

    The lack of scrutiny on card payments does not invalidate their use, it just raises questions about the processes that weren’t in place previously.

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