Procurement Cards part 2 – making the process work

We described yesterday the danger with Procurement Cards in terms of making it just too easy for staff to spend money. So how can we make sure they’re used as an effective tool rather than leading to excessive expenditure?

We’re talking here about using the card for ad hoc purchases, often from suppliers who are probably not regular major vendors to the organisation. The other common process, where the card is being used with designated suppliers (we featured an interesting example here with American Express and Probrand) avoids many of the potential downsides of the ad hoc use. That’s not to say we’re against using cards for ad hoc purchases; done properly, it can still be a useful process for most organisations in our opinion.

There are four main areas to address.

1.            Absolutely clear policies, communicated clearly, regularly and diligently. If you’re going to fire people for buying their groceries on their Procurement Card, you need to tell them they will be fired for buying groceries. Again and again if necessary!

2.            Look carefully at how you can use the card controls that can be built into the process to help compliance. So as well as setting sensible monthly spend limits and limits per transaction, closing off certain spend categories for instance can be useful. There is a problem with this however – closing off the “groceries” category might seem sensible, until someone genuinely needs to use the card for a pile of sandwiches for that late evening emergency meeting with the CEO.

3.            Checking and authorisation of spend are ultimately at the heart of the control process. I don’t believe anyone, no matter how senior, should be able to make purchases that no-one else has sight of or approves. It will be after the event, but that checking is essential.  Here is an extract from a story in the Peterborough Evening Telegraph last week.

The Evening Telegraph  discovered last week that Mr Thomas’s spending on business class travel – which contravened county council guidelines – was able to happen because he was of a sufficiently high rank that he could approve his own spending on the council procurement cards.

This was the local Fire Chief using his card inappropriately.  OK, he’s important in the world of Lincolnshire Fire Service, but he’s not exactly Bill Gates. “Of sufficiently high rank that he could approve his own spending” – ridiculous. Everyone should have their Card expenditure authorised. Even the CEO (the Chair can do that) and the Chair (the CFO can do that).

4.            As well as the routine authorisation, there should be a regular and random auditing process. It doesn’t have to look at a huge percentage of bills, but it should be enough that people know they might be checked.  And linked to that, and we come full circle here to our first “policy” point, there must be a clear policy explaining the disciplinary actions that will be taken if people transgress.

Coming back to what we said yesterday, at least with Procurement Cards, it is fairly easy to detect fraud – far easier than with uncontrolled ordering processes. And if you follow this advice, they can be a valuable tool in the procurement armoury – and hopefully you won’t end up in the Daily Mail or the Peterborough Evening Telegraph!

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Voices (2)

  1. John Vasili:

    Peter, great article, a couple of additional controls for ad hoc spend:
    1.Compliance engine that checks catalogues and contracts and forces a route to market before a new/ad hoc vendor can be used.
    2.The ability to raise PO’s without having to set up vendors on the master.
    3.Card use with a non card accepting vendors/merchants.
    4.Level 3 card data for every transaction enabling full reconciliation.
    of course all the above and more are available from Invapay.

  2. John Vasili:

    Peter , 100% agree with your statement “I don’t believe anyone, no matter how senior, should be able to make purchases that no-one else has sight of or approves”

    John Vasili

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