# Presentation: 040086

## Purchase Card Best Practices

**Dena R. Gross and Barbara A. Johnson**

## Agenda

- GSA SmartPay® purchase card program facts and statistics
- Liability
- Restricted uses
- Best practices and solutions to managing your purchase card program
- Fraud: indicators & preventative measures

**Notes:**
Now, let start with a brief overview of Agenda and the topics that will be discussed today in regards to the Purchase Card Program.

## What Is GSA SmartPay®?

- 	It’s the federal government’s charge card program. This program provides a means of payment for commercial goods, services, travel and travel related expenses, and vehicle fleet expenses.

**Notes:**

Now, let’s start out with a brief overview of the Purchase Card Program.

Who out there can tell me What is GSA SmartPay®?  It’s a Federal Government’s charge card program.  This program provides Federal Government to pay for commercial goods and services, travel and travel related expenses, and vehicle fleet expenses.

These contracts, collectively referred to as the “Master Contract,” are administered by GSA.  Your agency/organization cards and related services through task order(s) with the bank agency selected.

All charge cards are supported by either Visa or MasterCard.  Nay merchant who accepts Visa or MasterCard also accepts the SmartPay® purchase charge card.

## Benefits of Purchase Card Use

- Streamlines procurement/payment processes
- Enables accelerated mission performance
- Eliminates imprest funds/cash
- Worldwide acceptance of Visa/MasterCard
- Improves accountability and audit ability
- Administrative savings

## Liability

- Centrally Billed Accounts (CBA)
- Liability rests with the Government
- All purchase and fleet cards are CBA
- Travel cards are CBA or IBA
- Individually Billed Accounts (IBA)
- Liability rests with the traveler
- Card issued to employee at agency’s request
- Employee reimbursed by agency for allowable expenses
- Employee receives bill and makes payment to bank

**Notes:**
Centrally billed accounts – account used for airline tickets and other travel costs, Government is billed directly and makes payment to bank

## GSA SmartPay® Program

- Provides Purchase, Travel, and Fleet charge cards to over 350 government agencies and organizations
- 5 Bank Contractors:  Bank of America, Bank One, Citibank, Mellon Bank, and US Bank
- Contract Period of Performance:  5 year base period with 5 one-year options (1998 through 2008)
- Each agency negotiates separate task orders tailored to their needs or pools with other agencies

## Why Does the Government Have a Charge Card Program?

**Notes:**
Why does the Government have a charge card program?

Administrative Savings – The U.S. Government saves approximately $1.3 billion per year through administrative savings.

Refunds – The GSA SmartPay® Purchase Charge Cards provided agency with an estimated in FY03 of $105 million 

Electronic Access to Data – The The GSA SmartPay® Contractors’ Electronic Access Systems (EAS) provides accurate, comprehensive transaction detail with a few clicks of a mouse.

Safety – The charge cards eliminate the need for agency imprest funds or cash.

Worldwide Acceptance – The GSA SmartPay® Purchase Charge Cards provide greater access to merchants acceptance worldwide.

Worldwide Acceptance

## Slide 8

**Notes:**
Now, we will go over some of the statistic of the program which proves how viable the  charge card program to the government.

In FY03, there was a total of $16.3 billion spent with the cards.  So what does this mean?  That the purchase card has proven to be a viable tool for Federal workers to complete their agencies mission, as well as promote significant administrative savings to the government through the use of the GSA SmartPay purchase card!  

## Slide 9

**Notes:**
Currently, there are about 326,850 cards in circulation across the globe.  We applaud all governmental agencies who made an earnest effort for card reduction as mandated by OMB. Additionally, the number of transactions made with the purchase card in FY03 is 26.5 million.  Wow,  our Federal Employees have been been really busy.  

## FY03 Purchase Card Overview

- Cards in circulation:  326,850
- Total expenditures:  $16.3 Billion
- Total transactions:  26.5 Million
- Average transaction size:  $618
- Average transactions per cardholder:  6.5 /month
- Average spend per cardholder:  $4,050 monthly

## Slide 11

**Notes:**
The GSA SmartPay® Purchase Charge cards provided agency with an estimated $105 million in agency refunds.  The use of the GSA SmartPay® Charge card provides incentives for agency to gain refunds, as well as assist the Federal Government with administrative savings of about $1.3 billion per year.

## What Is the GSA SmartPay® Charge Card Used for?

- The purchase charge card is used to purchase supplies and services in accordance with the Federal Acquisition Regulations. The purchase charge card is the preferred procurement and payment tool for micro-purchase, as prescribed in FAR 13.301.

**Notes:**
As prescribed in FAR 13.301. It is used an an acquisition of supplies or services in which the aggregate amount does not exceed $2,500, except for construction where the limit is $2,000.  The Purchase Charge Card may be used as an ordering any payment contracting mechanism, for purchase s above the micro-purchase threshold.  When used as an ordering and payment to contractors may bill against the Purchase Charge Card.  When the order is shipped, the contractor bills the Purchase account instead of issuing an invoice directly to the agency/organization.

## Restricted Use 

- 	The master contract says the purchase charge card shall NOT be used for:
- Long-term rental or lease of land or building
- Travel or travel related expenses
- Cash advances

**Notes:**
Now, that we know what the card is used for. Let’s look at the restricted uses of the card 

The master contract states that the purchase charge card shall NOT be used for:
  long-term rental or lease of land or building
  travel or travel related expenses 
  cash advances
Agencies may further restrict use through policy or MCC blocks

## Authority

- Delegation of micro-purchase authority to cardholders under FAR 1.603-3
- FAR 13.2 says micro-purchases shall be distributed equally among qualified contractors and may be awarded without soliciting competitive quotations if the price is considered reasonable
- FAR Part 8 applies to micro purchases

**Notes:**
Now, let’s down serious business.  What gives the purchase card the authority to operate is under the FAR?

The FAR is the Federal Acquisition Regulations...
under FAR 1.603-3 there is a  Delegation of micro-purchase authority to cardholders 
FAR 13.2 says micro-purchases shall be distributed equally among qualified contractors and may be awarded without soliciting competitive quotations if the price is considered reasonable.  
FAR Part 8 applies to micro purchases

## Solutions to the Challenges Facing the Purchase Card Program

- Basic procedures for establishing a government purchase card program.
- Defining agency policy
- Training of cardholder on proper card usage
- Management oversight and surveillance

**Notes:**
One of the challenges you face as an A/OPC is the improper use of the purchase card by cardholders.  

For example,  the was a recent report in the Washington Post regarding a employee charging $444,000 on his government issued credit card for personal usage.

Some of the solutions that could prevent this from happening within your program would be:

Defining Agency Policy
Training of Cardholder on proper usage of the card 
Management oversight and surveillance

** **

**Notes:**
Additionally, the Federal Acquisition Regulation (FAR), which prescribes government wide policies and procedures for acquisition by all executive agencies, provides that agencies are to establish procedures for use and control of the card that comply with the Treasury Financial Manual.  Let’s look at some basic procedures of a government Purchase Card Program in Figure 1: as outline in the Treasury Financial Management Manual

1st Step  -- Organizations delegate authority, establish spending limits, and issue purchase cards.

2nd Step – Cardholders make purchases and reconcile their statements

3rd Step – Approving officials review cardholders’ statements and authorize purchases.

4th Step – Billing officials receive and ensure payment of the official invoices(s).

## Things to Be Included in Agency Policies

- Management oversight
- Setting of account limits
- Statement review
- Approving Official (A/O) span of control
- A/OPC review

**Notes:**
When establishing your agency Policies listed here are some things that should be included in the development of your internal procedures and internal controls. 
Management Oversight:  Things included in mgmt oversight should be include criteria for establishing purchase card accounts?  Necessity at any size program
Best practices:
Strong commitment and leadership by senior management
Commit the necessary resources
Make training mandatory
Right-size the program
Setting of Account Limits:  Monthly limits should correspond to funding
Single purchase limit should not exceed contracting authority
Limits should correspond to requirements of the office and historic spending patterns
Statement Review: Cardholder and reviewing officials are required to review each transaction on each statement
Cardholders must maintain adequate documentation of transactions
Agency/Organization Program Coordinators should perform random audits of statements 
A/OPC review:  Segregate questionable transactions
Look for patterns of suspicious behavior
Look at transactions above limits or outside MCCs (overrides)
Look at declined transactions
Approving Official (A/O) span of control: Recommended range: One Approving Official for 5 – 10 cardholders 
Consider volume/timeliness
Familiar with operations
Able to act independently
A/OPC Review: A/OPC Actions on questionable transactions: Follow-up with cardholder or approving official on questionable transactions
Request documentation such as sales slip or order
Verify receipt of products/services

## Who Should Have Cards?

**Notes:**
The Department of Treasury’s manual further states that, with some exceptions, small purchases of up to $25,000 should be made using the government purchase card, and establishing key control activities, personnel, and their roles, including the following:

Agencies should establish criteria regarding Who should have cards.  

The should consider: 
Employees who have demonstrated responsible decision-making 
Employees who need to procure products and services on an ongoing basis
Employees who have completed training 

There is no right number of cardholders for your agency.  In certain circumstances, a large number of cardholders may be required to accomplish the mission of the agency.  The risk of issuing more cards must be weighed against the need for more cardholders.  A regular review of account activity will identify accounts with little or no activity.  

A/OPCs are encouraged to review the number of cardholders as part of the Annual Review Process.  Cards with little or no activity should be considered for cancellation.

Therefore, Who should have cards?:

## Training Cardholders

- Is training required prior to card issuance?
- Are copies of training certificates kept on file in a centralized locations?
- How often is refresher training provided?
- Are learning objectives properly defined and tested?

**Notes:**
As an A/OPC one of the most proactive measure that should be taken to ensure that there are some solutions in place in the case of some challenges is to train your cardholders.

If not, then you should ensure that training required prior to card issuance
If not, then you should ensure that copies of training certificates kept on file in a centralized locations?
IF not done annually, you should implement a training program on an annual basis.

As an A/OPC, you should ensure that the learning objectives within your training program are properly defined and tested.

## Training Objectives

- Standards of conduct/ ethics
- State consequences of misuse
- Address applicable procurement laws
- Agency policies and procedures
- Bank procedures

**Notes:**
Your training objectives should include standards of conduct and ethics clearly to state the consequences for misuse of cards, as well as address the relevant Procurement Laws, Agency Policies, and Bank Procedures.

## Training Tools

- GSA SmartPay ® on-line -(Blueprint for Success)
- GSA SmartPay® contractors
- Agency training programs

**Notes:**
Some of the Training Tools that you should be offering your cardholders are as follows:

GSA SmartPay ® on-line -(Blueprint for Success)
GSA SmartPay® Contractors
Agency training programs   

## Management and Oversight 		Best Practices

- Account management
- Setting account limits
- Approving Official (A/O) span of control
- A/OPC reviews/actions
- Merchant Category Code blocks
- Deactivation of cards
- Statement reviews

**Notes:**
Management and Oversight Best Practices – Should include a close look at the following:
Account Management
What are your criteria for establishing purchase card accounts? 
How are reasonable monthly account limits determined ?
Are merchant category codes not needed for purchases blocked from usage?
Do account limits correspond to requirements of the office and historic spending patterns?
Setting Account Limits: An A/OPC may set limits which best meet the agency’s needs.  However:
 Monthly limits should correspond to funding
Single purchase limit should not exceed contracting authority
A/O’s Span of Control: Best Practices have proven that The Approving Officials span of Control is  should not to exceed 5-10 cardholders. The number of cardholders and the volume of transactions an AO has should be reasonable so that the official may conduct reviews in a timely manner.
and able to act The A/O should be familiar with operations independently
A/OPC Review Segregate questionable transaction, Look for patterns of suspicious behavior, Identify high risk users or operations, Look at transactions above limits or outside MCCs (overrides),Look at declined transactions,Verify account status of those who have separated from the gency
Verify training requirements have been met,Reactivate based upon mission need.  Deactivation of card may serve as a deterrent to fraud
A/OPC Actions should include:
Follow-up with cardholder or approving official on questionable transactions, Request documentation such as sales slip or order, Verify receipt of products/services,Escalate 
Statement Review
Cardholder and reviewing officials are required to review each transaction on each statement
Cardholders must maintain adequate documentation of transactions, A/OPCs should perform random audits of statements.

## What Is Cardholder and Non-Cardholder Fraud?

## Misuse of the Purchase Card

- Improper purchases
- Abusive purchases

**Notes:**
Improper purchases: Government purchase card transactions that are intended for government use, but are not permitted by law or regulation.  Examples include- purchases to circumvent micropurchase limits and purchases from other than statutorily designated sources such as JWOD.
Abusive purchases: Purchases of authorized goods at excessive terms.
Examples include $300 dollar day planners and $350 bedside radios.

## Fraud

- Cardholder fraud
- Unauthorized use of the purchase card for personal use or gain
- Non-cardholder fraud
- Use of the purchase card or data by an unauthorized person

**Notes:**
Fraud against the United States Government is explained in more detail in title 10 of the U.S. Code section 932.  
It is important to remember that all parts of a successful Agency Purchase Card Program: the Agency Organization Program Coordinator
(A/OPC), Approving Official and cardholder have a duty to maintain vigilant oversight and report all suspected instances of fraud to the appropriate authorities.
Examples of Non-cardholder fraud are:
(1) A card which was never received
(2) Lost card
(3) Stolen card
(4) Altered or counterfeit card
(5) Account takeover

## Indicators of the Potential for Fraud in a Purchase Card Program

- Weak management
- Weak internal controls
- History of impropriety
- Failure to follow legal or technical advice
- Unethical leadership
- Missing or altered documents
- Promise of gain with little likelihood of being caught
- Unexplained decisions and/or transactions

## Indicators of  Cardholder Misuse or Fraud 

- Purchases
- Which exceed cardholder limits
- Without funding
- For personal consumption
- Made by people other than the cardholder
- Which do not meet the government’s requirements
- Which are not authorized by the agency

**Notes:**
It is important to understand that these are indicators only and such must be investigated further with the cardholder or other individuals.

## More Indicators of Cardholder Misuse or Fraud

- Blocked MCC transactions
- Unsuitable merchant name
- Multiple transactions at the same merchant
- Account closed multiple times
- Multiple disputes

- Repeated declines
- Weekend activity
- No receipts or proof of purchases
- Even dollar amounts
- Split transactions
- Outside MCC range
- Excessive disputes

**Notes:**
To better understand the risk of fraud within your organization’s purchase card program you should identify and study known cases of fraud. 
It is important to remember that a strong system of controls should protect the government against significant loss from fraudulent, improper or abusive purchases.

## What to Do If You Suspect Misuse or Fraud?

- As an A/OPC, if you suspect fraud or misuse your next steps should be:
- Contact cardholder to verify transaction
- Document your findings
- Report to the:
- Approving official
- Finance officer
- IG or Office of Special Investigations

**Notes:**
In addition if fraud is suspected the A/OPC should contact his or her agency’s bank and local procurement fraud advisor.
Remember to gather sufficient information so that case can be investigated properly. 

## Remedial Actions

- Counseling
- Disciplinary action
- Notation in performance evaluation
- Reprimand
- Suspension or cancellation of account
- Suspension or termination of employment
- Criminal prosecution

**Notes:**
Constructive Counseling might be appropriate for cardholders or approving officials in response to isolated instances of lack of adherence to internal control policies, procedures and activities.
Disciplinary actions should be taken in response to recurring and/or persistent lack of adherence to internal controls, and specific consequences for improper and abusive purchases should be adopted by the organization as part of a system of internal control.  Such consequences can vary with the severity and persistence of the policy violation and might include the following steps:
Notation in Performance evaluation
- Reprimand
- Suspension or cancellation of account
 - Suspension or Termination of employment
In addition under Title 18 of the U.S. Code section 287 misuse of the purchase card could result in a fine of not more than $10,000 or imprisonment for not more than 5 years or both.
Don’t forget that:
Cardholders will be personally liable to the Government for the amount of any other than official transaction.

## Fraud and Misuse Preventative Measures 

- Agency policy
- Credit limits
- Span of control
- Merchant Category Codes (MCC)
- Audits and investigations
- Deactivation
- Automated transaction review

**Notes:**
Agency Policy – From the top down determines the degree of risk the organization is willing to take in operations and programs.  The attitude and philosophy of management toward establishing the necessary procedures can have a profound effect on an agency’s internal control.
Credit limits – Single purchase and monthly credit limits should be established based on the expected monthly purchases of the cardholder.
Span of Control- An effective Span of Control is a ratio of 7 cardholders for every Approving official.
MCC codes of course can be another effective prevention tool by providing my control over a cardholder’s activities by limiting the type of businesses where the card will be accepted.
Audits provide a key mechanism for reviewing an agency’s internal or external operation.  Coordinating an audit with the Bank Service provider might enhance a review of the agency’s program by providing information on the authorization, issuance and credit limit policy.
Investigations are an effective tool at identifying specific problem areas  or individuals.  GAO has issued a Guidelines for initiating an investigation of purchase card fraud.
Deactivation could be used when; a cardholder uses the card periodically, a cardholder is on extended leave and when you suspect misuse or fraudulent activity.

## Fraud and Misuse Reporting Tools: Electronic Access Systems 

- There are 4 categories of reports:
- General account information
- Transactions, payments, and disputes
- Account delinquency
- Statistical or summary

**Notes:**
Conducting interviews with your Bank’s liaison may provide the necessary understanding of the various reports produced and effective utilization techniques.  

## Reports Specific to the Purchase Card Program

- Account activity report
- Statistical summary report
- Summary quarterly purchase report

**Notes:**
Some of the essential program resources which are available to you to effectively manage your purchase card program are these three reports:

Account Activity Report:  This is an essential report which provides summary totals for the reporting period (year to date – fiscal year) by card and agency.

Statistical Summary Report: This report provides all the necessary program statistical data in an easily manipulable form.

Summary Quarterly Purchase Report:  This report is generally used by the agency to summarize where the agency’s dollars are spent and what trends maybe present.  

## Additional Essential Reports

- Official invoice
- Invoice status report
- Transaction dispute report
- Renewal report
- Detailed electronic transaction file

**Notes:**
Some additional reports that should be used are:

Your official invoice and invoice status report are good tools for tracking payment status and provide all the necessary information to identify charges.

The transaction dispute report includes all the information necessary to track, balance and obtain status on the dispute from the original charge through resolution.
The renewal report is used to track card expiration.  It is also a good practice at this time to re-evaluate the need for the card and if the spending limit is still appropriate.
The detailed transaction files lists each cardholder’s detailed transactions for the reporting period and contains all the transaction data. 

## The Right Tools Recap

- Benefits of the card
- Statistics
- Authority: foundation of purchase card use
- Policy
- Training tools
- Management oversight
- Fraud: indicators & preventative measures

## Best Practices

- Track cardholder and A/O training
- Ensure proper authorization prior to purchase card issuance
- Schedule annual cardholder reviews
- Effectively use information resources
- Document questionable transactions
- Timely report suspected misuse or fraud

##  Website References

- GSA SmartPay®
- www.gsa.gov/gsasmartpay
- Master Contract, State Tax Letters, Purchase Card A/OPC Listing, Contractor Points of Contact, and Purchase Card Oversight (Blueprint for success)
- www.gsa.gov/aopcpurchasetraining
- Online training for A/OPCs
- www.gsa.gov/sppurchasetraining
- Online training for cardholders

**Notes:**
As I’ve mentioned throughout this presentation, here are some of the websites that may be beneficial to you.  The GSA SmartPay website is a great place to find master contract information, the state tax letters, GSA points of contact etc.

The ethics resource library contains all the OEG regulations on gift acceptance and regulations.

The Prompt Pay website provides information on payment within the prompt payment timeframes

The Federal Acquisition Regulations website is an online version of the regulations for procurement.

##  Website References

- Ethics resource library
- www.usoge.gov/home.html
- FAR
- www.arnet.gov/far

**Notes:**
As I’ve mentioned throughout this presentation, here are some of the websites that may be beneficial to you.  The GSA SmartPay website is a great place to find master contract information, the state tax letters, GSA points of contact etc.

The ethics resource library contains all the OEG regulations on gift acceptance and regulations.

The Prompt Pay website provides information on payment within the prompt payment timeframes

The Federal Acquisition Regulations website is an online version of the regulations for procurement.

## Questions ? 

- ?

**Notes:**
If you like this presentation, you can visit our online purchase cardholder training at www.gsa.gov/sppurchasetraining 

Are there any questions?  

## GSA SmartPay® Thanks You!

- Dena Gross
- Contract Specialist/Account Manager
- Barbara A. Johnson
- Contract Specialist/Account Manager
- Thank you for the opportunity!

**Notes:**
Now, here’s my information if you need to get in touch with me.
Any questions?
Please remember to fill out your evaluations and turn them in.  Thanks for coming today.