Visa Procure-To-Pay Practices for the Federal Government
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Table of Contents SECTION I: SECTION II: Introduction Background 4 Executive Summary Practives Overview 5 Scope 5 Study Approach 5 Comparison of the Private Sector and Public Sector Studies 6 Practices Themes 7 Practices Categorization 8 Practices List 9 SECTION III: How to Read the Practices Document Practice Description 11 Potential Benefits 11 Implementation Action Steps 11 SECTION IV: Procure-To-Pay Practices Strategy 13 Organization 22 Technology 36 SECTION V: Procure-To-Pay Practices Sourcing 43 Order Placement 49 Payment and Settlement 52 Control and Audit 57 Reporting 65 1
Section I Introduction 2
SECTION I Introduction Since the 1980s, the Purchase Card has become an increasingly popular Procure-To-Pay tool in the Federal Government. Purchase Cards simplify the Procure-To-Pay process by putting purchasing authority and responsibility in the hands of individual cardholders. This allows flexibility and ease of use for the purchaser and quick payment cycle for the vendors. In addition, Purchase Cards reduce administrative costs by simplifying purchasing and invoice processing. Since the inception of the Purchase Card, Federal Purchase Card programs have developed a number of innovative practices for administering the card and monitoring its use. In an attempt to document these practices, Visa USA commissioned a study, summarized in this document, to analyze and compile Procure-To-Pay and Purchase Card practices within the Federal Government that were found to be effective and innovative (herein referred to as best practices ). This report documents the findings of that study in a series of best practices. Each best practice contains a detailed description, benefits of adopting the practice, potential steps for implementation, and anecdotal examples of how agencies have successfully used the practice. Several terms used in this document generically apply to a broad range of government entities. These terms include: Organization The term organization is generically defined as a government entity with a Purchase Card program. It applies equally to Departments, Agencies, Bureaus, etc. Operational Unit(s) The term operational unit is generically defined as the operational part of organizations, such as programs, business units, business lines, service lines, etc. Procurement The term procurement and its derivations are generally synonymous with acquisition and purchasing. 3
Introduction BACKGROUND The 2002 Federal Government Purchase Card Study is a follow-up to a similar study conducted in early 2002 for the private sector. Visa commissioned Deloitte & Touche and Deloitte Consulting to conduct the private sector study to identify innovative practices that large and mid-size commercial companies use to support their Procurement and Payment functions. Visa USA s 2002 Federal Government Purchase Card Study focused on similar goals as the commercial study, including: Identifying best practices for Purchase Card programs at target organizations in areas such as program management, policies, procedures, etc. Comparing, where possible, Federal agencies Purchase Card policies and procedures against best practices identified in both the government and commercial markets, and highlighting opportunities for improvement Gathering information regarding each participating organization s Purchase Card program and presenting opportunities for improvement, including a high-level strategy and next steps for implementation Development of an assessment tool that can be used to gauge an organization s performance against best practices from peer organizations Development of a benefits calculator that can be used to measure potential benefits realized from reducing paper and electronic Purchase Orders, as well as maximizing the receipt of electronic invoices The best practices are based on findings from the Procure-To-Pay questionnaire, which was distributed to each organization, as well as in-depth, on-site interviews. Section I Introduction 4
SECTION II Executive Summary BEST PRACTICES OVERVIEW The focus of this study is to identify Procure-To-Pay best practices suggested for and/or adopted by Federal government entities. For the purposes of this study, best practices are described as proven activities that, upon successful implementation, provide significant value to an organization. All best practices may not be applicable for all agencies, as agencies have different strategic, organizational, and technological goals and constraints. As readers review this document, it is important to think realistically about how best practices can be applied to individual programs. It is also important to understand that although these findings are considered best practices, the suggestions will not be feasible for all organizations to pursue. At the very least, the stated best practices may provide guidance and thought for agencies to improve their programs. SCOPE This study encompasses the entire Procure-To-Pay function, including Procure-To-Pay and the end-to-end Procure-To-Pay, which includes Purchase Cards procedures from sourcing to back-end reporting. STUDY APPROACH The approach used for completing the study consisted of the following steps: 1. Identify and confirm participation of targeted Federal Government entities 2. Contact senior-level officials within organizations to establish necessary support 3. Develop Procure-To-Pay questionnaire and administer to participating agencies 4. Compile and analyze responses to questionnaires and prepare on-site interview guides 5. Conduct on-site interviews with appropriate Procurement and Finance resources 6. Follow up as necessary with participants to fill gaps in data 7. Compile best practices from participant findings, past commercial studies, and internal Deloitte & Touche/Deloitte Consulting research 8. Validate findings with subject matter experts, Issuer banks, and other government organizations 9. Develop organization-specific presentations assessing opportunities to implement best practices 10. Develop Performance Gauge tool utilizing best practice findings 11. Develop benefits calculator to measure savings organizations may obtain by leveraging the Purchase Card for purchases and streamlining the Procurement process 5
Executive Section Summary Header COMPARISON OF THE PRIVATE SECTOR AND PUBLIC SECTOR STUDIES In completing the best practices studies for the private and public sectors, we have identified key differences between the entities relating to Procure-To-Pay strategy, controls, sourcing, and funding. Practice Area Private Sector Public Sector Strategy Controls Sourcing Strategy for commercial entities is usually indirectly, if not directly, focused on achieving profits and financial success. Consequently, many best practices focused on achieving cost savings and profitmotivated practices. Commercial entities answer to a limited and typically less-visible group of stakeholders, e.g., stockholders, customers, and suppliers. This often results in less accountability than in government entities and a deemphasis on controls in favor of operational efficiency. Commercial entities have considerable latitude in the selection of vendors and the process for working with them, and therefore there were more opportunities for best practices in this area for commercial entities. Strategy for government entities typically focuses on serving their constituents, e.g., citizens, companies, or other government entities. As a result, best practices focus more on customer or constituent services than on financial success. While cost savings are important, they must be balanced with constituent service and accountability. Government entities are held accountable to a broad and powerful group of stakeholders, including OMB, GAO, GSA, Congress, not to mention the media and the American people. There is a strong focus on accountability and controls, resulting in several best practices specifically related to this area. Government entities have limited flexibility in dealing with vendors due to FARs, DFARs, and other procurement requirements that promote a level and open playing field. Consequently, there are fewer opportunities for best practices in this area. Funding/Budgeting Commercial entities usually have more autonomy regarding operating budgets, which can be used for new technologies, procurements, etc. in a timelier manner. Government entities usually have mandated protocols and procedures that must be followed regarding budgetary decisions. Consequently, the cycle time for implementing new programs and technologies is greater than for commercial entities. Section II Executive Summary 6
Executive Section Summary Header BEST PRACTICES THEMES The 34 Federal Government Procurement card best practices detailed on the following pages provide practical and innovative techniques for organizations to help enhance their Procure-To-Pay functions. In establishing these best practices, five themes emerged which apply across all best practices. These themes are fundamental to successful Procure-To-Pay functions and have the potential to produce tangible and significant benefits for most organizations. 1. Obtain continuous and focused Senior Executive Service (SES) level support for Procure-To-Pay initiatives Many organizations with successful Procure-To-Pay functions have obtained SES-level sponsorship for Procure-To-Pay initiatives. These sponsors, which could include a Director, Deputy Director, CFO, or other management position, typically serve as advocates for new and existing Procure-To-Pay initiatives, and provide valued support and guidance for successful operations. Recently, organizations have become more innovative in achieving SES-level support by sharing Procure-To-Pay initiative performance information and actively communicating new initiatives, goals and successes to senior-level managers throughout the organization. It is critical that support from SES-level management is achieved to increase the likelihood of receiving endorsements and resources for existing initiatives, encouraging compliance to policies, and increasing visibility and buy-in. 2. Collaborate and communicate between Procurement and Finance operational units Leading organizations have strategically realigned their positioning of Procurement and Finance functions in recent years. Increasingly, Procurement and Finance functions treat operational units as internal customers. This adaptation encourages a more collaborative relationship between the two functions, in order to better serve their common customers and achieve their respective goals. In addition, since the overall Procure-To-Pay process requires coordination between the two functions, interaction and communication is critical. Shared objectives and performance measures have led to more formalized ties between these two functions, resulting in increased compliance with policies, a more comprehensive view of controls, and a reduced overall cost structure. 3. Enhance operational capabilities of Procure-To-Pay functions through use of technology Although many organizations strive to automate the Procure-To-Pay, stand-alone technology decisions are often made rather than developing and implementing an end-to-end solution. Leading organizations have taken a more comprehensive approach to technology, focusing on the implications and benefits inherent in an end-to-end automated environment. To support information technology initiatives, leading organizations set realistic and achievable operational and financial return objectives. The benefits of automating Procure-To-Pay functions include reduced payment cycles, increased transaction controls/monitoring, and improved reconciliation procedures. Additionally, leading organizations recognize that the benefits of automation can only be achieved by incorporating process changes as part of the solution. These process changes require organizations to use change management techniques to achieve user support and provide necessary training. 7
Executive Summary 4. Continuously improve comprehensive and proactive controls that minimize occurrences of card mismanagement Organizations are increasingly implementing strategies for improving controls over their Procure-To-Pay functions. Recent scrutiny and mandates (e.g., the Office of Management and Budget (OMB) memorandum requiring the development of Procurement Card remediation plans) have further encouraged organizations to reevaluate and, in some cases, modify existing control policies. Leading organizations look at controls from a process perspective, ensuring that every sub-process has appropriate controls in place. In addition, leading organizations are publicizing their controls to discourage unacceptable practices before the fact. 5. Employ data aggregation and reporting techniques that align with organizational goals and enable continuous improvement of the Procure-To-Pay functions Leading organizations understand that data aggregation and reporting are critical to their program s success. Extensive Procure-To-Pay data often exists on disparate systems and platforms; however, this data is of little value unless it can be presented in a timely and usable manner. The sophistication of in-house systems (e.g., ERP, e-procurement, data warehouse reporting tools offered by Issuer banks) has improved over the years to allow organizations to obtain greater spend detail from disparate internal systems. Integrating data from multiple sources has provided leading organizations with a clearer understanding of their operations and an enhanced ability to improve operations and controls. BEST PRACTICES CATEGORIZATION Strategy Organization Technology Sourcing Order Placement Payment and Settlement Control and Audit Reporting The best practices herein are organized according to the illustration above. All of the best practices are categorized within either the Procure-To-Pay or Procure-To-Pay areas: : The Procure-To-Pay incorporates the agency s overarching strategic, organizational, and technological frameworks. The Procure-To-Pay should be considered the base from which the Procure-To-Pay is established. : The Procure-To-Pay incorporates the workflow associated with procurement and payment activities. Steps in the process include Sourcing, Order Placement, Payment and Settlement, Reconciliation, Control and Audit, and Reporting. Note that technology acts as an enabler for many of these processes, such as e-procurement for Sourcing and the linkage of card usage data with general ledger systems for Payment and Settlement, Control and Audit, and Reporting. Section II Executive Summary 8
Executive Summary BEST PRACTICES LIST PROCURE-TO-PAY FOUNDATION BEST PRACTICES STRATEGY BEST PRACTICE 1 BEST PRACTICE 2 BEST PRACTICE 3 BEST PRACTICE 4 BEST PRACTICE 5 Develop a Procure-To-Pay strategy and overall organizational strategy in accordance with GPRA and the President s Management Agenda Obtain ongoing senior management or Senior Executive Service (SES) level support by sharing information and encouraging involvement Conduct benchmarking to gain additional perspectives from internal operations, other governmental entities, and commercial companies Develop a collaborative relationship with Issuer bank Incorporate Purchase Cards into business continuity planning ORGANIZATION BEST PRACTICE 6 BEST PRACTICE 7 BEST PRACTICE 8 BEST PRACTICE 9 BEST PRACTICE 10 BEST PRACTICE 11 BEST PRACTICE 12 BEST PRACTICE 13 Encourage a collaborative relationship between the Procurement and Finance functions Align Purchase Card issuance and Approving Official criteria with Purchase Card program goals and organizational culture Ensure centralized management and control of critical Procure-To-Pay functions Develop organization-wide Procure-To-Pay policies and procedures that incorporate requirements of the organization, General Services Administration (GSA), Federal Acquisition Regulations (FARs), and other applicable regulations Develop an internal communication plan to convey Procure-To-Pay policies, procedures, and successes Develop a comprehensive change management discipline for the Procure-To-Pay Develop and disseminate policies and procedures specific to Purchase Cards Incorporate an agency-specific Purchase Card training program to supplement GSA training materials TECHNOLOGY BEST PRACTICE 14 BEST PRACTICE 15 BEST PRACTICE 16 Develop an overall Procure-To-Pay technology strategy Maximize automation of an end-to-end technology solution Implement and leverage an e-procurement solution 9
Executive Summary PROCURE-TO-PAY PROCESS BEST PRACTICES SOURCING BEST PRACTICE 17 Optimize number of suppliers by selecting and monitoring vendors through a formal Vendor Management program BEST PRACTICE 18 BEST PRACTICE 19 Incorporate Purchase Card acceptance into contracts, schedules, and blanket purchase agreements Utilize e-sourcing tools such as e-solicitations and e-auctions to source suppliers and gain savings ORDER PLACEMENT BEST PRACTICE 20 BEST PRACTICE 21 Strike a balance between control and efficiency when determining the number of approvals required to place an order Minimize the use of paper Purchase Orders for all Purchase Card eligible purchases PAYMENT AND SETTLEMENT BEST PRACTICE 22 BEST PRACTICE 23 BEST PRACTICE 24 Utilize Purchase Cards as a payment tool in higher spend categories Adopt process efficiencies that maximize speed of bill payments, improving the organization s ability to maximize financial incentives Monitor transactions to encourage the use of Purchase Cards for all eligible purchases CONTROL AND AUDIT BEST PRACTICE 25 BEST PRACTICE 26 BEST PRACTICE 27 BEST PRACTICE 28 BEST PRACTICE 29 BEST PRACTICE 30 Determine overall control strategy that includes GSA, OMB, GAO and organizationally-required controls Establish parameters for eligible Purchase Card transactions leveraging appropriate controls Utilize data mining and querying to detect card mismanagement Utilize Issuer bank data feeds to automate delivery of card statements and facilitate reconciliation with purchasing logs Ensure that Purchase Card accounts match with accounting codes (cost center, object class, general ledger, etc.) if using electronic statements Publicize controls and consequences of non-compliance, providing a deterrence to inappropriate use of government funds REPORTING BEST PRACTICE 31 BEST PRACTICE 32 BEST PRACTICE 33 BEST PRACTICE 34 Monitor procurement performance via a scorecard that links cost, quality, time, and user satisfaction metrics to strategic objectives Obtain a comprehensive view of spend by integrating data from multiple sources (e.g., e-procurement, travel, ERP, Purchase Cards) Leverage SIC and MCC codes for categorization of spend and purchasing data Optimize use of Issuer bank-provided reporting tools Section II Executive Summary 10
SECTION III How to Read the Practices Document BEST PRACTICE DESCRIPTION Each of the 34 best practices includes a detailed description of the practice as well as ways in which the practice may be successfully leveraged. Many of the descriptions also include anecdotal references, providing real examples of how some organizations have adopted the practices to enhance and improve their Procure-To-Pay functions. POTENTIAL BENEFITS The Potential Benefits section describes the possible benefits an organization can achieve in key areas if it successfully executes or implements the best practice. POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: Accountability Enables organization to identify achievable cost savings goals Allows monitoring of progress against goals and justification of activities and expenditures for both internal and external stakeholders IMPLEMENTATION ACTION STEPS The Implementation Action Steps describe high-level actions that can be taken to implement a best practice. ACTION STEPS: 1. Define a team of key stakeholders, including staff, senior management and business line representatives, to participate in the overall strategic planning process 2. Review overall organizational strategy, previous Procure- To-Pay strategies and yearend spend analyses to set meaningful goals 11
Section III How to Read the BP 12
SECTION IV Procure-To-Pay STRATEGY Strategy Organization Technology Sourcing Order Placement Payment and Settlement Control and Audit Reporting BEST PRACTICE 1 BEST PRACTICE 2 BEST PRACTICE 3 BEST PRACTICE 4 BEST PRACTICE 5 Develop a Procure-To-Pay strategy and overall organizational strategy in accordance with GPRA and the President s Management Agenda Obtain ongoing senior management or Senior Executive Service (SES) level support by sharing information and encouraging involvement Conduct benchmarking to gain additional perspectives from internal operations, other governmental entities, and commercial companies Develop a collaborative relationship with issuer bank Incorporate purchase cards into business continuity planning Strategy is the operational roadmap for an organization and provides a conceptual framework for all elements of organizational design, technology, and process. Strategies typically consist of a mission, vision, goals, objectives, values and tactics, and can be for long or shortterm time horizons. Strategies play a critical role in the Federal Government, including budgeting and planning, performance measurement, Government Performance Results Act (GPRA) compliance, and continuous improvement. Procure-To-Pay operations are no exception when it comes to strategic thinking. These areas can use strategies to establish objectives, plan operations, justify resource needs, and communicate with internal and external stakeholders. The best practices in this section support the Strategy of the Procure-To-Pay functions and can assist in positioning operations for long-term success. 13
Practice1 Strategy Develop Procure-To-Pay strategy and overall organizational strategy in accordance with Government Performance Results Act and the President s Management Agenda Organizations should maintain an overall strategy that defines the goals for the Procure-To- Pay. The strategy should form the overall blueprint for Procure-To-Pay operations and should be integrated into the overall organizational strategy. In addition, this strategy can directly tie to budgets and expenditures for monitoring progress toward achieving goals, and ensuring alignment with an organization s overall goals. This practice provides a framework for continuous improvement of operations while also supporting the objectives of the Government Performance Results Act (GPRA) and the President s Management Agenda. A meaningful Procure-To-Pay strategy should contain goals for a number of categories: overall spend, projected breakdown of spend by commodity, spend levels and eligible transactions through use of Purchase Card, spend by order mechanism, spend by payment type, cost savings (either through activity-based costing or full time equivalent (FTE) savings), interest paid, discounts lost, financial incentives received, and supplier sourcing goals. The strategy should also point to tactical initiatives, both operational and technological, that will enable these goals. For example, these can include implementation and evaluation of existing control mechanisms (refer to Practice 25 for information on control strategy), new project initiatives (such as implementing stored value cards, transit subsidies, medical services for Veterans, etc.), and technology enhancements (refer to Practice 14 for information on technology strategy). Goals may be short-term (1 to 2 years) as well as long-term (3 to 5 years), and can integrate into the overall budgeting and planning process. The advantage of developing the dual focus is that it enables organizations to prioritize their initiatives and helps provide overall direction for both short and long-term initiatives. continued on next page Section IV 14
Practice1 Develop Procure-To-Pay strategy and overall organizational strategy in accordance with Government Performance Results Act and the President s Management Agenda continued The Procure-To-Pay strategy should be developed by a multi-functional team and shared throughout the organization. Stakeholders that should be involved in and informed about the process include Procurement, Finance, IT, Policy, and other key operational units. This will help secure the support of key stakeholders in those functions and ensure that the organization works toward common goals. A lack of time and resources is often cited as the reason that a strategy has not been developed; however, once the strategy and monitoring processes are put into place, the amount of resources required for monitoring or updates is minimal. Furthermore, the value to the organization of a clearly articulated strategy can far exceed the amount of time and effort required to develop one. ACTION STEPS: 1. Define a team of key stakeholders, including staff, senior management and operational unit representatives, to participate in the overall strategic planning process 2. Review overall organizational strategy, previous Procure- To-Pay strategies and year-end spend analyses to set meaningful goals 3. Examine agency planning and performance management processes and link to Procure-To-Pay processes 4. Develop strategy in a facilitated and interactive environment with a small but representative team of stakeholders 5. Communicate strategy with Procurement, Finance, and operational units to achieve buy-in and increase visibility 6. Monitor progress against objectives and revisit strategy periodically POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: User Satisfaction Benefit Obtained: Accountability Benefit Obtained: Control Enables organization to identify achievable cost savings goals Encourages support and involvement from key Procure-To-Pay stakeholders Allows monitoring of progress against goals and justification of activities and expenditures for both internal and external stakeholders Sets guidelines for overall control strategy 15
Practice2 Strategy Obtain ongoing senior management or Senior Executive Service (SES) level support by sharing information and encouraging involvement Leading organizations have recognized that obtaining ongoing senior management or Senior Executive Service (SES) level support (e.g., Director, Deputy Director, Under Secretary, CFO, etc.) for the Procure-To-Pay can facilitate higher visibility within the organization and the dedication of necessary resources for program operations. Leading organizations have successfully obtained and maintained senior management support by communicating the activities and successes of their organization through periodic executive-level reports and updates, which can contain the following: metrics: Purchase volume and trends, invoice volume and trends, and Purchase Card usage and trends Savings metrics: Dollars saved through use of preferred payment methods, Procure-To-Pay process changes (e.g., expanded use of Purchase Card), reduced interest payments, and increased discounts, etc. Lost savings: Dollars lost through non-compliance to procurement policies and procedures (e.g., maverick spend, use of non-preferred payment methods, interest payments, lost discounts, etc.) Control metrics: Dollars lost due to unacceptable purchases or card mismanagement Current initiatives underway: High-level descriptions of efforts, their status and progress, and expected benefits continued on next page Section IV 16
Practice2 Obtain ongoing senior management or Senior Executive Service (SES) level support by sharing information and encouraging involvement continued Many organizations have used innovative methods to share this information with senior management. This includes conducting periodic presentations, assigning operational unit liaisons, communicating successes through internal newsletters, emails, and an intranet site or portal (that provides easy access to the above metrics and statistics via an executive information system). Organizations should continually evaluate ways to keep senior management engaged and energized regarding the program. Additionally, the organization should periodically review the procedures that are in place for optimizing senior management support and make necessary modifications if needed. ACTION STEPS: 1. Develop cross-functional team to form senior management communication initiative 2. Identify compelling and relevant metrics and review with senior managers and executives to determine appropriateness 3. Evaluate and select appropriate communication channels and content 4. Adjust initiative based on feedback received 5. Schedule periodic review meetings with senior management and executives to share information and ensure active participation POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: Control SUCCESS STORIES and TRENDS Provides senior management with the information and incentives to continue support of cost-saving activities and initiatives Encourages senior management to promote compliance and best practices throughout the organization Several study participants cited executive-level support as a key factor in receiving needed resources and visibility for their Purchase Card program. One study participant had established a good ideas group at the executive level to develop and implement innovative solutions and practices for their Procure-To-Pay process. 17
Practice3 Strategy Conduct benchmarking to gain additional perspectives from internal operations, other governmental entities, and commercial companies Benchmarking is a continuous, systematic process for evaluating organizational practices to improve products, services and work processes. Leading organizations conduct benchmarking on a regular basis (at least annually) to assess their performance and gain additional insight into innovative practices and opportunities for improvement. Benchmarking should assess quantitative measures on a normalized (not absolute) basis, such as: cost to place an order; cost to process a line item, check or EFT payment; invoice processing error rate; etc. In addition, benchmarking should occur for qualitative practices (e.g., implementation and control practices). Organizations may also conduct benchmarking to identify best practices surrounding card portfolio management. When compared to commercial entities, the missions of government entities are usually unique and operations are typically large and complex in scope (e.g., the size and national security mission of Department of Defense organizations). Therefore, it is often difficult to identify comparable organizations. However, the value of benchmarking is often realized by looking at different organizations to get a fresh and potentially innovative perspective on processes and practices. In addition, benchmark data should be at the process and activity level so that it can be compared across organizations at the appropriate level of detail (e.g., data entry, account reconciliation, etc.). Leading organizations have created their own group of benchmarking partners. This includes organizations inside and outside of their industries as well as ones with which they have relationships (e.g., suppliers or vendors). Some organizations use third-party organizations to conduct blind benchmarking studies. Additionally, best practice organizations participate in external benchmarking studies on a periodic basis, including government studies sponsored by organizations like GAO and GSA, and benchmarking organization studies sponsored by associations and other organizations (e.g., Forrester, American Productivity and Quality Center (APQC), International Data Corporation (IDC), and National Association of Purchasing Management (NAPM). continued on next page Section IV 18
Practice3 Conduct benchmarking to gain additional perspectives from internal operations, other governmental entities, and commercial companies continued In addition, formal and informal communications with other government Purchase Card programs can facilitate the sharing of best practices. Establishing networks of Purchase Card program coordinators who communicate periodically to exchange ideas at conferences and meetings can provide important feedback and information on Purchase Card practices. Another form of benchmarking is internal benchmarking, where an organization with decentralized or dispersed operations can benchmark within their own organization to identify best practices and establish measurable benchmarks for use throughout the organization. Internal benchmarking may encourage healthy competition among operational units, resulting in improved operations for the organization. In addition to the benefits gained by learning from other organizations, benchmarking studies are useful tools in promoting the success of the Procure-To-Pay functions to senior management and other stakeholders. They are also useful in providing information to develop business cases for key initiatives. ACTION STEPS: 1. Determine what to benchmark by talking to the managers and leadership of Procurement and Finance 2. Identify benchmarking studies to participate in as part of annual strategy and allocate resources (e.g., time and budget) for participation 3. Solicit organizations by contacting peers, using internal networks, or through associations 4. Allocate time to review results of benchmarking study, incorporate findings into strategic initiatives, and communicate results to senior management 5. Attend conferences and read industry publications on a regular basis POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: User Satisfaction SUCCESS STORIES and TRENDS Helps set achievable cost savings goals Establishes a mechanism for benchmarking user satisfaction, leading to improvement opportunities for cardholders Several study participants frequently attend industry conferences (e.g., GSA SmartPay, Visa Government Forum) and seminars to learn of innovative practices used in other organizations Purchase Card programs and to build their network of Purchase Card program coordinators. 19
Practice4 Strategy Develop a collaborative relationship with Issuer bank Establishing a positive and collaborative relationship with the Purchase Card issuing bank may enable organizations to leverage proven strategies and technologies that will enhance the Procure-To-Pay functions. Although many organizations have a working relationship with their Issuer banks, there is the potential to further develop these relationships to take advantage of the numerous benefits the Issuers can offer. Issuer banks can share knowledge regarding innovative ways in which organization s can utilize the Purchase Card. Since the Issuer banks support programs for organizations of various sizes and levels of maturity, there are several best practices and lessons learned that they may share with the organization. Additionally, Issuer banks assist in providing the organizations with strategies and processes for improving their operating efficiencies surrounding card payment and settlement. In addition to sharing knowledge on alternatives for optimizing the use of Purchase Cards, Issuer banks have established product suites that assist organizations in a number of areas such as account reconciliation, transaction management, and reporting. To ensure stakeholders within the organization understand how to use the products, the Issuer bank typically provides training to end-users and program administrators. ACTION STEPS: 1. Meet periodically with Issuers to discuss status of the Purchase Card program 2. Evaluate the Issuer banks tool/software offerings to gauge alignment with organizational strategies 3. Utilize the Issuer bank and association to assist in obtaining acceptance within the organization 4. Attend Issuer banksponsored events to learn about new product offerings, future strategies, and potential benefits POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: User Satisfaction SUCCESS STORIES and TRENDS Provides organizations with guidance required to improve processes and adopt cost reduction practices Provides cardholders with tools to facilitate account management Several participating organizations maintain a close and collaborative relationship with their issuer banks. These relationships include practices such as attending periodic meetings, partnering on Purchase Card program enhancements e.g., reporting tools, process automation, etc.). Section IV 20
Practice5 ACTION STEPS: 1. Determine the feasibility of incorporating Purchase Cards into a business continuity plan 2. Determine organizational roles, responsibilities, and availability (e.g., 24/7 coverage, 9a-5p weekdays) for supporting emergency requests 3. Establish processes for fulfilling requests and returning Purchasing Cards to normal status once emergency has passed 4. Incorporate policies and procedures for accepting emergency requests and update Purchase Card policy manual to reflect changes 5. Include use of Purchase Card as an alternate form of purchase and payment within the organization s contingency planning documentation 6. Communicate the change in policy to cardholders, Approving Officials and other stakeholders Strategy Incorporate Purchase Cards into business continuity planning Disruptions to an organization s operations may be minor (e.g., system outage) or catastrophic (e.g., natural disaster), and the use of Purchase Cards as part of the contingency process can facilitate continuing operations. Purchase Card may be used as alternate forms of purchase and payment for emergency transactions and as a method of immediate access to obtain critical goods and services. For example, if a cardholder is out of town and, due to an emergency, needs to purchase food, clothing, and lodging, the card may be used to purchase these goods and services when the MCC s would normally block such transactions. Cardholders may also receive approval to make cash advances using the Purchase Card. To facilitate this process, organizations should establish emergency response policies and procedures and disseminate to the cardholders and management staff. These policies and procedures should outline for cardholders the acceptable criteria for requesting emergency assistance, maximum amount of disbursement (if cash advance), acceptable vendors for goods and services, and consequences for mismanaging the card. Roles and responsibilities should be defined for cardholders, Approving Officials, and any additional individuals that will approve emergency requests. In addition, increases in limits, deactivation of missing or stolen cards, approval to use convenience checks and other actions may support continuity of operations in times of emergency. Control measures ensure that Purchase Cards are used for appropriate emergency purchases only. It is paramount that once the emergency situation has passed, the Purchase Card returns to normal (pre-emergency) status, minimizing risk of card mismanagement. POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: User Satisfaction SUCCESS STORIES and TRENDS Reduces the need to process emergency cash advances and check requests Enables employees to use Purchase Cards to handle unexpected events; reduces employee stress with resolving these issues One study participant has incorporated their Purchase Card program into their recently developed contingency plan, providing contact information for Purchase Card administrators and issuer bank representatives. This ensures that cardholder requests requiring quick action, such as raising credit limits or deactivating cards, are quickly reviewed in the case of an emergency. Another study participant leverages a help line staffed by members of Procurement or Finance that assists cardholders with their emergency requests (e.g., credit limits, approval to use card as for travel and lodging, etc.). 21
Section II Executive Summary 22
ORGANIZATION Strategy Organization Technology Sourcing Order Placement Payment and Settlement Control and Audit Reporting BEST PRACTICE 6 BEST PRACTICE 7 BEST PRACTICE 8 BEST PRACTICE 9 BEST PRACTICE 10 BEST PRACTICE 11 BEST PRACTICE 12 BEST PRACTICE 13 Encourage a collaborative relationship between the Procurement and Finance functions Align Purchase Card issuance and Approving Official criteria with Purchase Card program goals and organizational culture Ensure centralized management and control of critical Procure-To-Pay functions Develop organization-wide Procurement policies and procedures that incorporate requirements of the organization, General Services Administration (GSA), Federal Acquisition Regulations (FARs), and other applicable regulations Develop an internal communication plan to convey Procure-To-Pay policies, procedures, and successes Develop a comprehensive change management discipline for the Procure-To-Pay Develop and disseminate policies and procedures specific to Purchase Cards Incorporate an agency-specific Purchase Card training program to supplement GSA training materials Organization refers to the roles, accountability, relationships, hierarchy, and span of control within an entity. All of these elements can vary considerably from one entity to the next, even when the functions of the entities are similar. This is evidenced by Federal Procure-To-Pay operations, which can be centralized or decentralized, flat or hierarchical, dynamic or static, collaborative or competitive, etc. The best practices in this section will assist organizations in building strong, effective, and collaborative Procure-To-Pay organizational structures. These practices include communication plans, policies and procedures, training, and positioning of functions within an organizational structure. 23
Practice 6 Organization Encourage a collaborative relationship between the Procurement and Finance functions Leading organizations have strategically changed their positioning of Procurement and Finance functions in recent years. Traditionally, these two functions have performed as separate silos within the organization. Now, however, leading organizations encourage a more collaborative relationship between the two departments in order to optimize their Procure-To-Pay. One key driver behind the change in this relationship is the new view of Procurement and Finance as internal service organizations. This view is a by-product of incorporating these two functions in shared services organizations, as well as the acknowledging their interdependency as part of implementing Procure-To-Pay enhancement initiatives such as Purchase Card and ERP implementations. These initiatives help Procurement and Finance demonstrate how joint, integrated participation can more strongly enable an organization s operational units to achieve their goals. Typical Procurement Department roles may include: Establishing and maintaining Procurement and Purchase Card policies and procedures Overseeing the Vendor Management Program (if applicable) Issuing of Purchase Cards Training cardholders and Approving Officials Typical Finance Department roles may include: Overseeing invoicing and payments Conducting analyses including cardholder spend, spend by category (e.g., Merchant Class Code), payment cycles and financial incentives, and investment costs (e.g., labor, equipment, supplies) Some key points of integration between the two departments may include working collaboratively to: Monitor questionable transactions Review delinquent payments by cardholders (if cardholders accounts are not directly billed to organization) Establish strategic sourcing plans Serve common customers in a seamless and comprehensive manner Establish policies and procedures for the Purchase Card Program Create a common understanding of the entire Procure-To-Pay (which enables employees to leverage cross-functional skills to operate program more efficiently) continued on next page Section IV 24
Practice 6 Encourage a collaborative relationship between the Procurement and Finance functions continued Procurement and Finance groups often refer to other operational units within the organization as clients or internal customers. Conducting internal surveys or reviews with operational unit leaders to review service quality has become common, and encourages a cross-functional, customer-focused approach to operations. Procurement and Finance representation on cross-functional teams is essential for the success of major Procure-To-Pay technology and strategic initiatives. Additionally, successful organizations use a combination of Procurement, Finance, and operational unit personnel to focus on strategic sourcing and drive lower prices and higher value. To enhance the service reputation of their functions, some procurement organizations assign liaisons to work with individual operational units to help set goals, provide training, and evaluate new opportunities. ACTION STEPS: 1. Ensure participation of Procurement and Finance on cross-functional teams 2. Ensure operational unit liaisons exist in Procurement and Finance functions 3. Align success of Procurement and Finance functions with meeting departmental and overall organizational goals 4. Conduct internal surveys with operational units to measure their level of satisfaction with and effectiveness of Procure- To-Pay processes 5. If possible, co-locate Procurement and Finance at the same site to encourage communication and collaboration 6. Conduct regular meetings between Procurement and Finance to assess opportunities for improving the program POTENTIAL BENEFITS: Benefit Obtained: User Satisfaction Benefit Obtained: Control SUCCESS STORIES and TRENDS Allows users to benefit from service-oriented approach and have greater adoption of new tools Enables central coordination and monitoring of Procure-To-Pay functions and compliance with policies One study participant attributes their Purchase Card program s success to the Policy, Procurement, and Finance departments operating as a true team. These departments depend on each other regarding challenges and decisions related to the Purchase Card Program and ensure that there is open and constant communication between the groups. This relationship is strengthened by the three departments being co-located at the same facility. Another study participant cited the collaborative and complimentary relationship between Procurement and Finance as a critical part of their success. This relationship enables them to share responsibility and leverage their respective skill sets on Procure-To-Pay activities and initiatives. 25
Practice 7 Organization Align Purchase Card issuance and Approving Official criteria with Purchase Card Program goals and organizational culture ACTION STEPS: 1. Develop criteria for distribution of cards that is consistent with organization culture and policies; review purchase orders, spend, and check requests to identify typical purchasers at your organization 2. Develop a policy for deactivation of dormant cards, including reconciliation with payroll or personnel lists 3. Distribute criteria for card issuance as part of Purchase Card policies 4. Issue cards to designated buyers and other identified purchasers 5. Solicit feedback from cardholders and approving officials to ensure appropriate distribution (e.g., if a cardholder is regularly making purchases for another employee, that employee may require a card) 6. Review activation reports to identify individuals that have not activated cards after issuance; these individuals are likely to obtain Purchase Card eligible items through other methods 7. Periodically reexamine criteria to determine appropriateness Leading organizations ensure that Purchase Cards distribution occurs appropriately throughout the organization. These organizations develop criteria for distribution of cards that are consistent with organization culture, policies, and spend parameters for card eligible purchases. Issuing cards to the right people and encouraging use of the cards are key controls that contribute to the success of a Purchase Card program. In addition, deactivating dormant cards is important to decrease the risk of unauthorized purchases (policies can be established to define a dormant card; e.g., a card that has not been used for a certain period of time). Reconciling cardholder names with personnel or payroll files helps identify cards that were inappropriately active to employees no longer employed by the organization. Parameters can be established for the number of card users or transaction volume for each Approving Official. This approach limits the workload volume for Approving Officials and allows them to more easily and effectively perform their duties (e.g., monitoring card use, reconciling statements, etc.). While an appropriate ratio should be determined by organizational circumstances with focus on transaction volume, GSA guidelines state that the most common ratios are between 1:4 and 1:10 (Blueprint for Success: Purchase Card Oversight, p.10). Distribution of Purchase Cards should be wide enough to ensure all regular purchasers of card-eligible transactions have an individual Purchase Card or have access to a departmentdesignated Purchase Card. For example, leading organizations may, as part of their approval criteria, identify designated buyers who will use the card on a frequent basis. These designated buyers are individuals who may be responsible for all purchases for an operational unit or facility. In addition, they may be the primary point-of-contact for a particular type of purchase (e.g., furniture, event planning, or computers). These users often become proficient users and strong supporters of the card. In order to identify regular purchasers, organizations can conduct a review of purchase orders and spend by site or person. POTENTIAL BENEFITS: Benefit Obtained: Cost Savings/ Efficiencies Benefit Obtained: User Satisfaction Benefit Obtained: Control SUCCESS STORIES and TRENDS Reduces transaction costs that are associated with other procurement and payment methods by encouraging appropriate card distribution Ensures that personnel that meet issuance criteria receive cards Ensures that personnel that do not meet issuance criteria do not receive cards One study participant has established roles for the Approving Officials to include accepting full financial liability for the certification of Purchase Card transactions. This practice strengthens controls for the organization, as the Approving Official has more accountability for their approval decisions. Section IV 26