DATE: December 18, 1996
TO: Senior Financial Officers and Senior Full-time Financial
Officers
SUBJECT: Results of the Survey on Acquisition Card
Usage
Late this past summer, we surveyed users of acquisition and
travel cards. Our report on the acquisition card survey results
is attached and I will send you the travel card survey report
shortly. The acquisition card survey raises some issues we must
address and I will describe them in this letter. Those
departments using the Mastercard for their acquisitions will
find a monthly report on purchases attached as well which I
will also mention.
It is apparent from reports we receive from the credit card
companies that the card is becoming the payment vehicle of
choice, and we are projecting that this will continue for
several years. We expect that using the card will bring labour
savings over time and the survey supports this contention.
However, the reduction of labour in the procurement cycle
does create control issues for the departments' comptrollers.
Our survey reveals only a few instances of known card abuse,
but it also shows that very little monitoring has been done and
not much is planned for the next year. The Auditor General is
now conducting a government wide audit of the acquisition card
program and I encourage you to review your department's plans
for an internal audit review of the program.
If your department uses Mastercard, a report is attached
showing the breakdown of your department's expenditures to
October 31. Any charges for airlines, lodgings, car rental,
travel agencies, service stations or vehicle parts and repair
are to be investigated as possible violations of Treasury Board
policies. It may be that some of these expenses should have
been charged to either a travel card or a fleet management
card. From previous similar exercises, we know that vendor
coding by the card companies may explain some of the charges.
If your department is not complying with the policies, please
take steps to correct the situation.
Many departments are having difficulty meeting their payment
due dates and are paying late interest charges. Such
expenditures are avoidable and I ask that you review your
account verification practices taking into consideration the
Treasury Board policy permitting post payment verification. We
found some duplication of accounting records which could be a
reason for the delays. Limited delegation of financial
authority and limited decentralization of purchasing are other
contributing factors within the departments' ability to change
where management deems appropriate.
We noted a great range in the credit limits on the
acquisition cards. Some were obviously far too low and created
problems every month when accounts were not settled quickly
enough to free up the credit limit. To take advantage of the
credit card's power in the procurement process, limits must be
adequate to the needs of the organization, and they would be
worth reviewing in many departments.
On balance, departments seem quite satisfied with the
program. They can generally point to labour savings, and they
have very few issues with the card companies. Those raised in
the survey, such as merchants increasing the price when a card
is offered in settlement, will be discussed with the card
suppliers.
On a personal note, I ask that you convey my appreciation to
those people who responded to our survey. In many cases, they
had to do some research before they could answer, and they did
a fine job. We learned much from their work, and their comments
will figure into the coming contract discussions.
(signed)
R.J. Neville
Assistant Secretary and Assistant Comptroller
General
Financial and Contract Management Sector
REPORT ON THE RESULTS OF THE 1996 ACQUISITION CARD
SURVEY
1.0 POPULATION
1.1 Government wide: The survey was sent to 84
departments and agencies at the end of July, 1996. At that
time, there were:
- 77 departments and agencies with cards;
- 18,058 cards in circulation;
- 46,351 July purchases, worth
- $11.7 million
1.2 Updated Usage: Since the survey was conducted,
more cards have been issued and use has increased. At the end
of October 1996, there were:
- 19,519 cards in circulation, used for
- 57,251 October purchases, worth
- $15.5 million.
1.3 Level of Response: Almost all of the larger
departments and many of the smaller departments and agencies
responded to the survey. Of the 84 surveyed:
- 77 of 84 departments had cards (92%);
- 38 departmental co ordinators responded (49% of 77
departments);
- 36 departmental financial services responded (47% of 77
departments);
- 609 cardholders responded (3.3%);
- representing 83% of July purchases by all departments,
in dollars;
- representing 85% of cards in use by all
departments.
1.4 Potential Growth in Use: Questions about
potential to use more cards were not well answered and the data
was not useful. As demonstrated in 1.2 above, use of the card
is growing and our projections are as follows:
Mar/97 Mar/98
Number of cards:
21,650 26,950
Transactions/month:
66,450 88,850
Value of purchases/ month:
$18.8 million $26.1
million
1.5 Cardholders: It was interesting to see who
acquisition card:
- 24% of cards held by RC Managers;
- 34% held by their secretaries or support staff;
- 25% held by materiel personnel; and
- 17% held by others, such as program officers.
1.6 Geographic Distribution: There is a fairly even
distribution of cards geographically:
- 33% at National Headquarters;
- 30% at Regional/District Headquarters; and
- 36% in Local Offices etc.
1.7 Distribution by Function: But, most cards are
concentrated in Finance or Administration units across the
country:
- 65% in Finance/Administration; and
- 35% in Program Operations.
1.8 Importance Of Choice Of Cards: The government
currently has contracts with three suppliers of credit cards
for the acquisition of goods and services other than travel and
vehicle related expenses. Of those who answered the question,
66% stated that having a choice was important to them. They
wanted to be able to use a second card when a merchant did not
take the first one offered.
1.9 Actual Variety Of Cards In Possession: In spite
of this, most had only one card, although they often stated
their intention to apply for another, as follows:
- 94% had only one card;
- 5% had two cards; and
- 1 % had three cards.
1.10 Low Credit Limits: Credit card companies will
allow high credit limits in contrast with some managers who set
them quite low. We found that the credit limits ranged from
$100 to $300,000 at the extremes. A very low limit often leads
to problems because it will often be exceeded when the previous
month's account balance is not paid before the due date. Ten
percent of respondents reported this was a problem either at
month end or at year end.
In accordance with the policy, credit limits should be
established to meet genuine requirements taking into
consideration the monthly dollar purchase volume and the time
the RC requires to settle its monthly account. Since the
manager's liability is only $50 when a card is lost or stolen
and then used, which is the essence of "low risk",
consideration should be given to increasing credit limits
wherever possible, perhaps using the survey results as a
guideline. We found as follows:
CREDIT
LIMIT RANGE
PERCENTAGE
Up to $1,000
6%
$1,001 $5,000
35%
$5,001 $10,000
16%
$10,001 $20,000
21%
$20,001 $50,000
18%
$50,001 $100,000
4%
Over $100,000
1%
Average limit per
card companies
$12,980
1.11 Types of Purchases: Respondents stated that the
cards were generally being used to make routine purchases.
Office supplies, books, periodicals, training courses, spare
parts, software and computer were the most common expenditures.
The card was occasionally used to pay for hospitality and
conference expenses as well. However, monthly reports from the
credit card companies indicate that some departments using the
cards to make purchases which should perhaps be charged to
travel cards or fleet management cards. Departments are
expected to examine their use of the cards and take appropriate
action if required with Treasury Board policy on the use of all
cards.
1.12 Geographic Distribution of Suppliers: about
domestic, US and foreign purchases were unreliable. Our own
monthly reports show that the split is as follows:
- 93.0% were domestic purchases;
- 6.7% were US purchases; and
- .3% were other currency purchases.
2.0 CARD CONSOLIDATION
2.1 Cardholders with Travel Cards: Because
cardholders often suggest combining all cards into one for all
type of purchases, we asked how many acquisition cardholders
also had Diners Club/enRoute individual travel cards. The
percentage with both was higher than expected: 32% of those who
responded had both cards. They were scattered throughout all
levels of the government with no level having a greater
concentration than another.
2.2 Combining Cards: When asked if they thought it
would be beneficial to use the acquisition card to pay travel
costs and vehicle related costs, cardholders responded as
follows:
- 51% favoured using it for travel; and
- 55% favoured using it for vehicle costs.
The problems associated with combining the cards are
discussed in Section 9.5 below.
3.0 ELECTRONIC REPORTING, ETC.
3.1 Preference for Electronic Commerce: It is not
surprising that departments would like to conduct their
business electronically. We found:
- 79% would prefer electronic communication;
- 21% would prefer paper; and
- none were then receiving electronic reports.
4.0 CARD SUPPLIER SERVICE LEVEL
4.1 Co-ordinators' General Satisfaction: There was a
very high level of satisfaction with the three card suppliers
on matters such as access to representatives, speed of their
response to inquiries, and the quality of reports. Our survey
revealed as follows:
- 95% of co ordinators said service was good or
excellent; and
- 96% of cardholders said service was good or
excellent.
Most of the very few complaints from coordinators related to
implementation issues such as documentation and training.
4.2 Cardholders' General Satisfaction: In general
cardholders had very few problems with the card companies. We
found:
- only 2% of them reporting any problems over erroneous
charges and the interest thereon and these problems were
usually quickly resolved;
- but 11.6% had problems reconciling, which is too high
for such an important function.
4.3 Categorizing the Problems: There are three kinds
of problems: those attributable to the card companies; those
resulting from the merchants' practices; and those caused by
the departments themselves. The survey revealed:
4.4 Problems with Card Companies: Attributable to the
card companies, these issues are more related to industry
practices than any negligence:
- foreign exchange differences posted to accounts, a
timing issue which confuses;
- a lack of statement detail, which hinders matching to
ordering documentation;
- late statements, but the delay could be anywhere in the
processing chain; and
- erroneous charges on accounts, which were almost always
corrected promptly, with the interest reversed.
4.5 Problems with Merchants: These issues are
attributable to merchant practices, and are discussed in
Section 7:
- Different name on statement and invoice, which usually
happens when the registered merchant is "operating as" a
vendor under another name;
- Back and partial orders create confusion;
- Incomplete supplier documentation; and
- Suppliers charging Retail Sales Taxes.
4.6 Problems with Departments: These issues are
attributable to the departments, and discussed below in Section
6:
- Internal accounting issues. new systems
5.0 PAYMENT OPTIONS
5.1 Payment Options: The three contractors each offer
one or more of the following payment terms:
- Option 1: 30 days from invoice date, the PODD
option;
- Option 2: 25 days from invoice date, individual
billings;
- Option 3: 25 days from invoice date, consolidated
billings; and
- Option 4: 7 days electronic settlement, consolidated
billings.
The survey question about payment methods was not well
answered but the trend seems clear. Very few departments were
using the fourth option of electronic settlement. The most
common option was the second. This is probably a factor
contributing to problems many departments had in meeting
payment due dates, a subject discussed in the following
section.
6.2 Account Verification Issues: The common practice
seems to be to perform account verification before these
accounts are settled. Those departments facing interest charges
because of late payment should consider post payment
verification. This is encouraged for low risk transactions by
the Treasury Board policy on account verification which can be
found in Chapter 2 5 of the Comptrollership component of the
Treasury Board Manual. We found as follows:
- 21% of cardholders find it difficult to verify monthly
accounts in time to meet the due date;
- 29% of those with problems give these accounts special
high priority treatment to reduce risk of late
payment;
- 21% of them verify the accounts after payment; and
- 44% did not explain their procedures but did complain
that not enough time was allowed to settle the accounts.
(44 of 101 responses to the question).
6.3 Urgent Cheque Issue as Solution: The number of
financial services offices using PWGSC urgent cheque issue
facilities to cope with due date pressure was quite high:
- 14% Always or often use them;
- 16% Seldom or occasionally use them; and
- 62% never use them.
6.4 Productivity Gains: Still, productivity gains
were widely reported:
- 57% of finance offices reported work has been reduced
from slightly to significantly;
- 30% report that the work has remained about the same;
but
- 14% report that work has actually increased because of
the acquisition card program.
When we looked more closely at the responses stating that
the workload had remained the same or had actually increased,
we could not reach any conclusions. Some used urgent cheque
issue frequently, and others not at all.
6.5 Impact on Petty Cash: There has been some
reduction in the use of petty cash for advances. We found:
- 49% of financial services offices reported a decrease
in the use of petty cash; and
- 40% was the average decrease in the amount of petty
cash used.
7.0 MERCHANT ACCEPTANCE AND RELATED ISSUES
7.1 More Problems than Expected: Cardholders reported
a problem rate higher than anticipated, as follows:
- 15% of cardholders reported they problems when using
the card;
- 71 % of the problem was merchants not accepting the
particular card offered; and
- 3% of the problem was merchants who charged retail
sales tax.
7.2 Price Increases: We were surprised by the high
percentage of cardholders who reported that merchants were
changing the price of goods or services when a credit card was
offered to settle an account. According to the survey:
- 3.5% reported merchants increased the price when an
acquisition card was offered; and
- 7.6% reported merchants withdrew discounts when an
acquisition card was offered.
We understand that these practices violate the merchants'
agreements with the card companies and have already relayed the
message to the card suppliers.
8.0 CONTROL & RISK
8.1 Lost and Stolen Cards: Twenty one cards were
reported lost or stolen in the past year by coordinators
responding to the survey. Since the survey reflects activity in
those departments holding 85% of all the 18,068 cards in
circulation, extrapolation across government suggests that
about one tenth of one percent of all cards are lost or stolen
annually. Since our risk, according to our contracts with the
card suppliers, is $50 for each card, the government's
potential loss is about $1,200 annually.
8.2 Abuse by Cardholders: According to the survey,
departmental coordinators know of very little abuse of the
acquisition card, with only twenty incidents reported. The
cards are currently used about 50,000 times per month.
8.3 Non compliance with Policy: Although most
departrnents require employees to sign the obligations form
when they are given a card, some do not. These departments are
not complying with the Treasury Board policy on acquisition
cards and they are expected to take steps to remedy this
situation. The policy states that 'a written acknowledgement
of responsibilities and obligations must be obtained from each
cardholder.'
8.4 Unnecessary Restrictions on Use: A few
departments have set restrictions on the use of the card other
than those imposed by the Treasury Board policy. Unless they
are established to meet very peculiar circumstances, such
restrictions are seldom justified by the level of risk
associated with using the card. A few managers have imposed
restrictions on the types of merchants to be offered the card
as payment. Some managers have imposed restrictions on the
single transaction arnount which can be charged.
8.5 Monitoring the Program: Few departments mentioned
that their monitoring techniques to ensure compliance included
scrutiny by internal auditors. More effort needs to be put into
the internal audit review according to the survey results which
are as follows:
- 59% reported that no intemal audit had yet been done of
the program;
- 63% of these departments did not plan to perform a
review in the coming year; and
- consequently, at the end of the coming year, 37% of all
departments will not have performed internal audit review
of the program.
The Auditor General is currently conducting a government
wide review of the program. We encourage departments to conduct
their own review to ensure compliance with the Treasury Board
policy.
9.0 SUGGESTIONS AND ISSUES
9.1 Interest on Overdue Accounts: Overwhelmingly, the
most important issue for the departments was interest on
overdue accounts and the processing problems caused by the
short time for payment before the due date. According to the
survey:
- 79% of respondents stated that interest on late
payments was an issue; and
- 7% of respondents stated that acceptability of the card
by foreign and remote suppliers was an issue.
9.2 How PODD System Works: The due date is calculated
from the statement date, unlike trade accounts, and credit card
companies will charge interest from the due date until the day
the payment is credited to the account. There is no allowance
for days in the mail. We have advised against using the Payment
on Due Date System to settle these accounts. If it is used,
these factors must be considered when specifying the due date
since it will be the date the cheque is actually produced.
9.3 Most Often Suggested: The most common suggestions
related to the proliferation of cards and interest charges, and
according to the survey:
- 21% suggested that the due date be extended;
- 11% suggested that the card be the mandatory means of
settling accounts, or at least, the preferred means;
and
- 32% suggested that the travel and fleet management
cards should be combined with the acquisition card.
Some commentary on the feasibility of these suggestions is
appropriate.
9.4 Comments on Extending the Due Date: The time
allowed for settling accounts without attracting interest could
be increased, but not without some kind of increase to the cost
of the program, such as a transaction fee. The survey showed
that departments have chosen payment options which do not carry
transaction fees, choosing instead the shorter payment period
although this creates pressure to process payments quickly. The
problem remains one of adapting account processing practices to
meet the shorter due date.
9.5 Comments on Mandatory Use of the Card: Treasury
Board policy, as stated in Chapter 2 10 of the Comptrollership
component of the Treasury Board Manual, emphasizes that credit
cards are the preferred means of settling accounts, although
other methods are not prohibited. There will always be a need
for other means of paying bills as many merchants will continue
to operate without accepting credit cards. Departments are free
to consider the merchant's willingness to accept cards when
making their purchase decisions.
9.6 Comments on A Single Card for all Purchases:
Combining cards seems reasonable, and although there are some
difficult issues which are briefly mentioned below, including
changes to government policy, we will investigate the
possibility further.
Information Requirements: Credit card companies do
not currently capture the kind of information government
requires and currently receives fleet management card
system.
Personal Liability for Travel Expenses: Currently,
travellers are personally liable for expenses charged to their
travel cards, and only those which legitimate travel
expenditures are reimbursed to them in the claim process. The
departments are liable for expenses charge to acquisition
cards. A way would have to be found to ensure that personal
expenses such as room service are not chareged to the
government account.
9.7 Delegation of Authority and Decentralization:
With 24% of the cards in the hands of RC managers, and with 6%
of the cards having a credit limit of $1,000 or less, we were
surprised that there was only one suggestion to increase the
level of financial delegation and that purchasing be
decentralized. It was not much of an issue although delegation
of Section 34 below the RC manager would accelerate the payment
process, and decentralization would simplify purchasing.
|