Getting credit

Summit, Feb 2004 by Morrison, Catherine

Acquisition cards benefit government purchasing

ACQUISITION CARDS have been around the federal scene since 1991. In the beginning, there were only about 2,000 cards in use and the dollar volume of purchases was around $2 million a year. Today there are more than 35,000 cards in use and the dollar volume of purchases in 2002 was $560 million. In the five years that Bob Berniquez has been responsible for acquisition card use in the federal government, he has seen the volume of card purchases more than double. Berniquez is director of Treasury Board secretariat's Financial Management Policy Division.

As of May 2003, there were 126 federal departments using acquisition cards. Of these, 100 were using the Bank of Montreal's (BMO) MasterCard and 26 were using the CIBC Visa card. The 10 largest departmental users have annual volumes ranging from $521,425 or .09 percent of total expenses (Department of Foreign Affairs and International Trade) to $102.7 million, or 19.5 percent of expenses (Fisheries and Oceans), (see Figure 1)

Wendy Allen-Hall, in her capacity as director of Public Sector Relations for BMO's ePurchasing Solutions and point person for the BMO, is determined to help the federal government achieve cost savings and earn higher rebates by growing the acquisition card program.

Fisheries and Oceans, as the largest federal credit card user, had some 5,300 BMO MasterCards in use by 10,000 employees in 2002, according to a BMO case study published in 2003. The study describes the challenge Fisheries and Oceans faced in adopting a card program to streamline the procurement process within a decentralized departmental culture - a culture that empowers "managers by providing them with the tools to do their work" in an environment "bound by many regulations, which are intended to ensure openness, fairness and competition in their procurement processes." Fisheries and Oceans has more than quadrupled its volume of card transactions from $25 million in 1995.

With such spectacular growth throughout the federal government there have come a number of benefits, challenges and opportunities.

Cost saving, needless to say, is the most compelling of these benefits. Treasury Board officials have been heard to use the figure $70 for the cost of each purchase made using conventional methods involving purchase orders and payment by cheque. Allen-Hall says that American studies she has seen put the figure as high as US$125 (C$165). Without giving a per transaction savings figure on credit card purchases, she estimates that a large federal department, one with a budget in the $500 million range, can expect to save $3$6 million a year. Another BMO case study, this time on Agriculture and Agri-food Canada, recounts how a 1997 internal audit suggested "missed opportunities for saving - by not using the card - of $1.9 million."

In the US, the Federal Supply Service (FSS) estimates that GSA SmartPay®, the US federal purchase card program, saves between US$53-117 per transaction, according to latest audits and studies. John Ziu, of the FSS, says that, "Use of the purchase card is estimated to have saved the US government over $1.4 billion during fiscal year 2002."

Treasury Board's Berniquez says that in addition to direct cost savings, there are increased efficiencies in both the procurement process and in the financial process. For example, an administrative assistant can stop on the way back from lunch and pick up those office supplies he or she just remembered the department is out of, which wouldn't happen without a departmental purchasing card in hand. They'd have to go back to the office for petty cash, or a purchase order to be signed in triplicate.

Efficiencies in the financial process are perhaps most noticed by government vendors, who may see payment show up in their bank accounts as soon as 24 hours after the purchase!

Then there are rebates. Rebates are available to government departments based on both the volume of purchasing and the speed with which the bank's bill for credit card purchases is paid. Fisheries and Oceans, for example, which pays for almost 20 percent of its purchases with the BMO MasterCard, received $500,000 in rebates in 2002. Agriculture Canada, which pays for just over five percent of its purchases, received almost $102,000 in rebates. The established rebate rate is a confidential element in the contract between both the banks that run the card program and the federal client.

In the US in recent years, rebates to the federal government have been in the $65 million range - no small amount of coin, and certainly an incentive for departments to migrate to a credit card purchasing system.

In Canada, departments have been making the switch more rapidly as time goes on and the benefits become increasingly apparent. But with increased use comes increased potential for risk.

The federal management guide for the card program puts it bluntly: "The increasing use of acquisition cards has had an impact on the traditional paper-based control framework. As a result, there are concerns about increased risk of error or abuse that might go undetected.