Citys P-Card Program Fights Fraud

City’s P-Card Program Fights Fraud

By combining purchasing cards with online technology, Ft. Lauderdale, FL, cuts costs and improves response time to citizens in need

Kirk Buffington, Manager, Procurement and Materials Management, City of Fort Lauderdale

Over the course of the last decade, credit card use by federal, state, and local government employees has skyrocketed. In 2001 alone, more than 3.1 million charge cards circulated among government agencies—enough to provide three of every four government employees with their own cards. This trend toward government credit card usage, largely fueled by the need to eliminate the paperwork associated with everyday purchases, seemed like a panacea for purchasing and accounting departments charged with tracking their organizations’ spending needs while streamlining back office operations.

Unfortunately, several news articles about credit card abuse by government employees in recent months have shown that procurement cards are not foolproof. Of particular shock value was the story about a handful of Navy cardholders who used government-issued credit cards to buy jewelry, gamble, and even hire prostitutes. Also alarming was a report that credit cards were being issued to government employees with bad credit histories. To top it off, officials admitted that preventing abuse among the government’s enormous pool of credit card users was difficult because fraudulent use could only be tracked long after purchases were made.

In the meantime, government organizations have made major strides in the area of credit card control, and they are certainly much more vigilant about credit card usage. However, most still find it difficult to track individual credit card spending adequately because gaining access to such information is a manual, time-consuming, difficult task.

The City of Ft. Lauderdale, FL, though, found a unique way to control and track card usage by more than 500 of its 2,700 employees spread across 40 offices citywide. Like most government organizations, the city recognized the enormous time and cost savings potential in using credit cards to make everyday purchases. The city instituted a purchasing card program from SunTrust Bank to help municipal employees pay for small purchases such as office supplies and travel.

Still, officials had trouble getting the up-to-date information about card spending that they needed to monitor potential abuse and to know where they stood in the budget-planning process. This, in turn, limited employees’ ability to use the cards for a broader range of purchases, which did little to drive down manual purchasing costs that averaged $60 per transaction.

Kirk Buffington, Manager, Procurement and Materials Management for the City of Ft. Lauderdale, decided to fix the problem. After researching several technological solutions, he chose Works Payment Manager, an online solution from Works, Inc., Austin, TX, that links to the Visa payment network, allowing government organizations to track and manage credit card usage in real-time while streamlining manual processes such as accounting, reconciliation, and reporting.

“Works Payment Manager was the best solution because it had the most functionality and would be able to help us down the road as we expanded use of our card program,” Buffington says. “We also liked the fact that it was an online solution easily accessible to all our offices.”

The program gives Ft. Lauderdale officials daily online access to credit card spending information about its more than 500 credit card users. According to Buffington, the information is invaluable because it allows the city to track potential fraudulent charges. In addition, the program provides exact information about where the city stands from a budgeting perspective each day, a process that used to take 30 to 45 days.

The software allows the city to change card spending limits, issue new cards, or cancel them online, eliminating the need for someone to call the bank to make changes.

“Instead of spending lots of time on the phone to change card limits or cancel a card,” Buffington says, “I can handle such tasks instantly online, allowing me to focus on more pressing issues.”

Buffington remembers one recent incident in particular when online card management capabilities proved their value. The city, whose police department includes a special domestic abuse crisis unit, provides abuse case officers credit cards that allow them to respond quickly to the needs of abuse victims. One day, a resident contacted the domestic abuse hotline for help when her former husband set fire to her car. The woman had no way to take her kids to day care or drive to work, nor did she have a credit card, a requirement in securing a rental car.

“We were able to step in and offer the victim assistance quickly by altering the police officer’s credit card spending profile online and allowing him to rent a car, something not normally allowed by card users,” Buffington without losing control, while at the same time enabling the city to save lots of money on taxes. We’re still working out the details of such a program, but it’s a great idea.”

Another area where Buffington believes the new purchasing card program could benefit the city is with travel expenses. Currently, city employees who travel use personal American Express (AMEX) cards issued by the city. The cards differ from the city’s purchasing card program cards in that employees are personally liable for card spending.

This is a double-edged sword, though, because charges made on AMEX cards with personal liability are not tax exempt. The city must pay as much as 20 percent in fees and taxes every time employees use the cards for flights, rental cars, and hotels.

“By using our Visa purchasing card program with Works Payment Manager for travel-related expenses,” Buffington says,” we will still have tight controls over card usage, plus the ability to save on taxes and extra fees because of our tax-exempt status.”

The City of Ft. Lauderdale continues to seek new ways to help prevent fraud and use credit cards in unique ways to save money and better serve citizens.

“As a municipal government, it’s our duty to find ways to reduce costs and be more responsive and customer service-focused for our citizens,” Buffington says. “I think that any government agency that has a purchasing card program could benefit from these capabilities.

“Of all the software I looked at, this provides everything—robust capabilities, ease of use, great customer service, and the ability to really help grow purchasing card programs to better serve the needs of citizens,” Buffington says. “That’s good to know because after all, if I’m not providing citizens the services they need, then what am I doing here?”

Editor’s Note: Jerry Lester, President and CEO of Works, Inc., has more than 30 years of experience in the banking, financial services, and electronic funds transfer industries.

Proactive Plan Calls for Aligning the NIGP Code with Purchasing Card Expansion
As state and local governments continue to focus on reducing costs and increasing revenue, the growth of purchasing card programs will become increasingly important. However, entities must seek new technology that allows them to support existing purchasing processes, control spending visibility, and allocate mapping strategies that support new spending categories.

Trends in NIGP Code adoption and P-card utilization will require governments to determine a strategy for integrating the two solutions for targeted purchases. A well-conceived plan will ensure that efficiencies and control of the code and payment strategies are delivered in concert.

A two-stage process is required for entities interested in realizing the combined promise of both purchasing solutions. For the near-term, each participating government entity should enact a plan for generating “accurate estimates” for targeted spending. Longer-term initiatives should focus on leveraging the cooperative buying power of government groups to drive vertical improvements in P-card capabilities and merchant compliance.

The short-term strategy requires determining the level of coding accuracy required for potential purchases and the data available to support coding automation. The following solutions, ranked in order from those that require the least to the most effort, provide a decision tree for selecting a best practice:

• Merchant Category to NIGP Code
• SIC/NAICS to NIGP Code
• Enhanced merchant data commodity coding
• Pre-purchase allocation
• Post-purchase allocation

Government groups can also target those P-card purchases that will leverage the NIGP code. Targeting key purchases can limit the effort required and allow more accurate coding strategies to be applied to key purchase categories. Agencies may apply coding based on:

• Transaction amount (e.g. all P-card purchases more than $500)
• Category (Procurement or accounting departments apply coding to key purchases)
• Supplier (Supplier-specific cards centralize purchasing and coding)

Longer-term strategies for driving NIGP Code success require establishing policies that drive merchant and card solution compliance with NIGP Coding requirements. Specifically, government agencies and associations can start tailoring RFP and contract processes to favor NIGP-friendly relationships. Potential areas of focus include:

Merchant relationships
~ Require that all merchants accept procurement cards

~ Select merchants who provide accurate, enhanced transaction data

~ Prioritize merchants who maintain accurate card merchant profiles

~ Identify merchants who will provide NIGP Coding in commodity code fields for enhanced data

Card program relationships
~Select partners who can provide all required data

~Enable solutions capable of supporting coding strategy

~Work with software providers and issuing banks to increase NIGP coding automation

To view the complete white paper on which this excerpt is based, visit www.nigp.org/research/Papers.htm.