- By Heather Harreld
- Feb 06, 2000
Despite the plethora of high-tech solutions for conducting electronic business, many state and local governments are finding that low-tech is the way to go — as in plastic.
Government purchasing cards, which are credit cards that employees can use for commercial purchases and transactions among agencies, have been a staple in the paper-based world for purchasing agents to make small-dollar buys not bound by procurement regulations.
But now agencies are doling out cards to hundreds of front-line employees to make purchases without the bureaucratic paperwork and to reduce the $50 to $250 per transaction fee for handling paper checks.
At the same time, officials are developing systems to electronically track and pay for those purchases. In many cases, the entire purchasing card program is paperless ? from the electronic statement from the bank to the agency's funds transfer ? and is providing governments a jumping point for more advanced e-commerce efforts.
In Florida, the state's purchasing card program is entirely paperless, including online transaction authorization, and employees are allowed to charge any purchases with no dollar limit except for payroll, said Patricia Romig, Florida's purchasing card program administrator.
"We're trying to get them to do a paradigm shift." Romig said. " 'Where should I spend my time to save the agency money?' Essentially, all this is a payment tool. Now, you can pay the vendor with credit cards."
The cards are being used as "plastic purchase orders," with the state's comptroller receiving a daily electronic transaction report from the bank. Using a translation program designed to make a mainframe resemble Microsoft Corp.'s Windows, the finance department takes the file it receives from the bank and routes it to each agency's accounting system, Romig said. The comptroller then pays the bank electronically.
The only paper involved in the entire process is generated if an employee needs to dispute a charge, Romig said. The bank requires a handwritten signature be attached to a dispute form.
Stephanie King, president of Livermore, Calif.-based CPR Consulting Inc., said agencies do not need to invest in any new systems to develop a purchasing card program.
"The main technology aspect is developing an interface that can take the purchase card transaction data from the bank and charge to the general ledger system," said King, who recently helped Sunnyvale, Calif., officials launch a purchasing card program. "That is typically not a major undertaking if an organization has any of the primary [enterprise resource planning]
In addition, most banks have developed custom interfaces that can be used by agencies to translate data into general ledger systems. Banks also can supply reporting software, which agencies can use to track and analyze their transactions.
Ira Jekowsky, vice president for public-sector payment solutions for MasterCard International Inc., said government officials view purchasing cards as the ideal payment method for e-commerce efforts.
"It's a ready-made, instant, secure payment vehicle that requires no additional work on their part," Jekowsky said. "It reduces cost. It replaces paper. It creates consistent control over spending. It enhances supplier relations."
In addition, the purchasing card reporting software provides agency officials with an enormous amount of data to track their purchasing patterns, he said. Officials receive the electronic equivalent of a credit card statement, but they also receive data about the merchants their employees use, such as whether the merchant is classified as a small, disadvantaged business.
Officials in Sunnyvale have used the enhanced supplier relations prompted by their purchasing card program as a cornerstone for the city's e-commerce efforts, said Elaine Wesely, the city's
finance manager and purchasing
The city is developing an intranet e-mall, and officials are negotiating with various purchasing card suppliers to be added to the e-mall offering.
"[We said,] 'We'll put you on our intranet if you give us deep discounts,'" she said. "The payback to them is we'll buy everything online with our purchasing cards."
Sunnyvale has issued 400 purchasing cards to staff to be used for transactions up to $1,000, which is expected to reduce the amount of unfinished business kept on its books.
"We had about 800 to 900 open account blanket purchase orders," Wesely said. "We've been slowly able to close those. That's a tremendous amount of paper and cost as far as keeping those going."
However, although purchasing card programs usually do not involve a lot of upfront expense, they aren't necessarily painless. First, a purchasing card program may not require new hardware, but there are other parts that cost money.
For example, Alaska's finance department, which has developed a client/server-based application for its program, must pay the state's information technology department for server operations, said Kim Garnero, Alaska's finance director.
In addition, the program requires processing space on the state's mainframe that wasn't needed before, and it takes a lot of work to maintain client systems.
"Deploying a client/server solution statewide is very labor intensive," Garnero said. "When there is a new release of the software, every user's machine has to be touched."
Alaska has issued 1,000 purchasing cards to employees from 16 state agencies and a university to be used for purchases up to $50,000.
States also may find they must tweak policy, not just technology.
West Virginia has rolled out its purchasing card program to all 110 state agencies, and employees are using the cards to charge $75 million worth of purchases a year, said Jack McDonald, purchasing card program director.
State officials are writing 500,000 fewer checks per year than they were before the program's launch in 1996, he said.
However, several policy changes had to be made first.
"We had to seek approval from the state legislature to allow us to use the purchasing cards as a payment,"
McDonald said. "We had to convince our state legislature that many of the checks and balances in place with the paper trail would still be in place on a computer monitor and that we could ensure the purchases being made were legitimate purchases for state government."
In Alaska, some agencies had to retool purchasing procedures from centralized methods to decentralized methods, and changes had to be made to procurement regulations. One law required that buyers receive several price quotes for a purchase; with the purchasing card, buyers are free to purchase at the first price they're quoted.
"In the past, our rule has always been 'you can't pay unless you have the goods in hand,' " Garnero said.
CPR's King said that purchasing card programs are designed to streamline policies and procedures as much as possible. However, some agency policies must be made very clear to this new generation of buyers, she added.
"A manager authorizes a particular employee to receive a purchasing card," King said. "The manager has to be confident that the employee is trustworthy and recognizes that they're going to be spending agency funds."
— Heather Harreld is a free-lance writer based in Cary, N.C.