INTRODUCTION OF PROCUREMENT CARDS
For representatives to note the contents of this report and to then individually assess the potential benefits that the introduction of procurement cards may bring to their Authority, undertaking implementation where appropriate.
This report outlines the main advantages of procurement cards and identifies the steps and issues to be considered in determining if their introduction is appropriate.
There seems no requirement to consult beyond the membership of the RMB on such a matter that is confined to the day to day handling of its business.
That each Fire and Rescue Service considers implementing the use of procurement cards and that a report is made to a future meeting of the RMB on progress.
The use of procurement cards may reduce transaction costs, help control maverick spend and provide useful management information, thus contributing to the delivery of the outcomes expected from the Procurement work area. LEAD/CONTACT OFFICER:
Graham Smith Kent Fire and Rescue Service BACKGROUND PAPERS: None. INTRODUCTION One of the areas identified for a quick win in the Regional Procurement Work Plan is the introduction of procurement cards. This report sets out the key advantages to an organisation of using procurement cards and outlines the steps that need to be taken to enable a view to be reached as to whether the use of procurement cards is appropriate. BACKGROUND Identifying the Need Various reports commissioned by the Government, including some specifically covering the fire service have concluded that significant savings could be made through more efficient procurement methods. It is in this area that the use of procurement cards may contribute to the delivery of savings. There are three main reasons to replace a traditional purchase-to-pay workflow with that of a procurement card workflow. These are a) transaction cost savings; b) provision of better management information and c) control of maverick spend. ANALYSIS AND COMMENTARY The Government Procurement Card has been in existence since 1997 and was competitively tendered on behalf of the public sector by the Office of Government Commerce. The card is available to all public sector bodies, including Fire and Rescue Services. There is therefore no reason to contemplate establishing a South East Regional Fire Service Procurement Card, when a well established and proven arrangement that enjoys Government support is readily available. The Government Procurement Card in basic terms is a Visa credit card that can be used to purchase goods and services. The card is provided free of charge. The banks operating the service secure profits by making a charge to suppliers. The procurement card has a number of advantages over more traditional purchase-to-pay order based systems. The advantages are as follows.
Key to the introduction of procurement cards is ensuring that the card will bring savings in procurement costs or reductions in administrative time spent on procurement activities. Each organisation must therefore undertake a profiling exercise to determine where spends are made and with which suppliers. It can then be established if savings will be generated from using procurement cards. Any of the major banks, which provide the service as part of a consortium, will assist in identifying which of the Authority’s suppliers are enabled for purchasing cards and whether they can provide line detail and VAT information. They may also actively seek to add specific suppliers to the scheme if it is considered beneficial to the organisation. It is also necessary to establish appropriate processes and controls. The banks involved with the Government Procurement Card will assist with this. The banks will provide documentation such as cardholder manuals, transaction logs for users to record their purchases, card request forms etc. However, it is important that the organisation ensures that its internal processes remain robust. An essential consideration is how widely the procurement cards are to be used. At one end of the spectrum is extensive use where cards are used as widely as possible to capture the one off and low value purchases. At the opposite end of the spectrum is the view that the cards should only be used with specific nominated suppliers, who are capable of providing line detail, capturing cost codes and account details and providing VAT information. This latter approach limits the advantages to be gained but provides the maximum control on use. It does have the benefit of ensuring that spending is directed to contract or approved suppliers. An option, if there are organisational concerns over control mechanisms, is to lodge cards with specific suppliers. This method means that individuals are not issued with a card, rather that the card details are provided to suppliers and then a system is introduced where by individuals can order from that supplier against the details of the lodged card. Consideration also needs to be given to the resources that will be required to manage the issue, control and monitoring of procurement cards. As a minimum there should be a nominated individual who acts as card administrator. An indicative implementation plan is provided at Appendix A (download as .doc file). This provides a methodology for the introduction of procurement cards. Whilst procurement cards have many advantages as evidenced by their growing use and central government support for the facility, they nonetheless do have some drawbacks. These fall into three categories. Financial –not all suppliers are capable of submitting VAT information to the card provider in a format which allows the card provider to separate it out for reclaim. Suppliers therefore need to be chosen carefully with the card supplier to ensure that this potential difficulty is not encountered. Control issues – appropriate mechanisms for limiting a cardholder’s ability to commit fraud must be put in place. These need to be appropriate to control the risk. Internal audit should be consulted on the control measures to be instigated. Process issues – where devolved purchasing is significant, process cost savings offered by the introduction of procurement cards may not be realised. For instance this could be the case where a single item is commonly used but purchased by many. In this situation it may be more efficient to keep the purchasing of that item centrally, rather than allow it to be purchased many times by different cardholders. OPTIONS There are other options besides purchasing cards available to address the problem of disproportionately high transaction costs for low-impact spends and also for the control of maverick spend. These include but are not limited to call-off/framework contracts and the consolidation of suppliers, orders and invoices. Most Authorities will already have all of these or a mix of these arrangements in place. Realistically therefore, implementation of procurement cards potentially provides a further opportunity to generate savings from the procurement process and their use should be explored. IMPLICATIONS There are no specific equality and fairness, health and safety or Human Rights Act implications arising directly from this report. There is no cost to the organisation of joining the Government Procurement Card scheme. Suppliers will incur a cost for taking a card. These costs may however be mainly offset by the guarantee of payment and the shortening of payment terms from some 30 days to 3 to 4 days. There should normally be some savings generated from the introduction of procurement cards for Fire and Rescue Services from focusing spending to approved suppliers. There may be other less obvious savings in staff time through the reduction in administrative activity. There may also be tangible savings from a reduction in the number of BACS payments and/or cheques being raised. CONCLUSION Given the Government’s thrust towards e-procurement it is suggested that:-
|