p-Cards for Schools: Streamline Your Procurement and Accounts Payable Process Spring 2008

Ronald E. Everett

Myth:

The more paper, the better the paper trail

The Traditional PO Process Can The Traditional PO Process Can Be Painful…Be Painful… Paper Intensive / Mountains of Paper Multiple Departments Involved Same Process Regardless of Transaction Value High Average Per Transaction Cost to School

District High Average Per Transactions Cost to the

Vendor Not Cost-Effective for Small Purchases

(Less than $2500)

What does it actually cost to process a PO from start to finish? Requisition Approval Purchasing Receiving Accounts Payable

What are the Experts Saying?What are the Experts Saying?“The average cost of processing a purchase order manually is between $75 - $200. Automating procurement reduces that cost to between $10 - $40... The Return-On-Investment (ROI) is amazing.” Deloitte Consulting

Accenture US Bank Fifth/Third Bank American Express Chicago Public Schools - Elgin U-46 - Rockford

Real example of reducing paperwork Naperville 203 2001 - 9,847 PO’s 2006 – 4,724 PO’s Saved 5,123 PO’s

Savings of Time and Money for Naperville 203 PO’s Eliminated

5123 * $75 = $384,225 PO’s Still Used But With Improved Efficiency

4724 * $35 = $165,340Total: = $549,565*

*Assumes MINIMUM savings rate based on citedresearch studies.

P-Cards Should Not:

Eliminate all of the Purchase Orders a district uses – whether paper or electronic!

Only the many small PO’s will be eliminated.

Bench Marking Questions

How many non-payroll checks are written each month?

What percentage are for less than $1,000?

What percentage are for less than $500?

Why is the Streamlining of Small Why is the Streamlining of Small Purchases Significant?Purchases Significant?

The majority of transactions in most

organizations are for relatively small amounts District 203 – 58% of AP checks are for

less than $500 District 204 – 58% of AP checks are for

less than $500 Private Sector Business case study:

60% of purchases for less than $1, 000

The reduction of PO’s has also resulted in the reduction of checks written Naperville 203 (Cont’d) 2001 – 16,954 Checks Written 2006 – 8,689 Checks Written

Savings of 8,265 Checks!

Postage savings alone = $3,388

Savings for Naperville 203 caused by writing fewer checks Actual Savings from Checks NOT Written

*$2.50 * 5123 = $12,807 Postage to mail each check

$0.41 * 5123 = $2100Total = $14,907

*Cost of check, envelope, stuffing and mailing.

Ask yourself:

What can you eliminate? What can you save?

Bench Marking Questions

How many “petty cash” transactions per year?

How many “emergency/reimbursement” checks written per year?

How many “imprest fund” checks written each year?

Could all of these small transactions each month be consolidated into one payment?

Who are the employees creating all of these small purchases?Get the cards into the hands of people who do the purchasing.

Key to Consolidating Small Purchases into one payment:

As a minimum – Get p-Cards into the hands of as many employees as you can who are currently making small purchases/ generating PO’s of less than $1,000.

What are Procurement Cards?What are Procurement Cards?

They look and operate similar to credit cards

They do not carry a revolving line of credit Usage and authorization parameters can

be reviewed and managed via the internet by district administration

Specific card use parameterscan be established for each card

Transaction limits per chargeMonthly limitsPreferred Supplier RestrictionYou control what can be purchased, where

it can be purchased from and limit amount per transaction

Customized Card

design can display:

Card holder name School District name and

number and/or Tax ID

2 Lines of text per card

Advantages of an Association Sponsored Program Single Contract Creates a user group/support network Negotiation clout Due diligence costs eliminated Rebates

Rebate Distribution

Rebates are calculated in May and distributed in June to Illinois ASBO

We then turn around and distribute to each district

Rebate History

2003-04 $0 2004-05 $46,101.51 2005-06 $125,522.01 2006-07 $295,899.63 2007-08 $??

Current Rebate Schedule 5/1/2007

Tier 6 $70,000,000+

Tier 5 $50,000,001- $70,000,000

Tier 4 $30,000,001- $50,000,000

Tier 3 $20,000,001- $30,000,000

Tier 2 $10,000,001- $20,000,000

Tier 1 $5,000,001- $10,000,000

p-Card Growth - DistrictsMonth 2003-04 2004-05 2005-06 2006-07 2007-08

May 5 48 84 137 205

June 7 53 88 141 207

July 12 58 88 145 213

August 16 61 93 146 217

September 18 66 99 152 220

October 20 68 103 158 220

November 21 71 106 161 220

December 24 72 109 163 246

January 26 76 113 177 265

February 30 80 114 183 265

March 36 81 117 187 287

April 41 83 133 194 295

41 83 133 194 295

p-Card Growth – Purchasing Volume

2003-04 2004-05 2005-06 2006-07 2007-08

May 1,200 355,405 1,025,004 2,562,422 3,512,633

June 30,500 420,569 1,018,773 2,558,846 3,806,285

July 24,300 356,835 1,140,360 2,354,778 3,392,511

August 24,700 452,171 1,499,626 3,374,260 5,023,218

September 101,400 697,709 1,499,395 3,376,079 4,270,506

October 186,900 664,393 1,405,328 2,622,251 5,203,320

November 192,100 623,687 1,448,102 2,719,870 4,617,983

December 217,000 733,780 1,374,497 2,607,935 4,057,096

January 194,200 709,256 1,606,136 2,534,792 4,341,755

February 254,700 987,478 1,763,880 2,466,692 5,264,745

March 357,400 885,233 2,257,205 3,227,319 5,059,284

April 318,600 1,181,706 2,454,114 3,475,371 6,398,865

1,903,000 8,068,222 18,492,420 34,344,057 55,017,907

Customized Card Design

Individual Card Department Card – No Fraud Coverage Ghost Card – No Plastic – No Fraud

Coverage

Billing Cycle Requirements

School District may choose a billing cycle cut-off of the 5th or the 20th

Payment is due at Harris Bank within 21 days of billing cycle cut-off Penalty for late payment (Prime + 7%) on all

transactions in the billing cycle Penalties can be avoided with pre-planning and

monitoring online usage reports

Only 3 Possible costs to participating school Late fee ATM Charge – IF cash advance option is

selected Interest owed on any cash advance

Billing and Payment

Monthly Billing StatementsConsolidated Billing Statement (Available

online)Cardmember Report (available online) Individual Reports

Payment MethodsAutomated Clearing HouseCheck

Why was MasterCard selected?

Superior vision with technology and e-commerce

Fraud Protection insurance Dedicated group to sign up suppliers Customized card design displaying the

name of card holder, school district and/or tax exempt number

Why was MasterCard selected? (Continued) Individualized training Global acceptance at over 35 million

locations Retailers benefit from low transaction

charge

Online Capabilities (24/7)

Online Program Management Submit, approve, and cancel Card accounts Instant Account Activation Adjust spending limits/manage Cardmember profiles View Cardmember charges Change accounting information

Online Information Services View/Manage Program Information Access to Web reporting tools

Vendor Benefits

Reduces paper processing/billing Reduces vendors’ time/costs of

processing/depositing payments Reduces vendor transaction costs Vendor paid by Harris within 48 hours of

shipment/pick-up Reduces the issues of partially filled orders

Reduces vendors time/costs of processing & depositing of payments

Benefits of a p-Card Program for ManagementEasier on Accounts Payable

Submit one monthly payment vs. multiple payments to multiple vendors

Reduction in paperwork Fraud prevention and protection through the Bank

and MasterCard Detailed reporting available 24 x 7 Easy online administration and dedicated customer

support Control on spending limits and accepted vendors

How to Get Started

1. Download documents www.illinois-pcard.com

2. Submit resolution to local board of education for purchasing card participation

3. Identify local p-Card administrators

4. Complete application packet – send to State ASBO affiliate

The Next Step

Order Cards Training with Harris Bank/BMO Distribute Cards/Train Cardholders Reconcile Bills

Side Benefits

More time on task Less wasted time Reduction in the publication of the annual

“Statement of Affairs” Reduction in time/cost of monthly bank

statement reconciliation Better investing/cash management

A Sampling of Major Textbook Companies who accept the p-Card:

Sample of Suppliers who accept the p-Card:

Partners :

Illinois Principal Association (IPA) Illinois Association of School Administrators (IASA) Illinois Association of School Boards (IASB)

For more information, word documents and other tools, or to download all available files, please go to www.illinois-pcard.com.

Holly Wallace815.753.9083 (tel)815.753.9367 (fax)hwallace@niu.edu

p-Cards for Schools: Streamline Your Procurement and Accounts Payable Process Spring 2008

Ronald E. Everett