THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 604

A Review of State Agencies’ Use of Procurement Cards

Executive Summary

Background

Procurement cards are credit cards issued to public employees to make purchases on behalf of the state. Mississippi adopted a procurement card program in 2002, thus reducing the state’s use of traditional purchase order methods (e. g., disbursement of paper checks).

The Office of Purchasing, Travel, and Fleet Management, an office within the Department of Finance and Administration, is responsible for administering the procurement card program. Procurement cards are provided to the state through UMB Bank, a financial institution located in Kansas City, Missouri.

Spending in Mississippi’s procurement card program more than quadrupled between calendar years 2010 and 2014. Mississippi has spent approximately $93 million through procurement cards over the past four years, following the national trend of increasing program spending. OPTFM intends to increase the amount of spending conducted through the program by encouraging more state entities to participate in the program.

Procurement cards provide users with cost and time savings through electronic (versus paper-based) procurement. Procurement card programs typically generate monetary rebates, which then may be spent at the discretion of the users.

How does the state manage and oversee the procurement card program?

Procurement cards eliminate the mandatory use of traditional methods designed to prevent purchasing abuse and misuse (e. g., paper-based requisitions, multiple approval signatures). Therefore, strong management and oversight become vital to protect the use of state funds.

The Office of Purchasing, Travel, and Fleet Management (OPTFM) has designated one employee, the Procurement Card Administrator, to manage the state procurement card program. The administrator is primarily responsible for the day-to-day management of the program and has collateral duties related to contracts and travel. OPTFM has put forth guidelines for participating agencies’ use of procurement cards.

OPTFM requires that each program participant have a designated procurement card coordinator who is to oversee appropriate use of the card at the agency level. Agencies’ procurement card coordinators are responsible for training, reconciliation, and distribution of information about the procurement card program. OPTFM also requires that each cardholder sign an agreement acknowledging liability and that he or she adheres to purchasing laws, maintains receipts, safeguards the card, and reviews monthly statements for accuracy.

Have state agencies complied with procurement card guidelines?

PEER used transaction data to select three state agencies (a small, medium, and large agency based on the amount of procurement card expenditures and frequency of card transactions in July 2015) to test for compliance with procurement card guidelines.

In the three state agencies selected for a review of compliance with procurement card guidelines, PEER found sixty instances in a sample of FY 2015 transaction data in which agencies did not comply with three specific OPTFM requirements for the procurement card program (i. e., itemized receipts, no payment of sales tax, and documentation). Collectively, the sixty violations translated into a twenty-three percent rate of noncompliance for the transactions reviewed. Additionally, PEER found other instances of noncompliance, including lapses in agencies’ security over procurement cards. These incidences of noncompliance demonstrate OPTFM’s inability to ensure the accuracy and legitimacy of purchases made with procurement cards at the individual agency level.

PEER believes that the causes of noncompliance with procurement card guidelines in the three agencies reviewed may be traced back to deficiencies in training, monitoring, and auditing related to the procurement card program.

Has the state received the full benefit of the rebates from the procurement card program?

State law lacks provisions that provide guidance to OPTFM regarding state agencies’ accrual of, access to, and use of procurement card rebates. As a result, certain agencies are not aware that they have earned a monetary rebate. The state procurement card guidelines do not address monetary rebates and agencies are not informed about rebates they have earned unless they are receiving the rebates directly. Rebates are an indisputable benefit of the program, yet little attention has been paid by the state to ensure that this benefit is distributed and accounted for in a transparent manner.

Recommendations

1. OPTFM should mandate testing and training (either face-to-face or online) for program coordinators, cardholders, and approving officials to participate in the procurement card program. Training material should be tailored to the specific roles involved in the procurement card process (i.e., coordinators, approving officials, and cardholders). For example, training for a reconciler might include a hands-on review about how statements should be reviewed each month. OPTFM should develop written guidelines that address what actions enrollees should take if they do not have a designated program coordinator for an extended period.
2. OPTFM should:
   
   
   • delegate day-to day management of the program (i. e., granting exceptions) to a UMB bank representative;
   • request support from the bank (e. g., auditing software, quarterly reports with updates of relevant program data) to review comprehensive reports on program activity;
   • encourage or require agencies to monitor program activity holistically and consistently;
   • employ scientifically supported auditing and sampling methods, whether those methods be utilized electronically or in person;
   • create internal systems to manage and track overrides (exceptions) and revise procurement card guidelines to distinguish clearly between purchasing on back order and online purchasing;
   • if OPTFM’s resources (e. g., time, staff, and finances) are not sufficient to oversee all 28,000 plus cards, reduce the number of participants in the program to reflect the amount of resources OPTFM has available to oversee the program;
   • cease accepting new cardholders into the program until the concerns about oversight and internal controls are addressed;
   • require UMB to perform a full eradication of all errors related to program data and increase the reliability of program data; and,
   • if UMB cannot meet needs of OPTFM to assist in overseeing the program (e. g., take over daily management of the program, provide spending reports regularly, expand their administrative view to include more than one month), OPTFM should pursue another financial institution to sponsor the program.
3. The Legislature should amend MISS. CODE ANN. Section 31-7-23 (1972) to include a provision specifically related to rebates generated through the state procurement card program. The provision should include detailed, objective criteria outlining how rebates should be distributed and appropriated. Further, OPTFM should revise the State Procurement Card Guidelines to include a detailed description of rebates (e. g., which agencies can receive them, in what instances, how to obtain escalation authority) in an effort to inform participants of benefits that could potentially be due to them.
   
   OPTFM’s vendor contract for procurement card services should outline the rebate agreement.

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