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HomeMy WebLinkAbout1996-09-12 City CouncilC ty City of Palo Alto Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:SEPTEMBER 12, 1996 CMR:379:96 SUBJECT:IMPLEMENTATION OF PROCUREMENT CARD PILOT PROGRAM IN THE PURCHASING DIVISION REQUEST On December 18, 1995 (CMR:515:95), Council approved a resolution which provided for the use of BankAmericard procurement credit cards as a part of the City’s banking contract with Bank of America. Council authorized these procurement credit cards, provided procedures governing their use were approved by the City Manager, and staff reported back to Council prior to implementing a procurement credit card program. The purpose of this report is to provide the Council with information regarding staffs plan for the use of the procurement credit cards, including the detailed procedures (Attachment 1). RECOMMENDATIONS This is an informational report and no Council action is recommended. DISCUSSION In the early 1990’s, a new purchasing tool called a procurement credit card was introduced into the marketplace. This new tool provided organizations with a way to simplify and streamline the purchasing and payment process for small-dollar purchases. The procurement credit card works in much the same way as other major credit cards, in that it offers an effective purchase, authorization and payment process. However, it provides controls and reporting capabilities that other credit cards lack. As an example, procurement credit cards allow an organization to predetermine spending limits on a per-transaction and CMR:379:96 Page 1 of 4 a monthly basis. Each transaction is electronically reviewed and authorized or rejected at the point of purchase, using the spending limits specified. The cards also allow blocking of purchases for certain vendor categories. Similarly, the management reporting capability of the procurement card system provides for easy analysis and tracking of purchasing transactions and patterns. Reports provide information on vendor activity (to aid in discount negotiations), individual cardholder activity, and attempted violations. Since the City’s current process for low-dollar purchases is cumbersome, staff believes there are a number of benefits in utilizing the procurement credit card system. Approximately 50 percent of the City’s purchase order volume is for purchases of less than $500, which accounts for less than 1 percent of total purchase order dollars. In many cases, the internal cost of processing these small-dollar purchases exceeds the cost of the goods being bought. Much of this cost is associated with staff time needed to process paperwork. Use of the procurement credit card would release staff time, allowing buyers to concentrate their efforts on the City’s higher dollar purchases. The procurement card also provides value to vendors. It eliminates the need for vendor invoices and the time spent collecting outstanding bills, and the vendor receives payment from the bank within 24 to 48 hours after a transaction is complete. As a result of the efficiencies that can be gained and the value that can be provided to vendors, staff plans to implement a six-month pilot program in the Purchasing Division to test the procurement credit card system. PROCUREMENT CARD PILOT PROGRAM During the pilot program, individual procurement credit cards will be issued to Purchasing staff (buyers). Each card will have a per-transaction, as well as a monthly, spending limit, and will be restricted to the purchase of specified commodities. The card will be restricted to materials purchases (e.g. garden supplies and equipment, batteries, books, videos, small tools, paint, pipe, cable, etc.); the purchase of services, rentals, or leases will not be allowed. At point of purchase, each transaction will be electronically reviewed by the bank; and the purchase will be rejected if it does not fall within the spending limits and the purchase categories specified. Full transaction details will be electronically transmitted from the bank to the City on a daily basis, to facilitate monitoring and control. Responsibility for administering the procurement card program will be given to the Senior Financial Analyst in the Treasury and Investments program of the Administrative Services Department. This staff member will be responsible for: 1) training cardholders in the procurement card procedures to ensure they are understood before cards are issued; 2) issuing cards to cardholders after approval by the Deputy City Manager and the Purchasing Manager; 3) monitoring card activity on a weekly basis to ensure policies and procedures are CMR:379:96 Page 2 of 4 adhered to; 4) arranging for electronic payments to the Bank of America for the monthly purchasing volume; and 5) ensuring cards are returned upon transfer, termination or resignation of a cardholder. Use of the procurement card by Purchasing staff will eliminate much of the paperwork that exists with today’s standard purchasing process. Buyers will place orders by phone, eliminating the issuance and mailing of a multitude of purchase orders. City employees (with proper identification) will pick up materials or have them delivered to the City warehouse or work site. Instead of receiving and paying bills from a host of vendors each month, the City will electronically pay one consolidated invoice from Bank of America for all of the City’s credit card activity. Transaction information can be accessed on-line by cardholders at any time to verify purchases. Staff believes the procurement credit card system will speed up the purchasing process and save money and paper. The use of the card and procedures will be evaluated at the end of the six-month pilot program to determine the effectiveness of the program. Criteria for success will be based on the adherence to policy, the adequacy of controls, the convenience to City staff, and the time and cost savings achieved. Staffwill report back to Council at the end of the six-month pilot program, or before enlarging or discontinuing procurement card usage. FISCAL IMPACT The fiscal impact associated with the procurement card pilot program is minimal. Bank of America has agreed to waive all procurement card fees through July 1997. Therefore, no funding is required for the procurement card pilot program. If the pilot program is successful and the procurement card program is continued, fees will vary depending on the number of procurement cards issued and the dollar volume of annual purchases. In any case, the fees are nominal, no more than $150 per month. It is anticipated that, as buyers are released from handling small dollar purchase orders, there will be some savings from negotiations on higher value purchases. In addition, use of the cards will prevent project delays that sometimes occur with the City’s existing purchasing process. However, savings directly attributed to the use of the procurement cards will be difficult to quantify, because the "savings" are really seen in terms of more effective use of Purchasing staff time. POLICY IMPLICATIONS This informational report does not contain any changes to existing City policies. CMR:379:96 Page 3 of 4 ATTACHMENTS Attachment 1" Purchasing Division Procurement Credit Card Policy and Procedure PREPARED BY: Miki Caldwell, Senior Financial Analyst DEPARTMENT HEAD APPROVAL Em]~7~, H~rrison_~t Deputy City Manager, CITY MANAGER APPROVAL: C CC: n/a CMR:379:96 Page 4 of 4 ATTACHMENT 1 CITY OF PALO ALTO PURCHASING DIVISION PROCUREMENT CARD POLICY AND PROCEDURE DATE: SEPTEMBER 1996 PURPOSE The Procurement Card may be used by authorized employees in the Purchasing Division of the City of Palo Alto to purchase goods on behalf of the City. The intent of this policy and procedure is to accomplish the following: To ensure that use of the Procurement Card is in accordance with the City’s ordinances, policies and procedures. To ensure that Procurement Cards are used for authorized purposes only and that appropriate internal controls are established. To provide an alternative method for procurement of low dollar items to reduce the processing cost and expedite the purchasing process. ADMINISTRATION A Procurement Card Administrator from the Administrative Services Department and shall be appointed by the Deputy City Manager, Administrative Services. 2.The Procurement Card Administrator shall not be a cardholder. The Procurement Card Administrator shall process approved card applications for the Purchasing Division employees (Exhibit 1) to Bank of America, transmit issued cards to the cardholder and maintain the original copy of the Cardholder Receipt Acknowledgment form (Exhibit 2), which shall be completed by each employee upon receipt of a Procurement Card. The Card Administrator shall train cardholders in the procurement card policies and procedures prior to issuing cards. o Spending limits, per transaction and per month, shall be established by the Manager, Purchasing and Contract Administration and Deputy City Manager, Administrative Services for each card, and will vary depending on the purchasing history for each commodity procured by the Purchasing employee. The procurement card will be used to purchase items requested on an approved Purchase Request. At point of purchase, suppliers will verify cumulative expenditures through the Procurement Card authorization network to ensure that the transaction falls within the cardholder expenditure limit. The merchant will obtain an authorization number, provided the purchase is within the established expenditure limits. The purchase will be denied if the expenditure limit is exceeded. The Card Administrator is responsible for monitoring card activity for each cardholder on a weekly basis to ensure compliance with the policies and procedures herein. Goods may be picked up by a specified City employee with proper identification, delivered to work sites, or to the City warehouse. The cardholder shall require suppliers to mark shipped or delivered goods to the attention of the ordering individual, including the appropriate internal destination (building, floor, room number, etc.) and shall indicate clearly on shipping documents that a Procurement Card was used for the purchase. 10.Warehouse personnel will receive goods ordered using Procurement Cards, provided the destination is clearly indicated. A log of receipt of Procurement Card purchases shall be kept by Warehouse staff. 11.The cardholder must obtain an original receipt from the supplier and record the appropriate account number on the receipt. If goods are ordered by phone, the cardholder must request a receipt. 12.If a purchased item is returned for credit, the credit voucher from the supplier must be attached to the invoice on which the credit appears. 13.The cardholder shall maintain a Monthly Activity Log (Exhibit 3) with the original receipts that pertain to each transaction. 14. 15. The monthly activity of each card will be billed directly to the cardholder, who shall be responsible for verifying the validity of each charge and matching charges with the original receipt. The approved statement will be forwarded to Accounts Payable for reconciliation with the monthly payment. The card Administrator will arrange for the monthly payment to Bank of America by wire transfer. .CARD RESTRICTIONS 16.Purchases shall be strictly for the City of Palo Alto. Items excluded from Procurement Card purchase under this program are: Rentals and leases, Services, Cash advances through any means, Items available through Stores, Items covered by existing blanket orders, Items covered by the City’s office supply contract. RESOLUTION OF DISCREPANCIES 17.Cardholders are responsible for resolving discrepancies with the assistance of the Procurement Card Administrator, if necessary. Following the resolution of the discrepancy, the employee shall assure that the appropriate adjustment is made by the seller and is promptly reflected in the subsequent statement. CARD LOSS OR CANCELLATION 18.The cardholder shall immediately notify the Manager, Purchasing and Contract Administration and the Card Administrator if their card is lost or stolen. The Procurement Card Administrator shall cancel the card and shall arrange for replacement if approved. CITY PROPERTY 19.Procurement cards are the property of the city of Palo Alto and shall be used for City purchases only. The cardholder must be able to satisfactorily explain the nature of each purchase and its necessity for official City use. Improper use of the Procurement Card will result in disciplinary action. 20.Procurement Cards are issued in the name of an individual employee (cardholder) and the City of Palo Alto. Cards are not transferrable. No other person is authorized to use the card. The card must not be used for personal purchases under any conditions. 21.The Procurement Card provider will not request any personal information from the cardholder, nor will there be any credit checks on the cardholder’s personal credit history. 22. 23. The Card Administrator is responsible for tracking the status of cardholders and shall ensure cards are returned when a cardholder transfers, resigns or terminates employment. The cardholder must return their card to the PrOcurement Card Administrator upon transfer, resignation or termination of employment. The cardholder is responsible for the security of the Procurement Card and shall keep the it in a secure (locked) place when the card is not in his possession. OTHER REQUIREMENTS 24.The cardholder is responsible for complying with applicable Federal, State and City ordinances, regulations, and policies and procedures. Questions about procurement regulations should be addressed to the Manager, Purchasing and Contract Administration.