Lower Costs Through The Use of Purchase Cards

Lower Costs and Reduce Bureaucracy in Small Purchases Through the Use of
Purchase Cards

Background

In most federal agencies, employees have two ways to obtain needed goods
and services. They can either submit a procurement request to a
contracting officer or go to a central stockroom.  Managers are
frustrated because the cost of paperwork to obtain the items often
exceeds the cost of the item, the process is very timeconsuming, and
they must go through procurement personnel to buy even simple,
smalldollar items. A more efficient method is the use of a commercial
purchase card service available through a General Services
Administration (GSA) contract.1 The use of the purchase card is
particularly effective for acquiring small amounts of supplies or
services. For example, a manager or a procurement official can quickly
acquire a single, fully equipped personal computer, software, and
related supplies using the purchase card.

Currently, federal agencies may choose to participate in the purchase
card program. Under the program, authorized federal employees (including
line managers) may use a commercial purchase card to pay for goods and
services bought on behalf of the federal government. The card, called
IMPAC (International Merchant Purchase Authorization Card), is
recognized internationally and is accepted wherever the Visa card is
accepted. Within the government, GSA is now the only supply source that
accepts IMPAC. The card is used for purchases or for payments to settle
outstanding contracts. The latter use is a less expensive alternative to
traditional invoicing procedures.

A very effective system exists to ensure accountability in the use of
the card. The card is restricted to purchases and payments of less than
$25,000, which by law are treated as small purchases. IMPAC may not be
used to obtain cash advances. Average total purchases under the IMPAC
program are $1.7 million per day.  However, IMPAC can handle
significantly larger volumes. The average individual purchase is $271. A
fraction of a percent of all invoice amounts is currently charged to the
government under the IMPAC contract. However, GSA is looking to reduce
these costs by recompeting the contract with a provision for the
successful contractor to provide the government with a rebate based on
the total amount of purchases made on the card.

IMPAC payments are processed using the same procedures established for
holders of standard Visa cards. The employee signs the sales draft and
receives a copy. Merchants receive prompt payment through Visa's
international settlement system.  Various daily, monthly, and quarterly
reports are available to the government so that use of the cards can be
monitored and controlled. Card holders receive monthly statements to
verify billings. After the billings on a particular statement are
verified by the cardholding employee, the statement is independently
reviewed for approval before being sent to the agency's finance office
for payment.

Many agencies do not permit the use of IMPAC or heavily restrict its
use, thereby making it impossible for most managers to use the card.
Agencies that do use IMPAC determine the employees who get the cards and
set limits on the types and amounts of small purchases that can be made
by each employee. In some cases, agencies place spending limits directly
on their IMPAC accounts.

Need for Change

The reasons to expand the use of IMPAC are significant. First, nearly
all managers complain about the inability to get basic office tools on a
timely basis. For example, if a manager has a need for commercially
available personal computers and software for a special project or for a
new employee, the manager should be able to get it quickly to satisfy
the need. The use of the purchase card would be especially helpful here.

Second, using IMPAC will result in major cost savings to the government
and the taxpayers. Its use should virtually eliminate the paperwork
normally required in preparing a purchase order and processing a
government invoice. This is significant when applied to the 11 million
purchases the government makes annually under the simplified acquisition
procedures. If only 50 percent of all small purchase transactions made
annually are done using the purchase card, a conservative estimate is
that $180 million can be saved annually in federal administrative costs.
Moreover, IMPAC costs less than traditional methods of making small
purchases. The General Accounting Office estimates that using the
purchase card instead of a purchase order saves between $29 and $227 per
transaction.2 These savings are significant and achievable.

Third, use of IMPAC enables managers to better manage cash, control
funds, and reduce the cost of keeping imprest (petty cash) funds on
hand. The reports of IMPAC activity permit careful tracking of the
amount, type, and timing of small purchases. All transactions under
IMPAC are more readily verified through a consolidated review, approval,
and payment process. This permits managers to carefully and efficiently
verify the transaction, receipt, and dollar value of every small
purchase while eliminating the paperwork burdens and controls that
imprest funds require.

Cross References to Other NPR Accompanying Reports

Reengineering Through Information Technology, IT11: Improve Methods of
Information Technology Acquisition.

Improving Financial Management, FM08: Reduce Financial Regulations and
Requirements.

Endnotes

1. GSA Schedule Number IG 615, Governmentwide Commercial Credit Card
Service, July 28, 1992.

2. U.S. General Accounting Office, Cash Management, Benefits, and
Limitations of the Small Credit Card Program, AFMD9089BR (Washington,
D.C.: U.S. General Accounting Office, September 1990), p. 28.