For Schools: Current Best Practice for Procurement and Accounts Payable

Ronald Everett

Summer 2007

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

What does it actually cost to complete a PO? From requisition to receiving

item? From requisition to paying for

item?

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

Bench Marking Questions

How many non-payroll checks are written each month?

What % are for less than $1,000?

What % are for less than $500?

Real example of reducing paperwork Fulton County Schools, Georgia 70,000 Students 2 cards per building Reduced PO’s from

60,000 to 30,000

Another example of reducing paperwork

Naperville 203 2001 - 9,847 PO’s 2006 – 4,724 PO’s Saved 5,123 PO’s 5,123 x $75 = $384,225 in man-hours 5,123 x $2.50 = $12,807 in postage What can you eliminate? What can you save?

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 IOMA article – 60% of case study

purchases less than $1, 000

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?

Key to Consolidating Small Purchases into one payment:

Get p-Cards into the hands of those 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 (up to 24 characters)

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

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

May 5 48 84 137

June 7 53 88 141

July 12 58 88 145

August 16 61 93 146

September 18 66 99 152

October 20 68 103 158

November 21 71 106 161

December 24 72 109 163

January 26 76 113 177

February 30 80 114 183

March 36 81 117 187

April 41 83 133 194

41 83 133 194

p-Card Growth – Number of CardsMonth 2003-04 2004-05 2005-06 2006-07

May 5 686 2323 2356

June 24 957 2323 2742

July 24 1088 2420 2659

August 170 1100 2477 2799

September 187 1141 2477 2799

October 311 1475 2156 3336

November 354 1585 2336 3307

December 362 1647 2159 3362

January 395 2149 2685 3532

February 448 2149 3071 3585

March 489 2179 2900 4711

April 618 2186 2967 4825

618 2186 2967 4825

p-Card Growth – Purchasing VolumeMonth 2003-04 2004-05 2005-06 2006-07

May 1,200 355,405 1,025,004 2,562,422

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

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

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

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

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

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

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

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

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

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

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

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

Rebate History

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

Customized Card Design

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

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

Current Rebate Schedule 5/1/2007APV 21 Day 14 Day 7 Day

Tier 6 $70,000,000+ 1.00% 1.10% 1.20%

Tier 5 $50,000,001- .95% 1.05% 1.15%

$70,000,000

Tier 4 $30,000,001- .85% .95% 1.05%

$50,000,000

Tier 3 $20,000,001- .75% .85% .95%

$30,000,000

Tier 2 $10,000,001- .65% .75% .85%

$20,000,000

Tier 1 $5,000,001- .55% .65% .75%

$10,000,000

Billing and Payment

Monthly Billing StatementsConsolidated Billing Statement (Available online)Cardmember Report (available online) Individual Reports

Payment MethodsElectronic Funds TransferAutomated 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 (7-24)

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 vendor transaction costs Vendor paid by Harris within 48 hours of

shipment/pick-up Reduces the issues of partially filled

orders

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. Request information packet from State Affiliate ASBO or click here for printable version

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

3. Identify local p-Card administrators

4. Complete application packet – send to Illinois ASBO

Our Sponsors: (Click to visit website) IPA IASA IASB

Partner States: Wisconsin Indiana Oregon Minnesota (PMA) Washington Alaska

The Next Step

Order Cards Training with Harris Bank/BMO Distribute Cards 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:

For more information, word documents and other tools, or to download all available files, please go to www.iasbo.org.

Kim Lamansky815.753.9083 (tel)815.753.9367 (fax)lamansky@niu.edu