Citibank Presents: Program Optimization for the Purchase Card

GSA Federal Supply Service

Citibank Presents:Program Optimizationfor the Purchase Card

Citibank Presents: Program Optimization for the Purchase Card

Citibank® Commercial Cards, Government Services

The Eighth Annual GSA SmartPay ConferenceJoyce Heath, Martin Johnson, Valerie Mawdsley, August 1, 2006

Explore

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Goal & Objectives

Discover new ways to grow your existing card program

Find out how you can optimize your program

Listen to a success story

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Agenda

Industry Trends

Program Growth – Then and Now

Strategies to Grow Your Program

Program Optimization

Case Study – Social Security Administration

Summary

Questions

4

Industry Trends

Purchase card benefits– Streamlines the purchase order process for micro-purchases– Replaces petty cash or imprest funds– Provides data for auditing and reporting– Improves spending control – Reduces resources required– Method of payment

Traditionally used to purchase high-volume, low dollar transactions under $2,500

– Maintenance, repairs, operations (MROs)– Services (training / education, technical)– Office supplies

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Industry Trends (continued)

Annual Federal procurement market estimated at $200 billion

Federal purchase card spending– $17.4 billion in spending and 25.9 million transactions

for FY 2005– $1.4 billion in cost savings ($54 x no. of transactions / year)

Efficiencies and accomplishments– Quicker ordering and receipt of goods and services– Maximizes resource availability– Generates detailed reporting– Utilizes common metrics– Earns rebate on spend

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Program Growth – Then and Now

Fiscal Year Volume Transactions Cards

2005 $17.4B 25.9M 301,217

2004 $17.1 B 26.5 M 310,861

2003 $16.3 B 26.4 M 326,850

2002 $15.2 B 25.7 M 392,576

2001 $13.8 B 24.4 M 406,290

2000 $12.3 B 23.4 M 670,374

1999 $10.2 B 20.6 M 517,082

U.S. government purchase card spending

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0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

FY 99 FY00 FY 01 FY 02 FY 03 FY 04 FY 05

Fiscal Year

Num

ber o

f Car

ds

0

100

200

300

400

500

600

700

800

Avg.

Tra

nsac

tion

Siz

e

Number of CardsAvg. Transaction Size

U.S. government purchase card trends

Program Growth – Then and Now (continued)

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Program Growth – Then and Now (continued)

Independent conclusions

Study (Year)Cost of

Purchase OrderCost of

Purchase Card

Net Savings (From Using

Purchase Card)

AGA Study (2006) N/A N/A $87

Palmer & Gupta Study (2005) $89 $21 $60

U.S. Army Audit Agency (1997) $155 $62 $93

GSA Purchase Card Council (1994) $94 $40 $54

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Strategies to Grow Your Program (continued)

Government that works better and costs less– Presidential Executive Order 12352, March 1982– Government chose purchase card, 1989– OMB Circular A-123, August 2005

Benefit #1 - Increased controls– Oversight– Documented internal policies and procedures– Transaction controls

• MCC restrictions• Transaction and monthly spending limits• Cardholder and department level restrictions

Why purchase card?

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Benefit #2 - Obtain better purchasing data– Citibank® Custom Reporting System– Citibank® Electronic Reporting System– Electronic file output

Benefit #3 - Improve vendor management and strategic sourcing

– Reports can paint a bigger picture• Identify top ten vendors• Number of transactions per year• Dollars spent per year• Negotiate better pricing with identified vendors

– Association reports (Visa and MasterCard) • Provides list of vendors who accept the purchase card• Merchant acceptance teams

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Uniform purchase & cleaning

Security expenses (fingerprinting, drug tests, etc.)

Software

Subscriptions

Rental equipment

Safety supplies

Utilities

Telecommunications

Courier services

Licenses

Health services

Short-term leasing

Snow removal

Landscaping

Furniture

Plumbing

HVAC

Purchase orders and blanket purchase orders can be paid for with the purchase card. When soliciting for bids,

stipulate preferred method of payment is by purchase card.

Expanded uses for paying with purchasing cards

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Senior management support– “…increased likelihood of receiving endorsements and

resources for existing initiatives, encouraging compliance to policies, and increasing visibility and buy-in.”Deloitte & Touche 2003 Procure-to-Pay study

Strong A/OPC leadership– Influence current and potential procedures– Strongest knowledge of day-to-day operations

Development of a team– Share the workload between purchasing department,

acquisitions, finance, administrative payments, IT, etc. – Involve key stakeholders– Share the success as well!

Support for the program

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#1 - Analyze higher ticket opportunities – Transactions above $2,500 (micro purchase level)– FedBid Online Marketplace with ePayment

#2 - Identify new pockets of spend– Transactions below $2500 that are not currently

on the purchase card

#3 - Eliminate convenience checks and third-party drafts– Identify opportunities to convert check transactions

to purchasing card

#4 - Participate in Visa’s Program Optimization– Visa will consult with your agency on ways to grow your

program

Four Strategies

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Works best when buying commodities such as:

Computer Hardware, Software & Accessories

Office Equipment, Supplies & Furniture

Medical and Laboratory Equipment & Supplies

Electronic & Security Equipment

Facilities Equipment & Supplies

Simple Services

#1 - FedBid is ... the buyer driven online marketplace for government

“FedBid is like eBay in reverse for government.”Dr. Steve Kelman, Former OFPP Administrator

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Key Benefits of FedBidImproves buyers’ compliance with the FAR

Ensures “the consistent use of fair and open competition”

Documents all competition and bidding information

Reduces cost of goods purchased with reverse auction bidding

Improves small and minority business utilization

Provides seller recruitment and support services

Last 12 Months Federal Metrics – 20 Federal Departments, Agencies, and Corporations

Average no of firms bidding 6.5

Average number of bids per auction 15.9

NET Savings percentage 12.57%

% of dollars going to small business 68.96%

Program Optimization for the Purchase Card

Martin JohnsonVisa USA

What is Program Optimization?

Purchase Card Program Optimization assists federal agencies in improving the effectiveness of their procurement programs

The program:• Identifies opportunities to increase the use of the purchase card • Provides insight for improvement opportunities within the program • Generates recommendations for improving the program

Program Optimization Approach

Track Progress

Deliver Results

Conduct Agenc

Interviewsy

Produce Interim Results

AnalyzeAccountsPayable

Data

EvaluateOpportunity/

EnrollAgenc

y

Our team follows a six-phase process* for program optimization

* Activities may be modified as appropriate to meet agency objectives.

Optimization A/P File Data Requirements

General Ledger Code

Business Unit Code

Cost Center Code

Gross Amount

Invoice Number Payment Date Payment

Method1Supplier

Name

Alpha-numeric

Alpha-numeric

Check, Card, ACH,

etc.MM/DD/YYYYNumericAlpha-

numericAlpha-

numericAlpha-

numeric

Dat

aEl

emen

tFo

rmat

Payment data

G/L Code G/L Description

Spend Category

Alpha-numeric Alpha-numeric Alpha-

numeric

Dat

aEl

emen

tFo

rmat

General Ledger cross-reference information Element is Required

1If payment method is not available the client should provide a list of suppliers which are paid electronically

Supplier Street

AddressSupplier City Supplier

State

Alpha-numeric

Supplier Zip Code

Alpha-numericAlpha-numeric Alpha-numeric

Dat

aEl

emen

tFo

rmat

Illustrative

Visa has created online consultative tools to complement the program optimization efforts, including:

Estimates financial benefits of improving procurement efficiencyCalculates potential benefits of reducing paper and electronic purchase orders

Rates program performance against best practicesRecommends and quantifies benefit of implementing best practices

Benefits CalculatorPerformance Gauge

Procure-to-Pay Consultative Tools

Accounts Payable Analysis ToolThe A/P analysis reports facilitate identification of non-card transactions - resulting in actionable expansion opportunities

Visa U.S.A. Confidential

Transactions between $0 and $2,500 for Fiscal Year 2004Visa Accepting Vendors Totals $40,000,000 75,000Top 1% (40) of Visa Acceptors 53% 42%

Matched Yes

DataNAME OBJ DESCR Total Amount Trans CountFEDERAL EXPRESS CORPORATION $3,539,045 11,844VERIZON $2,796,209 1,805AT&T $1,729,103 1,784QWEST $1,053,575 1,040BELL SOUTH TELECOMMUNICATIONS (UTIL) LOCAL SERVICES $853,159 736

TELECOMMUNICATIONS (UTILITY)DATA/NETWORK $45,275 31TELECOMMUNICATIONS (UTILITY) TOLL CHARGE $31,465 78COMMERCIAL LOC SER/ACCESS DIST $15,181 45COMMERCIAL DATA COMMUNICATIONS $5,554 62TELECOMMUNICATIONS (UTILITY FTS) SERVICE $813 23MISC CONTRACTUAL SERVICES-NOT CLASSIFIED $778 3PENALTY PAYMENTS FOR PROMPT PAYMENT ACT $0 1

BELL SOUTH Total $952,226 979

Illustrative

“Drill – down ability” for each supplier

Spend Details

Policy Tier Total Spend w/ Visa Accepting Vendors


Joyce HeathSocial Security Administration

Social Security Administration

Background

Presented plan to SSA management officials in March 2004

Formed an internal project team in December 2004– Review the results of the draft study – develop a plan of action to move administrative payments under $2500

to the purchase card

Citigroup and Visa provided SSA with a final report January 2005– Matched accounts payable and third party draft data to the Visa

merchant network – Included clear and concise data analysis, findings, disbursement trends

and recommendations

Social Security Administration

Background (continued)

Analysis determined that 39% of the vendors paid within those disbursements (<$2,500) were already part of Visa’s merchant network

Visa and Citigroup provided a second report to compare against previous year’s data

The following findings were identified:– Immediate opportunity to move $20MM in disbursements to the

purchase card and increase financial incentives (refunds)– Potential elimination of paper associated with over 40,000 third party

drafts (cost savings per transaction are estimated at $30, for a cost savings of $1,200,000) and;

– Directional insight for additional opportunities for optimizing the purchase card program

Current Activities

Working with Citibank and Visa to enroll merchants as identified by SSA to accept Visa for purchases, e.g., telephone companies, micro-purchases, etc. Continue movement of specific targeted category of payments to purchase card

– Telecommunications – Micro-Purchase – FedEx

Analyze payment categories for feasibility to move payments to purchase card

– Phasing in offices – Identifying all stakeholders – Reviewing policy restraints (e.g., purchase card dollar threshold limits)– Reviewing/Changing business processes – Benchmark progress and trends – Communicating to users and management by memorandum, newsletter,

website updates, and updates to training material

Future Activities

Approach management for mandates where we deem necessary

Begin Phase II – Moving targeted A/P payments to purchase card (>$0 - $2500 – Estimated spend of $9MM)

Develop mandatory awareness campaign through Interactive Video Training

Conduct telephone interviews with other agencies

What We Learned – What WorkedUpper management buy-in and support of projectEffective Team Members – Finance & Acquisition StaffDirect cardholder contact

– One-on-one training as necessary – Onsite office visits

Awareness campaign – Ongoing written communication Memoranda

– Developed newsletter – Email contact mailbox established– Bulletins and alerts – Emphasized use of centralized email contact mailbox

Strengthen policy – Changing contract language where necessary – Updating user guides and training tools– Updating Administrative Instructions Manual Systems

Placing master list of Visa matched vendors on website

Lessons Learned

What We Learned – What Didn’t Work

Difficult getting agency approval to release payment data timelyfor the Visa Program Optimization Study Executive memorandum did not get filtered down to cardholder levelsTiming of the second report was too early after implementation to reap full benefit of optimization

Lessons Learned

Benefits of Program Optimization

Provided SSA with the ability to develop a strategy to move check payments below the micro-purchase threshold of $2500Gave SSA an opportunity for an immediate payoff in those paymentcategories identified in the study Increased Agency’s electronic OMB payment goalsIdentified potential process cost savings, facilitated oversight of purchases and increased refund paymentsThe entire Optimization program was a significant success with minimal resource commitment on the Agency’s part and at no cost to SSAHighly recommend other agencies take advantage of the program

Conclusion

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Summary

Need to look for new efficiencies and growth opportunities

Purchase card benefits– Better data, increased controls, improved vendor management

and strategic sourcing

Strategies to grow– Identify new pockets of spend – Eliminate convenience checks– Analysis on higher ticket opportunities

Program optimization– Analysis to identify opportunities to expand purchase

card usage– Case study on successful program optimization

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Questions?

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Reminders

Thank you for attending this session!

Visit the Citigroup Welcome Center– Majestic Ballroom C, Level Two– National Industries for the Blind will have a display of products

Visit the Citigroup Technical Demonstration Center– Landmark 5, Level One

Please take a moment to complete your GSA survey for this session

Citibank party is tonight!– America’s Center, Exhibit Hall 3, Level One, at 7:00 p.m.

Citigroup's Corporate and Investment Bank ("CIB") maintains a policy of strict compliance to the anti-tying provisions of the Bank Holding Company Act of 1956, as amended, and the regulations issued by the Federal Reserve Board implementing the anti-tying rules (collectively, the "Anti-tying Rules"). Moreover, our credit policies provide that credit must be underwritten in a safe and sound manner and be consistent with Section 23B of the Federal Reserve Act and the requirements of federal law. Consistent with these requirements, and the CIB's Anti-tying Policy:

• You will not be required to accept any particular product or service offered by Citibank or any Citigroup affiliate as a condition to the extension of commercial loans or other products or services to you by Citibank or any of its subsidiaries, unless such a condition is permitted under an exception to the Anti-tying Rules.

• CIB will not vary the price or other terms of any Citibank product or service based on the condition that you purchase any particular product or service from Citibank or any Citigroup affiliate, unless we are authorized to do so under an exception to the Anti-tying Rules.

• CIB will not require you to provide property or services to Citibank or any affiliate of Citibank as a condition to the extension of a commercial loan to you by Citibank or any Citibank subsidiary, unless such a requirement is reasonably required to protect the safety and soundness of the loan.

• CIB will not require you to refrain from doing business with a competitor of Citigroup or any of its affiliates as a condition to receiving a commercial loan from Citibank or any of its subsidiaries, unless the requirement is reasonably designed to ensure the soundness of the loan.

This presentation is for informational purposes only. Citibank USA, N.A. and its affiliates does not warrant the accuracy or completeness of any information or materials set forth herein. This material does not constitute a recommendation to take any action, and Citibank USA, N.A and its affiliates are not providing investment, tax or legal advice. Citibank USA, N.A. and its affiliates accept no liability whatsoever for any use of this presentation or any action taken based on or arising from the material contained herein.

Citibank Presents: Program Optimization for the Purchase Card

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