Watch for pitfalls in credit card programs

Robert J. Sherry

As a way to further electronic commerce, purchasing card programs are taking off in state and local governments.

Typically, purchasing-card programs are developed by state or local governments to give designated representatives of budgeted agencies or offices a quick and efficient way to make small purchases. The cards generally are issued by national financial institutions.

Two principal benefits result from purchasing-card programs. First, government cuts its paperwork. In some jurisdictions, using purchasing cards means that the creating documents such as requisition forms and purchase orders can be eliminated. This streamlines the small purchase procurement process. Less paperwork means lower costs.

Second, the ability to go into the field and make quick buys without a lot of hassle reduces the need for keeping petty cash funds and the associated record-keeping.

Properly implemented purchasing-card systems can also eliminate other problems. For example, an agency can assign cards to people within specific bureaus or offices, and the cards can be associated with particular general- ledger or other accounting designations. This gives financial, budget and audit personnel a much clearer picture of the types of expenditures made and helps to associate the spending with particular budgets or programs.

Some states have teamed with banks to use the purchasing card programs in tandem with existing fiscal information systems. New Jersey, for example, last year implemented its PCard program. The state worked with its banks to develop a system that would process orders made with the purchasing cards and ensure that associated data would be processed within the framework of the state's automated purchasing system.

States and local governments that implement credit card purchasing systems need to ensure that they are consistent with procurement laws and regulations, especially those mandating competition in procurement. Among the questions to ask: What limitations on purchasing authority will be placed on each employee? Which goods and services will be covered by the card program? Will authority limitations vary according to the employee's grade or position, contracting warrant or responsibilities?

Don't forget oversight. A credit card program may add new duties to already overburdened managers. Still, it's crucial to establish audit programs to monitor usage and the economic impact of a card program.

Robert J. Sherry is a partner in the law firm of McKenna & Cuneo LLP. He heads the government contracts practice in the firm's San Francisco office, counseling information technology companies on federal, state and local issues.

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