Reining in public procurement spending

YOU COULD almost hear the collective groan when Margaret Hodge outlined the findings of the Public Accounts Committee’s review of government procurement cards (GPC). Following the MPs’ expenses scandal in 2009, and a number of high-profile indiscretions since, it was difficult not to feel a sense of deja vu when Hodge pointed out the lack of central controls and checks which left GPC open to abuse.

With Britain still in the grip of a recession, public sector organisations are under increasing pressure to do more with less. So, when old stories about suspect expense claims for donuts and champagne surface, it’s easy to paint a picture of government officials rinsing the corporate card on taxpayer-funded jollies. Of course this type of abuse should not have been allowed to happen, but it’s unfair to lay the blame solely at the feet of GPC.

Hodge’s report did little more than confirm what we have all known for a very long time; encouraging people to spend more on cards can help save time and money, but only if you have the right back-office systems in place to support it.

GPC was introduced 15 years ago to address the very real challenges of crippling administration, complex red tape, late supplier payments and a lack of spend transparency in the procurement process. Getting the public sector to purchase everything from paper-clips to school food supplies using a credit card was a smart move, designed to bring about wholesale improvements to the procurement process.

Rather than manually processing receipts, approvals, invoices and payments for low and medium value spends GPC frees government employees to make these purchases quickly, and without the slow, physical paper-trail, manual data processing and multi-layer approval processes.

As with all debit and credit cards, GPC also makes the purchasing process far more visible. Management can see transactions within a day or two of the money being spent, rather than waiting for invoices to come through and employees to file their expenses. Let’s not forget GPC contributed £45m in public sector savings last year alone.

The benefits of GPC are pretty clear, but it’s only half the battle. You can’t just hand out hundreds of thousands of cards, without putting the controls, management and guidance in place to ensure people aren’t abusing the system, intentionally or otherwise. Unless you’ve got the right management information, purchasing cards can very quickly lose their value.

The failings that the PAC points out, including backlogs of unapproved transactions, and limited approval and reviewing procedures, should have us worried, but scrapping GPC is not the answer. Used properly the GPC should actually make it much more difficult for employees to sneak through dubious claims, as it allows management to see what’s actually being spent, where, when, how much and by whom. Unfortunately, the GPC was often poorly managed and implemented from the start. The expense scandals and recession have just highlighted the urgent need for this to be rectified. Many public sector organisations have taken this very seriously and made changes to stop these issues occurring with future spend

The Audit Commission recently praised Essex County Council for “significant improvements” to their processes and described their system as “robust”. Yet even this week the councils procurement card spending has been called into question by those quick to sling the mud without the necessary context around what these purchases were for.

Like all businesses Essex County Council incurs costs across the organisation which must be met and P-cards are an efficient way to do this. They’d seen the benefits of GPC but realised several years ago that procedures for recording purchases were not always followed correctly, and it was difficult to get a clear view of where the £1.8m in expenditure on cards was being spent. They addressed these challenges head-on by implementing an online transaction management tool that gives them complete visibility of their spend. It allows them to see where money is being spent, capture receipts, ensure authorised approvals are given and manage policy compliance. Essex County Council have also saved an additional £229,000 per year through efficiency savings, more accurate VAT reclaim and reduced administration for front-line staff.

There are other notable success stories across the public sector, where departments and councils have put in place back-office systems to control their purchasing card spend and seen not just increased control and visibility but tangible cost savings too.

Walsall Council realised that with their old manual method it was costing more to process a stationery invoice than the value of the invoice itself! Using a transaction management system allowed them to remove over 20,000 invoices from the process as well as reducing the cost to process each transaction from £5.60 to just 25p.

It’s not difficult to see how an online system that allows finance and management teams to interrogate transaction data, streamline processes, and improve policy compliance is the link between these success stories. In fact, now GPC card is under complete control, many organisations are looking to increase the numbers of cards to take advantage of further efficiency savings.

Amyas Morse, head of the National Audit Office believes the government procurement card can be a cost-effective way for central government to buy goods and services. However, the taxpayer and management need to have confidence that it’s being used appropriately.

I feel like I’m stating the obvious here, but surely the easiest way to achieve this is to create a level playing field. One where all departments are required to put in place minimum standards to manage and automate expenses. Seems easy, but we’ve been here before, and my sincerest hope is that I’m not here in two years saying the same thing again.

Shane Bruhns is CEO of Spendvision