Too Many Controls Make A Payment Strategy Heavy And Sluggish

By Lynn Larson, CPCP, NAPCP Education Manager

Time and again, organizations of all sizes say they want to improve efficiencies and reduce costs. Yet they sabotage this goal by over-controlling their payments and, in particular, card programs (e.g., Purchasing Cards). Can you identify one or more organizations that over-indulge in this respect?

Lean, effective payment strategies will remain elusive if organizations limit themselves to traditional purchase-to-pay (P2P) processes, most often involving a requisition, purchase order, invoice and then payment. With so many steps, the process cost often exceeds the value of the item being acquired (e.g., the cost to purchase a $25 wrench may exceed $100).

Traditional P2P processes, with their well-known controls (e.g., pre-purchase and pre-payment approvals), represent the ultimate comfort food within the commercial payments industry. However, there’s a cost to these controls, which is often overlooked in an organization’s quest to curtail risk. People gravitate toward what makes them comfortable. The notion of comfort is what makes ePayables so appealing to organizations evaluating the various commercial Card solutions. ePayables, of course, are designed to allow organizations to keep doing what they have always done, but switch from paper checks to electronic payments. They feel leaner as a result, but this doesn’t mean they have a well-balanced payment strategy. Reducing check payments is just one part. Commercial Card providers need to help these organizations — their clients — understand the necessity of a multi-faceted approach.

In the name of control, it might be tempting for an organization to utilize ePayables for purchases ideal for P-Card. They may not see an issue with this when revenue sharing (rebate) incentives are typically offered for both. However, the bulk of an organization’s purchases, based on transaction volume, do not warrant many of the pre-purchase controls of the traditional P2P process. They could be efficiently streamlined with P-Cards rather than mindlessly “rubber-stamped” and pushed through the chain.

P-Card controls have proven to be effective and palatable when properly utilized and enforced. For example, the key control for detecting external fraud is cardholder reconciliation of their transactions. Unfortunately, a third quarter 2012 NAPCP poll revealed some challenges in this area. The poll asked, “On average, what percentage of your cardholders do not reconcile their transactions on time each period (e.g., cycle, month)?” The results, provided below, show 21% of respondents indicated that, on average, 10% or more of their cardholders do not reconcile on time each period.

Organizations should not tolerate such non-compliance with P-Card policies and procedures, as it adds an element of risk to the program.

Over-usage of traditional P2P processes is not the answer. Doing so will prevent buying organizations from reaching optimal payment health. It’s never too late for them to get their payment strategies in shape, but they must consider their needs. To avoid weighing down processes, they should cut the non-value-added activities. This will free up staff time as well and allow better usage of resources. The exercise of identifying a threshold at which extra steps like pre-purchase approvals do not add value (and are actually counter-productive) would be time well spent.

Additional Resources and Upcoming Two-Day Workshop in Dallas

The NAPCP Resource Center contains a multitude of papers and tools for members, including a Fraud Prevention and Detection report and Card Program Controls Evaluation Form that directs end-users on what to review, covering more than a dozen controls-related elements, such as card issuance, data security and card controls.

Recently, the NAPCP opened registration for a brand-new two-day workshop, “Strengthening P-Card Controls and Using Forensic Analytics to Detect Fraud, Errors, Waste and Abuse,” scheduled for January 15-16, 2013, in Dallas, Texas. This workshop will be co-taught by Lynn Larson, CPCP, NAPCP, and Mark Nigrini, Ph.D., Professor, The College of New Jersey. This event will include a hands-on component where attendees will apply forensic analytics to their own P-Card data. Complete details and online registration are available at www.napcp.org/events. Discounted rates apply through December 18, 2012. For more information, contact the NAPCP at www.napcp.org/contactus or (952) 546-1880 ext. 4.

Lynn Larson, CPCP, has been with the National Association of Purchasing Card Professionals (NAPCP) since September 2003. She has extensive card experience, including serving as a P”‘Card program manager for an organization within the Minneapolis area for nearly nine years. She regularly speaks on Purchasing Card topics at NAPCP events, as well as events hosted by other organizations. In June 2007, Lynn earned the Certified Purchasing Card Professional (CPCP) credential, which she continues to maintain. In addition, Lynn has more than 10 years of experience in the procurement field.