Page 38 - Accounting Best Practices

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3–4 Use Procurement Cards
also restrict the number of usages per day. An additional method for avoiding
employee misuse of procurement cards is to have them sign an agreement that
describes the sanctions that will be imposed when the cards are misused,
which may include termination. Some mix of these solutions can mitigate the
risk of procurement card abuse.
• Spending on special items. The use of a procurement card can actually inter-
fere with existing internal procedures for the purchase of such items, rendering
those systems less efficient. For example, an automated materials planning
system for the inventory can issue purchase orders to suppliers with no manual
intervention; adding inventory items to this situation that were purchased
through a different methodology can interfere with the integrity of the data-
base, requiring more manual reconciliation of inventory quantities. Thus,
procurement cards are not always a good idea when buying inventory items.
Also, capital purchases typically have to go through a detailed review and
approval process before they are acquired; since a procurement card offers an
easy way to buy smaller capital items, it represents a simple way to bypass
the approval process. Thus, they are not a good choice for capital purchases.
• Dealing with users of the old system. Some employees will not take to the
new procurement card approach, if only because they are used to the old sys-
tem. This can cause headaches for both the purchasing and accounting
departments, since they must deal with both the old system and the new one
in combination. It may be impossible to completely eliminate the old pur-
chase order system in some cases (if only because of company politics), so a
good alternative is to charge to those departments using the old system the
fully burdened cost of each transaction that does not use a procurement card.
Since this burdened cost, which includes the cost of all the processing steps
noted at the beginning of this section, can easily exceed $100 per transac-
tion, it becomes a very effective way to shift usage toward the procurement
card solution.
• Summarizing general ledger accounts. The summary statements that are
received from the credit card processor will not contain as many expense line
items as are probably already contained within a company’s general ledger
(which tends to slice-and-dice expenses down into many categories). For
example, the card statements may only categorize by shop supplies, office
supplies, and shipping supplies. If so, then it is best to alter the general
ledger accounts to match the categories being reported through the procure-
ment cards. This may also require changes to the budgeting system, which
probably mirrors the accounts used in the general ledger.
• Purchases from unapproved suppliers. A company may have negotiated
favorable prices from a few select suppliers in exchange for making all of its
purchases for certain items from them. It is a simple matter to ensure that
purchases are made through these suppliers when the purchasing department
is placed in direct control of the buying process. However, once purchases