HomeMy WebLinkAbout06.a. Receive overview of Procurement Card (P-Card) procedures and reconciling items Page 1 of 5 Item 6.a. CENTRAL SAN July 26, 2022 TO: FINANCE COMMITTEE FROM: KEVIN MIZUNO, FINANCE MANAGER REVIEWED BY: PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER SUBJECT: RECEIVE OVERVIEW OF PROCUREMENT CARD (P-CARD) PROCEDURES AND RECONCILING ITEMS At the February 22, 2022 Finance Committee meeting, Committee members asked staff to provide an overview of the P-Card expense report auditing, reporting, and payment process. Committee members also asked for an update on how reconciling issues are tracked and resolved as well as a synopsis of current reconciling items to-date. The purpose of this Committee memo is to provide additional information to respond to those inquiries. Process Overview To facilitate a more efficient, cost-effective method of obtaining and paying for large volume, relatively low- value supplies and materials used by Central San, a P-Card program under the state-wide Cal-card program umbrella was implemented. As stated in the P-Card User Manual maintained by the Purchasing & Materials Division, the program enables Central San to streamline the traditionally labor-intensive procurement and accounting processes for these small dollar purchases. Cal-card is the registered name of the State of California's Purchase Card Program, and is a VISA purchase card program offered to participating state and local government agencies. Currently, and for many years, the bank financing the Cal-card program has been US Bank. Central San's Purchasing & Materials Division is responsible for administering the P-Card program, which includes: establishing and periodically amending Central San's P-Card User Manual, issuing cards to cardholders, setting and amending credit limits, and enforcing the program's rules and initiating disciplinary action when necessary. While the Finance Division does not hold primary responsibility for the program, it does have an important administrative role. The Finance Division is responsible for collecting, reviewing, and processing P-Card expense reports; ensuring P-Card expense reports are approved by cardholder's supervisors, recording P-Card expenses in a timely and accurate manner; preparing and presenting P- Card reports for Finance Committee review; notifying the Purchasing & Materials Division when there are policy violations, and overseeing payments to the bank. Generally, P-Card statements are released by the US Bank on or around the 22nd of each month. Shortly thereafter, the Finance Division uploads transactions into Oracle via an interface with US Bank's online portal. Thereafter, an email notification is released to all cardholders communicating that P-Card charges associated with that specific month are available for cardholders to complete and submit monthly P-Card expense reports. This email notification includes important reminders on guidelines for cardholders such July 26, 2022 Regular FINANCE Committee Meeting Agenda Packet- Page 104 of 117 Page 2 of 5 as the expense report due date, submission instructions, expense coding pointers, etc. Depending on divisional and individual needs, cardholders have the option in Oracle to delegate the expense report compilation and submission process to their division's assigned administrative support team member. Pursuant to the P-Card program, each cardholder is responsible for submitting their P-Card expense report in Oracle by the 10th day of the month following the statement closing date. Furthermore, cardholders are responsible for self-reporting any accidental personal charges as well as contacting US Bank to report and resolve any fraudulent disputed charges. Improvements and Challenges in New System Compared to the legacy system (Sungard/HTE), the new Oracle method for collecting, recording, and reporting P-Card expenditures is significantly improved, with the benefits outweighing any new difficulties. One of the primary benefits, is the automated organizational chart driven approval workflows. Finance staff now no longer need to manually audit wet signatures to ensure each P-Card expense report is accompanied by an appropriate supervisor approval prior to posting expenses. The system has been configured to automatically route cardholder-submitted P-Card expense reports to their supervisor for approval, and will not allow Finance to audit and post expenses until appropriate approval has been achieved. The supervisor approving the report sees a listing of the charges with supporting documentation (invoices, etc.)for each expense report line item in an email, that they approve or reject. Additionally, transparency is significantly improved in the new system, which tracks various processing statuses P-Card expense reports. Helpful expense report statuses tracked in the system include: awaiting receipts, pending individual (cardholder) approval, pending manager approval, ready for payment, and paid. This contrasts to the legacy system, where processing was entirely manual, with no way to automatically monitor the status of P-Card expense reports. Despite these benefits, all of these improved controls and efficiencies come with a higher degree of complexity, which lends itself to other complications. For instance, in addition to being used to track P- Card charges, which comprise the vast majority of transactions, the Oracle Expenses module must also used to track other employee-driven expenses such as travel reimbursements, miscellaneous out-of- pocket expenses, tuition and professional expense reimbursements, and employee computer loans. The system currently offers no mechanism to easily distinguish between these expense report types, therefore technical skill and judgment by Finance staff must be applied during the P-Card review process. The system also offers no method to associate P-Card charges to a specific statement period, necessitating manual efforts by Finance staff each month to assess the completeness of P-Card submissions for each monthly billing cycle. Any differences are reported in a P-Card reconciliation report that is part of the expense and P-Card reported to the Finance Committee and Board monthly. Lastly, given the sophisticated method by which P-Card expenses are posted under the full-accrual method, there are inevitable timing differences between the recording of an expense and the underlying payment to US Bank. For example, while the bank must be paid on time each month (in order to avoid late charges, and to capture discounts provided for timeline payment), Finance cannot audit and post P-Card expenses to the general ledger until the underlying expense report is submitted by the cardholder and reviewed/approved by a supervisor. As mentioned above, these differences are summarized in a monthly reconciliation report which Finance produces to accompany the monthly check run report and can include the following: unsubmitted expense reports, unapproved expense reports, holds for contested and/or accidental personal charges. Since January 2022, Finance staff has been having recurring meetings with Central San's ongoing Oracle support consultant (ClearCare, provided by Emtec)to better understand these issues and try to design and implement solutions. Modifications were recently made to the custom Finance Committee P-Card reports which eliminated reconciling items previously caused by timing issues between the "post date" and transaction date" of P-Card charges. Other solutions being worked on with the consultant include the following: July 26, 2022 Regular FINANCE Committee Meeting Agenda Packet- Page 105 of 117 Page 3 of 5 • Custom reports to more easily distinguish P-Card expense reports from other transactions tracked in the Oracle Expenses module, • Implementing a new expense report status to track personal charges and their reimbursement status, generating targeted emails so only cardholders with charges receive email notifications each month (currently all cardholders must receive an email, regardless of whether or not there were charges), • Creating a view-only role (for Program Manager and other select individuals), • Development of a customized user guide for Central San's Finance staff employing day-to-day system administration best practices. How Reconciling Items are Monitored and Resolved by Finance Generally speaking, monthly reconciling items that Finance must track and resolve can be broken down into three categories: (1) Unsubmitted/Unapproved Expense Reports, (2) Expense Reports with Accidental Personal Charges, and (3) Expense Reports with Contested Fraudulent Charges. Each of the three aforementioned reconciling issues requires a slightly different approach to ensure the issue is eventually resolved and recorded appropriately into Oracle. • Unsubmitted/Unapproved Expense Reports While the process to categorize unsubmitted/unapproved reports for the monthly Finance Committee reconciliation still requires timely manual analysis (absent a custom report which is under development), once they are categorized and appear on the monthly reconciliation the tracking is fairly simple. On a monthly basis, Finance staff re-runs P-Card detail expenditure reports for past statement periods. Any previously delinquent P-Card expense reports that have since been submitted, approved and audited/posted will appear on the P-Card detail expense report and are no longer outstanding reconciling items. Any unresolved items from past P-Card statement months are communicated to the cardholder, assigned divisional administrative support staff, and division manager by Finance for further investigation and action. • Accidental Personal Charges Unlike unsubmitted/unapproved expense reports, which are eventually resolved as reconciling items, personal charges, even when resolved, remain permanent reconciling items. They are considered permanent reconciling items because while they must be paid to US Bank they are not valid business expenses of Central San, and therefore do not appear on the P-Card expenditures reports. Once identified by cardholders and/or their supervisors, or through other control-checks (including the Purchasing card administrator, or Accounting staff)the personal charges are monitored by Finance division staff by placing a hold on the personal charge in the Payables module. Once the cardholder reimburses Central San, the hold is lifted and no longer tracked as an unresolved/outstanding issue. • Contested Fraudulent Charges As described previously, periodically through no fault of their own, cardholders may identify fraudulent charges appearing on their P-Card statements. Unlike personal charges, these are not paid to the bank and must be reported to and contested with the bank directly by the cardholder pursuant to the P-Card User Manual. Similar to personal charges, contested fraudulent charges communicated by cardholders to Finance are placed on "hold" in the Payables module. Once a credit is provided by the bank(generally on the following month's statement), the "hold" is released and the transaction no longer appears as a reconciling item as the amount paid to the bank will agree to the reported expenses spanning over two or more statement cycles as applicable. July 26, 2022 Regular FINANCE Committee Meeting Agenda Packet- Page 106 of 117 Page 4 of 5 Current Status of Reconciling Items Despite prior concerns of reconciling items, which were largely caused by cardholders and Finance staff learning the new system and initial difficulties with the custom Oracle P-Card reports, Management is now confident these issues are being monitored and addressed in a reasonably timely manner and represent a small fraction of the total volume of P-Card transactions being processed. To demonstrate the relatively small number of outstanding reconciling items in the system, and to facilitate a clean year-end close process for the upcoming Fiscal Year(FY) 2021-22 audit, staff conducted an analysis of P-Card charges from the July 2021 statement through the May 2022 statement (the June 2022 statement was not yet finalized as of the date of this memo). Over this span of eleven months in FY 2021-22, out of$1,896,287 in P-Card statement charges paid, $1,893,676 (99.9%) has been submitted, approved and charged as an expense in the general ledger. Of the $2,611 in residual reconciling issues (0.14% of total charges), over half of this (57.8%) pertained to three P-Card expense reports that have yet to be submitted and approved. The remaining 45.2% pertained to eleven personal charges, ten of which have already been repaid to the District, leaving one outstanding charge of$197.39. The only outstanding personal charges as of the date of this report pertain to a confidential personnel matter that has already been investigated and dealt with by management. Refer to Attachment 1 for additional details of this analysis. I n addition to the one outstanding personal charge noted above from FY 2021-22, that item was part of an investigation that also found two personal charges (totaling $1,682.19)from FY 2020-21 which are also pending reimbursement. ATTACHMENTS: 1. P-Card Reconciling Issues Analysis - FY 2021-22 (as of July 1, 2022) July 26, 2022 Regular FINANCE Committee Meeting Agenda Packet- Page 107 of 117 Analysis of Reconciling P-card Items For:July 26, 2022 Finance Committee Timeframe: P-card Statements Spanning July 2021 through May 2022 Date Completed:July 1, 2022 US Bank Statement P-card Expenditures Total US Bank Date Processed Statement Difference Comments 7/22/2021 $ 145,646.42 $ 145,785.82 $ 139.40 2 personal charges (both repaid) 8/22/2021 192,495.43 192,532.41 36.98 2 personal charges (both repaid) 2 personal charges (both repaid) and 1 9/22/2021 137,594.36 137,684.87 90.51 missing report 1 personal charge (repaid) and 1 missing 10/22/2021 166,294.30 166,399.08 104.78 report 11/22/2021 135,774.83 135,972.22 197.39 1 personal charge (unpaid) 12/22/2021 124,908.02 124,908.02 - 1 missing expense report 1/24/2022 187,229.80 187,560.28 330.48 1 personal charge (repaid) 2/22/2022 174,093.04 174,093.04 - 3/22/2022 222,339.79 222,464.16 124.37 1 personal charge (repaid) 4/22/2022 286,044.21 286,044.21 - 1 missing expense report and 1 personal 5/22/2022 121,255.41 122,842.95 1,587.54 charge (repaid) 6/22/2022 Total $ 1,893,675.61 $ 1,896,287.06 $ 2,611.45 *Information not yet available as of this report date as p-card expense reports are not due by cardholders until July 10, 2022. July 26, 2022 Regular FINANCE Committee Meeting Agenda Packet- Page 108 of 117