SUBJECT: Small Dollar Purchase System
The University's current procurement practices for the purchase of goods and services usually includes these steps:
The department prepares a requisition and sends it to the Purchasing Office.
The Purchasing Office issues a purchase order.
The Vendor sends an invoice to the accounts payable section.
A check is prepared for each invoice and mailed to the vendor.
These procedures are being followed for virtually all purchases of goods and services, although for certain transactions, a claim voucher is sent directly to the Purchasing Office for reimbursements and other contract payments.
During FY98, almost 28,000 checks were written for these non-payroll disbursements totaling over $42 million. Of these 28,000 checks, approximately 16,000 (about 57%) were written for goods and services costing $250 or less with the total amount being slightly less than $1.5 million. The average amount per check for these small dollar disbursements was approximately $93.75. These current procedures require the Purchasing Office, accounts payable, and departmental staffs to devote a disproportionate amount of their effort to small dollar purchase transactions that constitute a very small percentage of our total expenditures for the purchase of goods and services.
In order to re-engineer the processing of small dollar purchases ($250 or less) into a more cost effective and efficient process, the establishment of a small dollar purchase system is proposed. This small dollar purchase system would utilize a procurement card that will allow University departments to purchase small dollar goods and services with a VISA or MasterCard procurement card rather than a Purchase Order being issued for those purchases. At the end of the monthly billing period, the University would process one payment to the procurement card provider, rather than issuing hundreds of small checks to individual suppliers. The procurement card provider would submit a detail billing of all purchases to the University in an electronic format that would be posted directly to the University's financial records. The time saved by processing fewer payments will allow more efficient and productive work by the staff in the Purchasing Office, accounts payable, and the departments across the campus. Controls will be developed to prevent purchase of restricted commodities such as equipment, alcohol and travel. Controls will also be developed to ensure that purchases made with the procurement card are properly accounted for as bona fide University business. Attached is a summary of the procurement card proposal.
Requests for Proposals were sent to the following seven financial institutions that were identified as offering procurement card services:
Mercantile Bank, St. Louis, Mo. First Chicago Bank, Chicago, Il.
UMB Bank, Kansas City, Mo. NationsBank, Charlotte, NC.
First Union Bank, Wilmington, De. Commerce Bank, Kansas City, Mo.
American Express, Phoenix, Az.
Responses were not received from NationsBank or Commerce Bank. First Chicago Bank indicated that they would not respond as our projected volume of transactions was too low.
Responses from the remaining four financial institutions were initially evaluated on four criteria: 1) Annual fees, transaction fees, and software charges; 2) Late payment fees; 3) payment grace period; and, 4) liability coverage for fraudulent use. Based upon this evaluation, the field was narrowed to proposals from UMB of Kansas City, MO., and Mercantile Bank N.A. of St. Louis, MO. Both institutions were invited to campus to make a presentation and answer questions regarding their proposals. Based on the evaluation and the presentations, it was determined that UMB of Kansas City would be the best choice for providing a procurement card program to the University.
UMB will not charge annual fees, per transaction fees, late payment fees, and will not charge for the initial copy of the software needed. Should we need more than one copy of the software, the additional cost is just $500 per copy. UMB also has the most experience with government and educational institutions including the State of Kansas Procurement Card, which is used at Kansas State University, the University of Kansas, Wichita State University and other state agencies. Telephone calls to these institutions confirmed the quality of the service being provided by UMB.
Upon approval by the Regents, a pilot program would be initiated with ten to fifteen users to test the program and controls. After evaluation of the pilot program, estimated to last from three to six months, the program will be made available to all departments.
The cost to the University will be approximately $1,000 to customize the procurement card for the University, and an annual software maintenance charge of $400. Should it be necessary to have more than one copy of the software, additional copies will cost $500 each. No other fees or charges will be assessed by UMB. We conservatively project that we will reduce the number of small dollar disbursements from the current volume of 16,000 checks per year to no more than 8,000 checks per year. This reduction alone will save approximately $2,640 in postage. In addition, the implementation of the procurement card program will reduce significantly the effort required by departmental personnel to purchase small dollar value goods and services for their departments.
RECOMMENDATION: President Farley recommends Board of Regents' approval of the small dollar purchase system being proposed and a contract with UMB to provide a procurement card program for Washburn University to be used in the small dollar purchase system.
(date) Jerry B. Farley, President