Purchasing cards are cards which Provide an easy method of payment to a vendor by the end users at the Point of Purchase or Point of Sale. This is almost similar to consumer credit cards which are branded by banks and merchants pay a processing fees but it simplifies the purchasing process.
The benefits are
– Simplification of purchasing process there by eliminating requisition, PO & Invoicing
– Avoid time and cost to issue a payment
Related Checklist : Internal Control Checklist for Debit and Pre-paid card Operation
It creates a stronger control, earn rebate and streamline business process, happier employees and suppliers.
Typical examples are cards used in gas stations, travel cards, repair on vehicles which are limited in use.
Another type of card is called Ghost cards which is not a physical card but a number and issued for high volume transactions by trusted vendors of a business. Each time a purchase happens the vendor automatically charges the amount to the card.
Risks:
The biggest risk is P cards being used for personal expenses and the first thing to do is categorize merchant as per their business i.e what they sell and have the card programs block certain types of purchases as per the Merchant Category Code (MCC)
You can consider blocking certain known categories like Casinos, Liquor stores etc. But sometimes it becomes a problem if the categorization is incorrect or a grocery store giving discount categorized as discount store etc.
Controls :
A P-card control program should have below main components.
- A dedicated P-card administrator who need to maintain policy, issue cards, set Limits and restrictions, complete audits
- A written policy containing cardholder responsibilities, clear usage guidelines, expense/receipt filing handling, coding of expenses and repercussions for loss of card and terminations
- Approval of expenses through competent authority who can understand the reason for expenses and categorization.
- Automated controls
- Auditing Process which should contain
- Pattern-based audits -which should check at set frequency like weekend or evening Or it can be based on MCC or dollar amount
- Random audits – which picks a certain number of cards in random from the total numbers issues
- also you need to advertise that you are going to audit which will forewarn the user to not do fraud.
- It should have defined and time bound swift and decisive action