VISA Canada

FRASERS is pleased to bring you this first issue of a series of e-newsletters in 2007, designed to enhance and optimize your Commercial card program. Visa and FRASERS have partnered to bring you this exclusive information.

Using controls to optimize Commercial Card programs

When considering implementing or expanding a commercial card program, organizations often worry about card controls. Although employee misuse and card fraud are very rare, extreme cases reported in the media and through word of mouth tend to exaggerate these worries and discourage organizations from taking full advantage of the benefits of commercial card programs.

A successful commercial card program requires a balance. Too much control limits card spending and significantly reduces the potential cost savings gained from usage. Conversely, little or no control may leave organizations vulnerable to losses incurred from spending outside of purchasing policy, employee misuse and card fraud. To achieve this balance, organizations must implement controls to reduce the risk of losses without overly restricting usage. Best practice organizations have net gains that exceed losses by over 250 times.¹

The Controls Framework, as described later in this article, outlines the sequential steps required to implement comprehensive controls for commercial card programs. Organizations at all stages of their card tenure can use the Controls Framework to help reach a balance. This article discusses how organizations can prioritize the implementation of card controls to address the following common control-related concerns:

Stage 1: Adoption Recently introduced commercial cards. Card volume is growing, despite tight spending restrictions	Stage 2: Stagnation Card volume and distribution slows due to tight spending restrictions	Stage 3: Expansion Less restrictive, more strategic controls are in place, allowing card volume and distribution to grow
Establish program governance Develop a policy for issuing cards to employees Develop spend guidelines and a cardholder agreement Implement transaction controls Develop a process for issuing cards and enforcing card spend guidelines	Expand program governance Develop auditing policies Establish processes for monitoring transaction controls Establish auditing processes Establish communication and training policies and processes	Define a formal controls strategy Further refine spend guidelines Implement e- Procurement / Supplier Management Implement reporting and data mining tools Automate other transactional processes

Creating an effective controls framework

Anecdotal evidence reported in the media and passed by word of mouth often makes the threats posed by card misuse, fraud and spend outside policy (SOP) seem daunting. However, organizations with successful card programs address the threats by dividing controls into several components and implementing them in sequence as their commercial card programs mature.

Best practice organizations consider four critical components of a commercial card program: program governance, policies, processes, and technology. These components are outlined below in the Controls Framework.

Controls Framework

Each component of the Controls Framework enables the preceding one. The foundation of the Framework, program governance, requires organizations to assign responsibility to a core group of people and to define the basic goals of their card programs. Program governance establishes business operating policies. Processes operationalize policies. In turn, technology makes processes more efficient and guards against human error. This step-by-step methodology allows organizations to gradually build robust card controls without missing key foundational components that are critical to long-term success.

1. Program Governance

Program governance builds the foundation upon which a successful controls strategy rests. This component requires explicit ownership, and itemized accountabilities and responsibilities for all stakeholders of the card program, starting with key senior management. Successful programs have ongoing senior management support. When implementing program governance, organizations should consider the following components:

Program management, which includes an administrator (at minimum) and representation from finance, procurement, information technology and other business units
A formalized commercial card strategy for the organization, which outlines performance targets (e.g., the percentage of employees with commercial cards)

2. Policies

After establishing program governance, organizations require carefully itemized policies, including a cardholder agreement (between the organization and the cardholder).

Every employee should sign a cardholder agreement prior to being issued a commercial card. A cardholder agreement outlines the conditions of use and the consequences of misuse. By signing the agreement, employees verify that they understand the organization’s card policy and acknowledge the ramifications for misuse.

All card related policies should align with the broader procurement and financial policies of the organization. Organizations should consider developing policies to cover the following:

Criteria for who is eligible for a card
Rules for card usage, which should also appear in the cardholder agreement signed by employees prior to card issuance
The organization’s approach to transaction controls, such as Merchant Category Code (MCC) blocking, transaction limits and monthly spending limits
Audit practices (e.g., supervisory review of employee spending)
Feedback from employees on the overall effectiveness of card program policies and processes
Review of cards in circulation to ensure compliance with the card issuance policy
Other policies to support processes, such as communication, training and supplier management policies

3. Processes

Once organizations develop policies to achieve their card program goals, they should focus on implementing the processes to support these policies. Processes should be established for:

4. Technology

Once robust policies and processes are in place, organizations should seek opportunities to utilize technology to increase the efficiency of transactional processes. Opportunities for automation include:

E-procurement systems to help organizations automate purchasing by reducing the resources required to process a purchase order - cards can be integrated with e-procurement systems to reduce transaction costs further
Enterprise Resource Planning (ERP) systems to allow organizations to link card expense reconciliation to the General Ledger (G/L) and Accounts Payable (A/P), to simplify accounting processes
Use of an intranet to deliver training modules and communicate program information (such as policies, program governance and program changes)
Reporting and data mining software to help management identify unusual spending behaviour
Expense reimbursement systems (for card programs with an individual billing / payment structure only)
Electronic channels for card issuance (e.g., online forms and cardholder agreement, with automated approval)
Automatic tracking of card usage to check conformance with the card issuance policy
Electronic surveys and questionnaires to gather employee feedback on the card program
Systems to automatically track MCC blocked transactions, so management can follow up with employees who attempt to process unauthorized transactions

Mistakes to Avoid

Organizations can sometimes experience difficulties when trying to implement controls without having the proper foundational elements in place. An organization may, for example, establish its card program goals and then jump directly to the technology component in an attempt to maximize the efficiency of its card program. Without proper policies and processes, the program will remain vulnerable to misuse and will ultimately stagnate or even fail.

Another common source of difficulty is attempting to implement all possible control elements, without considering the goals of the card program and the culture of the organization. For example, large organizations may require more extensive controls and a high level of automation, whereas smaller organizations may implement a card program using only a few policies and processes and little or no technology.

Next steps

Whether an organization is interested in introducing a commercial card program or expanding an existing one, the implementation of comprehensive card controls should be top-of-mind. Although there is a risk of card misuse, card fraud and spend outside policy, the actual financial losses due to these concerns are negligible (less than 1% of commercial card spend per year). The potential savings from introducing a commercial card program far outweigh the risk of loss, typically by over 250 times. To mitigate losses, organizations should introduce control mechanisms for their commercial card programs.

A successful controls program requires a balance; too much control diminishes the value of a card program and not enough control exposes the organization to higher risk. Once a balance is achieved, organizations can benefit from the cost savings provided by card programs without exposing themselves to undue financial risk.

Visa Card Programs

Canadian businesses are continually challenged to gain control and balance of their procurement and T&E expenses.

Lowering operating expenses is an ongoing management challenge. Visa Commercial Card Programs help companies manage the purchasing process more efficiently to meet this challenge head-on. This not only helps to lower costs, but also speeds up the delivery of goods and services and frees up time for more strategic business priorities.

For more information on Visa Commercial Card Programs and how they can help your business, or to contact a Visa Issuing Financial Institution, please visit www.visa.ca/largecorporate

¹Deloitte research (based on cost savings produced by card programs, as described in Palmer and Gupta, 2005 Purchasing Card Benchmark Survey report)

^®Registered trademark of Visa International Service Association, Visa Canada is a licensed user.