Saturday, 2 June 2012

pCard or not pCard, that is the question: Considering the evidience

The Government Procurement Card (pCard) was introduced in 1997. Its primary purpose was to reduce the transaction costs associated with Low Value Orders when it was assumed the cost of the transaction was more than the actual purchase price.  It was also believed that pCards would deliver better control and reduce fraud.
On 1 June 2012 the Public Accounts Committee (PAC) published its report on the use of pCard’s in central government. While the PAC report highlights the need for strengthening controls and a refreshed business case. This blog is not concerned with the key content of the report but instead considers some of the oral evidence reported verbatim in the report. The oral evidence discussed reveals some matters of relevance to all those concerned with reducing procurement transaction costs, regardless of whether or not they are based in the UK, engaged in central government or the wider public sector.  While concurring with the PAC findings and recommendations, the significance of some of the key issues debated appears to have been missed in the key body of the PAC Report.
Having said that, the PAC investigation is not concerned with Corporate Credit Cards, why, I don’t know, but I think it is safe to assume that if the scope had have been widened, the lessons from pCards could be magnified many times, rather than reduced.
The key oral evidence considered is that of senior civil servants.  That is significant in that Sir Philip Green delivered a scathing attack on pCards in his report on central government procurement.  The Green report was the subject of a previous Debate piece (copies available on request).  Green highlighted concerns on the control and monitoring of pCards.  His report was produced in collaboration with a team of senior civil servants who, he reported, believed it was impossible for the civil service to work efficiently if the processes which were then in place continued.  It can only be assumed that some of those who provided evidence to PAC on pCards were those who concurred with Green, if not actively collaborated with him.
Therefore one would have expected those providing the evidence on behalf of central government to have been well prepared for a grilling.  However, reading the oral evidence indicates that for many questions those probed had no answers and do not appear to have previously considered some of the issues raised by the questioners (for example responses to questions 19, 21, 24, 40, 41, 59, 82, and 121).  Perhaps attention had been diverted from the four million transactions [assumed to have taken place over the three year period] (response to question 28) to big spend areas.  There is a clear lesson for those responsible for public finance that a differential approach to commercial management should not mean forgetting about the pennies.

The business case for pCards
Despite the widespread use of pCards in central government, the criticisms of Phillip Green (2010) and the current austerity strategy, little attention has been given to determining the value for money of this potential cost reduction tool.  The best guestimate appears to be that pCards save around £5 per transaction (response to question 2), however the potential saving could just as easily be around £18.43 (response to question 68).  If the saving is conservatively taken as £5 per transaction, the oral evidence suggests, an estimated saving of £8.5m across central government (response to question 2).  The last business case was completed in 1998 (p.7) and there is an acknowledgement that needs a refresh (p.11).
However, despite a potential saving of millions of pounds, in an age of austerity, UK central government do not appear to actually have a methodology of calculated comparative transaction costs nor a breakeven point for determining when pCards make sense.  Set this alongside the lack of robustness in reporting saved transaction costs when there are is a range of between £5 and £18.43 in reported transaction cost savings and there is a real cause for concern.

pCard strategy
pCards should form part of a procurement strategy, yet the oral evidence implies there is no such strategy in UK central government; in some cases ‘lodged’ cards are used (response to question 27); in other cases pCards, in others corporate credit cards; and, perhaps most surprisingly, in some cases personal credit cards used with reclaims made through the expenses system (response to question 79).  These options each have their pros and cons but no such option appraisal appears to be applied.
It is also interesting that there appears to be no common view of where UK central government are aiming to arrive at in terms of pCard implementation.  Examples of the lack of a strategic approach include, citing the best performing department being presented as the one which carries out 100% verification checks (response to question58);  that “There are different philosophies. Our philosophy is to drive down the use of these cards and keep them to small and local” (response to question 79) even though there is an acknowledgement that the use of pCards can support SMEs (question 94).  A further strategic decision which appears to be at variance with the previously reported commitment to lean sourcing is that “… the days of long-term contracts for [pCard service provision and management information] are over” (response to question 76).  

pCard risk management
While all procurement activities create a risk of fraud, due diligence should try to mitigate against that risk.  It would have been expected that prior to issuing a pCard some checks of worthiness and honesty would have taken place. Yet the oral evidence suggests that once you have been cleared to work in the UK civil service, no mater how long ago that may have been or in what post (response to questions 27, 29, 30), and completed some sort of test (response to question 72), that is suffice in terms of checking suitability for issuing a pCard; regardless of the expenditure ceiling or indeed the opportunity to yield to temptation – this seems naive.   
It would also have been assumed that pCard implementation would be controlled within the framework of a policy, particularly given Green’s 2010 criticism.  Yet the oral evidence confirms no cross-cutting policy exists (response to question 51) and there is no single senior responsible owner for pCards (response to question 27).  It is particularly surprising that in this age of austerity, 15 years after the introduction of pCards, the development and communication of a policy remains a ‘work in progress’ (response to question 51).
The evidence seems to place the departmental ‘card administrator’ in a pivotal position (response to question 50) yet we are not provided with any clarity as to the typical grade of the administrator or an assurance that they will have the necessary clout to stand up to senior pCard abusers.
The weaknesses of risk management are illustrated by pCards having been issued to some who are not actually employed as civil servants (response to question 104 and 111), that ‘cash and fuel’ are not always blocked categories (response to question 100), and  even that those responsible for the issue of pCards were, on occasion, not even civil servants and subsequently jailed (question 111).

pCard abuse
Given the apparent absence of due diligence in the issuing of pCards it is of interest to learn that when probed about pCard abuse, PAC were led to believe there have only been 99 instances of card abuse in the last three years.  Yet, this figure appears to have been based on what appears to be a flawed methodology; each department were asked to provide the statistics (response to question 19). I don’t think it is stretching the bounds of imagination too far to assume that there is a high likelihood of under-reporting.  But common sense would also suggest that only some instances of pCard abuse will have been identified and the more successful abuses can be expected to have remained undetected.  So caution is required working on an assumption of only 99 instances of pCard abuse in three years. The report also fails to pick up that there are staff who are opting out of pCard use yet there is no evidence that the alternatives used are more robust (response to question 79).

Conclusions and recommendations for policy and practice
The PAC inquiry into the use of pCards is timely.  It highlights the need for improvement.  However, there are issues which the PAC investigation uncovered that may well be missed through merely reading the body of the PAC report.
PAC did not consider the use of corporate credit cards.  Indeed, it could be implied from the report that there was some confusion among PAC members as to the difference between credit cards and pCards.  Both offer cost effective solutions but one may be more appropriate than the other. Therefore there is a need for an intelligent and robust options appraisal to determine the optimal solution.
The report highlighted the need for greater control and accountability yet failed to draw on the previous Green Report – a wider consideration of evidence could have led the inquiry to probe why there had been a lack of attention given to the issues raised in that report.  Particularly since those giving evidence were likely to be among those who previously claimed that without addressing those issues it would be impossible for the civil service to function efficiently.  There needs to be greater personal accountability for acting on previous reports and ensuring that civil service procurement is carried out as efficiently as possible. 
Efficient procurement should include the complete procurement portfolio.  LVOs need to be managed strategically otherwise potential savings will be lost. While western economies struggle with austerity strategy there just isn’t room to leave any potential saving untapped.
It is generally acknowledged that business cases need to be refreshed in the light of changes. Yet the business case for pCards has not been appraised since 1998.  Not only does the public sector lack a robust business case for pCards but it also lacks the fundamental baseline of how much pCards can reduce transaction costs by.  While it is understandable that there will be not be a ‘one size fits all’ pCard savings comparator, we await a reliable breakeven point. It is unacceptable that we remain in doubt as to when the business case will actually be refreshed and communicated.
In the absence of a business case it should not be surprising that there is a lack of a pCard strategy.  However, positioning the choice of whether or not to use pCards as a philosophical stance appears fundamentally flawed and at variance with the need for evidence based policy.  pCard implementation needs to be shaped by both a business case and a strategy that provides the context.  Surprising PAC did not address the issue of pCard strategy and the oral evidence implies no such strategy exists.
Risk management of pCard implementation appears to be lacking.  There is no obvious pan-civil service policy, no strategy, no performance management and no senior responsible owner.  PAC and those charged with austerity strategy need to reflect if that is acceptable – theory suggests it is not.  However at the tactical level there is also a need to protect against pCard abuse – that should start with identifying which categories and staff are suitable for pCard use, which checks and balances need to be put in place. Including the appropriate level of auditing.
So, in answer to the question, ‘pCard or not pCard?’, the only conclusion one can draw from the evidence is, it depends!

1 comment:

  1. A very thought provoking contribution. There still remains a lot of confusion as to the role and benefits of P-Cards. Many people that I come across regularly confuse credit cards with p-cards, just like people confuse tax avoidance and tax evasion. With the right controls in place, and working in the context of an effective and well defined strategy which must be put in place, p-cards are easily the best way of mopping up routine and low value transactions. However, there is nothing like a bit of public servant bashing to get a few headlines in the tabloids. Let's hope the debate is influenced by people who know the real value that p-cards can offer central and local government alike.