California's CAL-Card program Program – 10 Internal Controls to Have in Place

Many California local governments participate in the State of California’s CAL-Card procurement card program. The State contracted with U.S. Bank National Association to provide Visa credit cards to authorized State employees, and has opened the program for any local government in California that wants to participate.

The CAL-Card program is intended to enable designated local government employees to make authorized small dollar purchases of supplies, materials, equipment, and services for the local government not exceeding a maximum specified dollar amount. By allowing employees to purchase such items via a credit card, the local government streamlines the purchasing and payment process by:

• Reducing the administrative burden, elapsed time, and costs associated with traditional methods of payment
• Lowering the overall transaction processing costs per purchase
• Increasing management information on purchasing histories
• Decentralizing the procurement function
• Receiving rebates from the bank based on dollar volume of purchases

What are Possible Drawbacks to the Purchasing Card Program?

While the program is a great way to make governments and their operations more efficient, the purchasing card program also subjects local governments to inherent risks by decentralizing the purchasing process and allowing a greater number of employees to directly purchase materials and supplies.
Although most local governments believe that the savings from simplifying high-volume, small-dollar purchases of materials and supplies justifies the risk of losses, it is important that management is vigilant and that controls are adequate. 

Risks inherent in a purchasing card program are:

• Card fraud or abuse (e.g., purchasing items for personal use)
• Purchase of inappropriate supplies or services (e.g., not in compliance with purchasing policy)
• Purchase of supplies or services in excess of those needed
• Fragmentation of purchases leading to inability to negotiate optimal prices
• Fragmentation of information on purchases and spending trends
• Duplicate payments to vendors

In order to manage these risks, following are 10 important internal controls over purchasing card programs that local governments should have in place:

1. Written policies, procedures and instructions to employees, including appropriate use of purchasing card, unauthorized transactions, disputes and returns, card issuance and cancelation, lost/stolen cards, and employee termination
2. Segregation of duties for issuance of cards, payment approvals, accounting and reconciliations
3. Timely reconciliation of purchases to bank records by cardholders
4. Review and approval by responsible department management
5. Monthly and per-transaction spending limits for each cardholder
6. Disciplinary action when cardholders do not follow rules
7. Periodic audits of card activity
8. Retention of purchase documentation, including sales receipts
9. Written requests for higher spending limits
10. Ongoing training of cardholders and supervisors

The CAL-Card website has many forms, documents, templates, agreements that local governments can use to develop their purchasing card program. Perhaps the most helpful reference document is the Cardholder Guide. It contains descriptions of cardholder duties, including obtaining receipts, reconciling to bank statements, approvals, what to do in case of returns, lost cards or changing credit limits. 

Read our next blog post  covering audits of purchasing card programs here. 

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If you have any specific questions about the CAL-Card program, please reach out to Kevin directly at no charge:

Kevin Harper, CPA
kharper@kevinharpercpa.com
(510) 593-503

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