Purchase Card Program

Case study

Background

The University of California has had a Purchase Card Program
in place for over ten years. However, the early program was
not designed to take advantage of potential efficiency gains
and revenue streams that are available from more
sophisticated financial institutions. In 2005, the University
entered into a new contract with US Bank in order to access
the contemporary advantages associated with a Purchase Card
Program. Now the University is challenged to continue
growing the program by exploring new opportunities to reap
financial and operational advantages embedded in the
Purchase Card Program.

Goal

The goal is to implement and take full advantage of the
financial and operational advantages of the new purchase card
contract. Working through the system wide network of
Purchase Card Administrators, we plan to identify
opportunities to use the electronic payment methods to
reduce administrative costs and increase incentive income.

Successes

The Purchase Card Program has been a success across the UC
system. Policy has been strengthened to ensure the highest
levels of internal control, while allowing campuses flexibility to
implement the program to meet their needs. A network of
Purchase Card Administrators has been established at each
campus, medical center, and DOE laboratory to provide input
on the program and to exploit financial and operational
advantages. Annual purchase card spend has grown from $250
million to over $400 million in under five years, resulting in a
66% average combined increase in spend and incentive
revenue over the same period.

Challenges

Some locations have been hesitant to fully implement the
Purchase Card Program because of the inherent risk involved
in allowing employees to purchase goods on University credit
outside of the traditional purchase order process. In addition,
some location procurement and payment systems do not allow
for advanced technology to acquire and pay for items using the
card. Staffing levels have been reduced in administrative
areas, particularly accounts payable functions, thus limiting
available time to investigate, plan, and implement strategies to
move more traditional payments into the electronic space.

Initial investment

Aside from time and effort of staff, no initial investment was
required to enter into the Purchase Card Program contract.

Fiscal results, current and anticipated

The Purchase Card Program produces both soft‐ and harddollar
savings. Government studies estimate that using a
purchase card saves between $50 and $75 per transaction by
reducing the procurement cycle and reducing the issuance of
paper checks for low‐dollar items.

In 2009, the University placed 768,000 transactions on the
purchase card, indicating soft‐dollar savings of between $38.4
million and $56.6 million. For hard‐dollar savings, the
University earns incentive income from US Bank for using the
Purchase Card Program. In 2009, the University received $6.3
million in incentive income, all of which is returned to the UC
locations based on volume spend.

The University’s Purchase Card Program has experienced
significant growth over the past five years with the new
contract. We anticipate further growth in the program, with
additional efforts investigating new ways to incorporate the
card into University operations. By increasing spend on the
card, we estimate that annual incentive revenue could reach
$10 million within the next three to five years.

Current action and next steps

The Banking and Treasury Services Group is working with US
Bank and the locations to implement new proprietary
technology to identify ways to increase usage of the Purchase
Card Program. This technology, a service provided by US Bank
as part of the UC contract, will seek to convert existing vendor
payments from paper to electronic. Also, we are working to
incorporate other non‐UC entities (DOE Laboratories) to
increase overall volumes and incentive revenue yields.

Concluding statement

The Purchase Card Program has reduced administrative costs
and increased income in a well‐controlled environment. The
program has introduced new tools and technologies to help UC
locations improve operations, and the program will continue to
introduce operational streamlining opportunities over the
coming years.