Sudden Impact

t a time when many Americans are cutting up their credit cards, digging out of debt and vowing to pay cash from now on, government's going gaga over a Visa card.

"Of 21 million [acquisition transactions in government], 31 percent were done with the card in 1996. In 1995, only 16 percent were. That's a huge increase," crows Dennis Fischer, chief financial officer at the General Services Administration, which oversees the government's purchase card contract with Rocky Mountain BankCard System (RMBCS).

Just 10,000 federal employees and military service members held government Visa cards in 1989 when the card contract began. Now, more than 250,000 civilians and service members use the International Merchant Purchase Authorization Cards (IMPAC). The value of IMPAC transactions has grown from $460,000 in 1989 to an eye-popping $2.9 billion in 1996.

So what's the magic in this 3-inch by 2-inch piece of plastic? Government warmed to the cards in 1982, when an executive order proposed using them to cut purchasing costs. Several agencies tested cards in 1986, proving they saved time and effort over the old-fashioned purchase order system. In 1989, GSA awarded the first governmentwide commercial credit card contract to Rocky Mountain Bank.

"In 1988, purchase cards were unheard of in the private sector," says Steven Putney, president of corporate payment systems for First Bank, which now owns Rocky Mountain. "Government was the innovator and leader. Private sector adoption has been slower."

Though Vice President Al Gore's National Performance Review touted it in 1993, the card didn't really take off until 1994, when the Federal Acquisition Streamlining Act (FASA) was enacted and Executive Order 12931 on procurement reform was issued. FASA cut out many procurement restrictions-requirements to buy American, buy from small businesses under certain conditions and meet competition standards, for example- for purchases worth $2,500 or less. Easing the rules on these micropurchases was important because there are so many of them. "There are 21 million acquisition transactions in government, ranging from buying pencils to the B-1 bomber. Only 2 percent have a value over $100,000," says Fischer. More than 90 percent of purchases are under $2,500.

The 1994 executive order went FASA one step further, telling agencies to expand card use and delegate micropurchase authority to program officials rather than keeping it within procurement shops. Then came Federal Acquisition Regulation edicts making purchase cards the preferred vehicle for micropurchases and approving them for payments above the $2,500 threshold.

Rocky Mountain Bank won the card contract anew in 1994. Changes in the pact included rebates to agencies for making fast payments and using electronic commerce. In addition, the new contract omitted an administrative fee which had discouraged use of the card.

Squeezing Out Savings

With micropurchasing impediments removed, cards suddenly became enticing. The General Accounting Office found using the cards cut agency procurement labor and processing costs by as much as half. GAO's August 1996 report, "Acquisition Reform: Purchase Card Use Cuts Procurement Costs, Improves Efficiency," cites a 1994 study showing agencies saved between an average of $54 per transaction by using cards instead of purchase orders.

In January, the Army Audit Agency reported that using IMPAC cost $92.60 less per transaction than using purchase orders. While traditional purchase orders took 6 hours to process, card purchases took just two. That savings adds up for Army, the leading card user. In fiscal 1996, the service used IMPAC to make 74 percent of its micropurchases, putting more than $700 million on the purchase cards.

The cards save money by moving purchasing into the hands of the users of the items and services. Instead of relying on contracting officials to meet their needs, program staffers use their cards to buy directly, saving time and often money by avoiding lengthy procurement procedures.

"In the past, everything went through the procurement shop. That doesn't happen anymore. Now it's spread out through the department," says William Shelton, deputy assistant secretary for financial operations at the Department of Veterans Affairs. "It has an impact on procurement, warehousing, distribution. We don't need as many people in the finance shop."

The Army isn't just pushing purchasing out of procurement shops, it's pushing card buying authority as far down the line as possible. Army officials disapprove of having one employee hold several cards to charge purchases for separate programs and/or from different appropriations. "If you have to spend out of more than one pot, the card is at too high a level in the organization," says Ernest Gregory, the Army's deputy assistant secretary for financial operations.

Card-induced reductions in purchasing workload are helping agencies meet downsizing goals in procurement and finance offices, which were specially targeted for cuts in the 1994 Federal Workforce Restructuring Act. Skyrocketing IMPAC use over the past three years, has forced agencies to squeeze even more savings from the cards. Overwhelmed by the growing volume of transactions, many agencies have begun to abandon the paper logs, statements, invoices, checks and accounting forms they once used to keep track of card use. By reducing the number of approvals required before using the cards and shifting to electronic reconciling, processing and payment of IMPAC bills, agencies are making it cheaper than ever to pull out the plastic.

Crime-Free Cards

As agencies hand out purchase cards to front-line employees and push for even greater IMPAC use, you might expect a concomitant increase in fraud and misuse. Au contraire, say the experts. "We found no evidence of increased abuse," GAO wrote in August 1996.

In fact, the spending and vendor limits, levels of approval, reconciliation, training and record keeping required under the card contract keep spending closely monitored. But just in case, postal inspectors have developed surveillance software that allows them to remotely analyze transactions using RMBCS data. USPS is giving the desktop system to its managers and the Commerce, Transportation and Treasury departments also are using it.

Other agencies soon will be able to scrutinize who's buying how much on whose say-so from which vendor and more. Rocky Mountain is helping them switch to its Corporate Payment System, which, in addition to giving them access to convenience checks, also provides desktop reporting software and more detailed invoice information. That extra detail means billing can be handled at lower levels throughout organizations.

Stool Pigeons Want Cash

Employees and service members use IMPAC to purchase a growing variety of goods and services. The average card purchase runs between $300 and $350. RMBCS says top purchase categories include: information technology, stationery and office supplies, miscellaneous retail items, lumber, hardware, furniture and computer software.

Government can turn on and off each of 750 procurement categories, Putney says. IMPAC can't be used for travel expenses-they go on the government's travel card, issued by American Express-nor for leasing buildings or purchasing Federal Telecommunications Service items.

In addition, cardholders are required to comply with certain mandatory programs such as buying furniture from Federal Prison Industries, printing services from the Government Printing Office, and certain other items, mostly office supplies, paint and cleaning products, under the Javits-Wagner-O'Day program for the employment of the blind and severely disabled.

To assist card users, commercial vendors on GSA's Federal Supply Service multiple award schedule for next-day, desktop delivery of office supplies agreed to automatically fill orders using JWOD products.

Many officials would like to see cards used for all small purchases. "My first thesis is that anything under $100,000 is the territory we ought to maximize usage of the card in. My objective is to quickly get to the 93 percent under $2,500," says Fischer. The Army this year set a goal of using IMPAC for 80 percent of its 2.2 million to 2.4 million micropurchases. By June, the service was well on its way to exceeding the target, having used cards to make 90.8 percent of its microbuys to that point.

Some would like to see purchase cards replace government imprest funds-the equivalent of petty cash-but IMPAC doesn't work for every purchase.

Drug Enforcement Agency informant payments aren't likely to be replaced by IMPAC, at least until the average stoolie takes plastic. People who sell their blood to Walter Reed Army hospital won't take card payments, nor will most of the speakers who address classes at the National Defense University. Vendors in rural areas and repair people also tend not to accept credit cards. Visa convenience checks will help agencies cover such expenses.

Cashing In on Competition

Agencies will get a shot at other innovations already offered to private industry as card companies compete for new contracts on government's purchase, travel and fleet cards over the next year. In August, GSA was scheduled to release a request for proposals on those three contracts, as well as one for a hybrid card able to incorporate any or all of the three plus other data via smart card technology. GSA will make multiple awards on each contract to take effect in November 1998. All award winners will be required to meet a set of core requirements and then will compete based on fees, rebates, management software and other value-added services.

"First Bank is doing a fine job," says Fischer. "But my experience has always been when you have a competitive environment, it is better for you. Agencies have diverse requirements. There are new technologies [and] service problems. The threat of a recompete could improve service."

Government's business is particularly attractive now that the consumer card market has grown stagnant, says First Bank's Putney. Government's high and growing volume of transactions is especially alluring, since card companies make their money by charging merchants discount fees per card transaction. Fees depend on a merchant's volume of card business, average transaction size, use of electronic commerce, risk of fraud and other factors. Transaction fees generally fall in the 1.5 percent to 3 percent range.

Steve Abrams, vice president for U.S. corporate products at MasterCard International, says his company is "working very hard" to get on GSA's list of companies authorized to offer cards to agencies. Abrams says his firm recently instituted a number of rules that will help government, including one to get merchants to provide more billing information and another lowering the discount rate on transactions over $3,000, which will encourage merchants to accept cards for larger purchases. Abrams touts MasterCard's 51 percent ownership of Mondex International, maker of stored-value electronic cash cards.

American Express, government's travel card provider, is also bidding on purchasecards. "In our bid, we will emphasize American Express' experience with government, leadership in the purchasing card area, strength as a technology provider and ability to deliver worldwide service," says Dan Goren, American Express vice president for government service. In July, American Express announced a partnership with Wright Express, provider of the government's fleet card, to develop a commercial fleet card for government and industry.

Government agencies are getting into the card business as well. The Treasury Department and GSA are sponsoring cards to ease and speed transactions between and within federal agencies. GSA is conducting a year-long test of the existing IMPAC card for Defense Department transactions with other agencies, as well as those between Defense components. Treasury's Financial Management Service is offering the Uncle Sam Acquisition (USA) card solely for intragovernmental transactions.