Steve Way, former Principal Manager of Financial Services in the Queensland government claims Hong Kong’s government can save millions through better use of the card purchasing system.
Like many modern governments around the world, Hong Kong’s is being asked to do more while collecting less in taxes from its citizens. Operational efficiency means not only executing projects in the most productive manner possible, but also making sure the transactional and recording paperwork costs are kept to a minimum, while providing the oversight necessary to keep the system clean.
As such, it is imperative that governments ramp up measures to enhance productivity and safeguard against incidents that do much more damage than political scandal when the accumulative impact on the health of the economy is scrutinized. While no one would question Hong Kong’s long standing reputation as a city that presents a model of economic efficiency, the question we should now be asking is what can be done to solidify that standing by reducing unnecessary costs. It seems to me that the answer may in fact lie in the government’s purchasing card program.
Purchasing card prowess
The use of purchasing cards has become standard practice for many governments across the world, offering a cost-effective method of purchasing and paying for low cost items as well as high-volume purchases. Adopted by the US and Australia in the late 1980s and early 1990s, public bodies in the UK and The EU also began to re-evaluate the balance between efficiency and transparency in how they spent and soon followed suit.
The program was embraced by the SAR in 2000, 11 years ahead of Singapore. It allows departments to purchase goods and services not exceeding HK$50,000 without undertaking the traditional p2p (procure 2 pay) process, costly in time and paperwork. The programme brings manifold benefits through streamlined payment processes that encompass more efficient use of valuable resource time, reduced paperwork, and savings of HK$41 in transaction costs per purchase, compared with paper based transactions. Regular reporting, spend data analysis and increased management information on purchasing histories all combine to increase transparency. The ability to control and restrict dollar purchasing limits, set purchase parameters, and assign virtual credit card numbers to protect both the primary cardholder and company information, all contribute to strengthened governance.
Few therefore have grounds to dispute that a well-established and widely-accepted purchasing card program ultimately contributes to re-investment in core business and supports growth. It also greatly reduces incidences of unapproved expenses and other loopholes in procurement, the detrimental effects of which are universally acknowledged.
Further, whether public sector or the corporate sector there is today an onus of care for both Government officials and corporate CEO’s to ensure the immediacy of access to financial business payments information for the purpose of regulatory and statutory compliance. Today’s purchasing card programs offer such transparency with the added bonus of quality management and exception reporting (showing why unusual purchases are valid/invalid) from card issuers.
Please, sir, I want some more
It is astonishing then, that the benefits of purchasing cards in Hong Kong are not realizing their full potential. Government figures show the utilization rate is not bad, per se, at 61% in 2011, representing HK$1.47 billion of HK$2.4 billion of eligible purchases. This shows estimated savings of nearly HK$10 million, compared to if paper based ordering had been used. However, let us imagine that the utilization rate were to increase. For one, by tightening up administration, departments would require less funding, but government employees would be empowered to increase internal efficiency, both in terms of costs and time, paving the way to increased productivity. It is vital, therefore, that the importance of reducing spending, as a means to bolster the budget, be recognized and acted upon. The potential to reinvest savings is enormous.
A penny saved…
I would urge the government to build on the existing success of the program by adopting best practices to include streamlining the program’s transaction processes and adopting a fully electronic auditable process from transaction to General Ledger posting. Further spending controls, adopting a centralized system, daily data feeds and user-defined reporting could all reduce costs, mitigate risks, and strengthen financial reporting. All these programs improve overall purchasing card effectiveness.
Such measures would no doubt help to convince more government departments of the necessity to using the card and will in turn widen acceptance, boost the utilization rate and so reinforce Hong Kong’s status as a role model for domestic and overseas SMEs and corporate bodies.
More importantly however, we must not turn a blind eye to the fact that each transaction made outside the efficient structure of purchasing cards is, in effect, generating a cost that could have otherwise been recaptured. It is not only the economic opportunity that is significant; the potential cumulative loss is considerable if we do not seize the opportunity presented quite clearly before us.
The time to act is now. Hong Kong is a progressive city and has often set the example across Asia Pacific for pioneering practices. Let us once again demonstrate the competence of this international city to raise the bar in efficiency so that we may all look forward to realizing the immense benefits of doing so.
Steve Way was former Principal Manager of Financial Services in Queensland Government and has advised different government purchasing card programmes in the region.