Good afternoon Chair Schwartz and members of the Committee on Workforce Development and Government Operations. I am David P. Gragan, Chief Procurement Officer (CPO) of the Office of Contracting and Procurement (OCP), and I am here today to discuss PR 17-934, Contract No. DCPO-2008-T-0076 Approval Resolution of 2008. This resolution would approve a Memorandum of Understanding with the U.S. Department of Justice to tag along to its task order with JPMorgan Chase Bank to provide to District agencies purchase and travel card services under the U.S. General Services Administration’s SmartPay®2 Program. (Tagging along means joining another organization’s established task order in order to receive the same services that are provided to the primary organization). My testimony will be on the OCP website within 24 hours.
The District has had a task order under the original GSA SmartPay® program since 1999, with USBank for the purchase card and Bank of America for the travel card. The GSA SmartPay® program will expire in November and this new SmartPay®2 program will allow the District to continue its purchase and travel card programs. The official contract was awarded between GSA and three banks -- JPMorgan Chase Bank, USBank and CitiBank. The Department of Justice issued a Standard Task Order with JPMorgan Chase and PR 17-934 would approve a Memorandum of Understanding to tag along with the DOJ Task Order.
VALUE OF THE CARD PROGRAM
As you know, agencies are able to use purchase cards for small purchases under $2,500 -- also referred to as micropurchases. Purchase card and travel card programs are considered a best practice in federal, state and local governments. The commercial card programs eliminate the delivery wait time and overhead costs associated with creating a purchase order, and allow agencies to pick up what they need, when they need it, from any vendor that accepts a MasterCard or Visa. Further, vendors are paid quickly, management receives documentation and reports to monitor the use of District funds, and the government receives a rebate on all of its purchases. When the purchase card program began in Fiscal Year 1999, less than 1% of District government contract dollars ($1.2 billion) were spent on micropurchases. However, 52% of the purchase orders (and contracting workload) were associated with those micropurchases. Due to increased usage of the purchase card since then, through the third quarter of this fiscal year, fewer than 33% of purchase orders were associated with micropurchases. It is important to continue to expand purchase card usage to allow OCP staff to focus on more complex and more mission critical purchases.
CONTROLS/RISK MITIGATION
In October 2003, the Office of the Chief Financial Officer’s Office of Integrity and Oversight (OIO) conducted an audit of the purchase card program. Although there were a number of findings, in 2005 the OIO issued a follow-up report stating that OCP had taken corrective actions to address all the deficiencies found in the original report. Chair Schwartz, from what I understand, you were key to highlighting the program weaknesses at the time and ensuring strong controls around the program were developed. As part of the new card rollout, we plan to enhance some of the effective existing controls. We will continue to block high-risk merchant codes and limit single purchases to $2,500 and any 30-day cycle of purchases to $10,000, unless specifically exempted with my approval. We will train additional agency staff and auditors on how to access the bank’s web tool to run monitoring and usage reports. Key reports, including an Unusual Activity Analysis, highlight incidents of potential splitting, purchases made during non-business hours, and transactions with atypical merchants. Patterns of frequent card cancellations, declines or purchase disputes -- even by employees who move through different agencies -- can also be detected.
The card program will have three levels of oversight – first, and most importantly, will be the agency itself. Agencies are ultimately responsible for approving the purchases made and affirming that appropriate documentation was retained. Second, OCP’s Office of Procurement Integrity and Compliance will begin regular reviews of the monitoring reports and confirm that agencies are complying with their responsibilities. The third level of oversight will be the public. We plan to display transaction information by agency on the District’s internet site, so it is readily accessible to taxpayers and the media. We believe this third level of oversight will strongly encourage appropriate usage and monitoring at all levels of government.
CONCLUSION
Current SmartPay® participants ranked JPMorgan Chase number one in terms of customer service, security, reporting and bank processes across all participating banks. The new commercial card rollout with JPMorgan Chase provides the District with a great opportunity to increase agency usage, simplify our processes and at the same time, improve controls. For these reasons, it is important that this contract be approved. I am happy to address any questions you may have.