A brief history and review of purchasing card use by the U.S. government: 1990-2005
| Pages | 174-199 |
| Published date | 01 March 2008 |
| DOI | https://doi.org/10.1108/JOPP-08-02-2008-B002 |
| Date | 01 March 2008 |
| Author | Mahendra Gupta,Richard J. Palmer |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 8, ISSUE 2, 174-199 2008
A BRIEF HISTORY AND REVIEW OF PURCHASING CARD USE BY THE
U.S. GOVERNMENT: 1990-2005
Mahendra Gupta and Richard J. Palmer*
ABSTRACT. After fifteen years of use by U.S. Federal government agencies,
purchase cards are still caught in a debate between the drive to improve
governmental efficiency and the need to prudently manage and control
spending of taxpayer resources. This paper gives decision makers facts by
which to evaluate the purchase card experience to date by providing a brief
history of legislative actions related to purchase cards, analyzing patterns of
purchase card spending by Federal government agencies, estimating the
potential size of the purchase card program, and identifying the costs and
benefits of shifting low-value transactions to the purchase card. The paper
concludes with recommendations for government action.
INTRODUCTION
Purchase cards (or purchase or p-cards) have received much
attention as a tool to help U.S. Federal government employees
acquire small-dollar goods from suppliers in a cost-effective and
timely manner. Purchases under $2,500 have been estimated by the
GSA to account for a meager 2% of total federal government
spending but 85% of total procurement transaction volume (U.S.
General Service Administration, n.d. (a)). Purchase cards expedite
payment to suppliers and reduce or eliminate the paperwork
associated with requisitions, purchase orders, invoices, and checks.
-----------------------------
* Mahendra Gupta, Ph.D., Geraldine J. and Robert L. Virgil Professor, Olin
School of Business, Washington University in St. Louis. His research interest
is in strategic cost management, benchmarking, and performance
measurement. Richard J. Palmer, Ph.D., is Lumpkin Professor, Lumpkin
College of Business and Applied Science, Eastern Illinois University. His
research interest is in electronic payments and accounting cost and
information systems.
Copyright © 2008 by PrAcademics Press
PURCHASING CARD USE BY THE U.S. FEDERAL GOVERNMENT: 1990-2005 175
Estimates of Federal government cost savings by use of purchase
cards have ranged from $54 to $92 per transaction (U.S. General
Accounting Office, 1996; Department of Defense, 1998).
Government estimates of transaction costs savings in 2003 alone
was $1.4 billion (U.S. Senate, 2004). Further, purchase cards have
been found to reduce the time required to process paperwork
transaction by 2 to 6 weeks (U.S. General Service Administration, n.d.
(b)).
Recognizing the potential positive impact of purchase cards,
Federal government agencies have steadily increased their use of
purchase cards. To accomplish this spending growth, the
government has taken actions to remove legal and administrative
barriers to card use, reflecting the priority placed on cards as a best
procurement practice.
While the benefits of purchase card use are widely known,
incidents of card misuse have undermined support for Federal
agency use of purchase cards. For example,
- a Marine Corps lance corporal uses a Pentagon credit card to buy
herself a car, motorcycle, and cosmetic surgery, (Sealey, 2003),
- Navy personnel used government credit cards to buy jewelry,
gamble and attend sporting events (U.S. General Accounting
Office, October 2002a), and
- Agriculture Department employees used government credit cards
to pay tuition at bartending school, make a down payment on a
car, and buy Ozzy Osbourne tickets, lingerie, and tattoos
(Gersema, 2003).
The anecdotal evidence of egregious abuse led some government
decision makers to strongly oppose government use of the purchase
card. Senator Charles Grassley (R, Iowa), most notable among critics,
concluded on the basis of GAO reports that the Department of
Defense’s (DOD) purchase card program did little more than create
“an army, 1.7 million strong, authorized to spend money with no
checks and balances. The potential for abuse and fraud is virtually
unlimited.” He concluded that “Department of Defense credit cards
are being taken on shopping sprees, and the cardholders think they
are immune from punishment” (U.S. House of Representatives, 2001,
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