MPS Corporate charge card

Report: 9
Date: 22 November
By: AC Operational Services on behalf of the Commissioner

Summary

This reports provides details relating to use of American Express cards for corporate purposes within the MPS. Specifically, it focuses upon the reasons why the cards were introduced and the established processes for monitoring and reconciling accounts when expenditure has taken place.

Information is provided which details the accounting position as of 31st October 2007 and the actions and investigations now being undertaken by The Directorate of Professional Standards, in liaison with the Director of Strategic Finance and the MPA Director of Internal Audit, to enhance the management of the system and identify and deal with any wrong doing that may have occurred.

A. Recommendation

That Members

Note
1. The systems improvements implemented since 2005/06

Endorse
2. The proposed actions to complete a full reconciliation of AMEX accounts and to take appropriate management action

3. The proposed actions to review the current usage of corporate credit cards and ensure balance reconciliations are kept up to date

Request
4. Regular update reports to Corporate Governance Committee until the matter is satisfactorily resolved.

B. Supporting information

Background

1. The AMEX corporate charge card scheme was introduced in April 2003 as a means of reducing bureaucracy and the need to maintain temporary imprest accounts across the Service. The types of expenditure for which the cards can be used and the arrangements for authorisation and reconciliation of expenditure incurred are set down and circulated within Standard Operating Procedures (SOPs) - see Appendix 1.

2. Currently 3,533 officers and staff have AMEX cards, of which an average of 700 to 800 are used in any given month. In a typical month, the cards will be used in 26 currencies and up to 20% of the spend will be overseas. The majority of cards are held in Specialist Operations and Specialist Crime Directorates. This pattern of usage reflects the MPS’s international and national activity and is not comparable to most organisations where overseas transactions would typically reflect some 5% of total activity.

3. Under current SOPs, all cardholders are required to complete a claims form accounting for their expenditure, attaching original receipts and a copy of the relevant statement from American Express. The forms are then submitted through the supervising officer to Exchequer Services to be processed on the accounting system. To accommodate deployments outside the MPD cardholders are required under the SOP to complete this reconciliation within three months from the date of expenditure. In addition, business group finance and resources managers are provided with lists of cardholders within their areas and also regular information regarding outstanding balances to enable finance and resource managers to monitor completion of returns and to confirm expenditure has been allocated against the correct cost centres.

4. Exchequer Services process returns, collate and distribute information to business groups via their finance and resource managers on amounts outstanding and overdue returns. The current system became operative in April 2006 since when expenditure has been recorded against the cost centre and revenue accounts at the time the bill is paid to AMEX. Since April 2006, expenditure of £10.7m has been charged to AMEX cards.

5. At 31st October 2007, £2.98m was awaiting reconciliation of which £2.02m was over the three month time scale. Since AMEX cards are only accepted globally on a fairly restricted scale, approximately 25% of spend relates to cash withdrawn.

Current System

6. The current system was introduced following an incident of misuse in 2004/05 and a subsequent internal audit investigation into a number of questionable returns. As a result, a working group of Finance Services staff, Internal Audit and senior finance and resource manager representatives from all MPS Business Groups (Finance Process Improvement Group - FPIG) was charged with developing a new system that incorporated Internal Audit’s control advice and identify further developments and improvements to the process and SOPs. Systems improvements introduced as a result of the Audit review include:

• Improved reporting systems so that spend by type, cardholder and cost centre is available to local managers through their local finance managers
• Improved reporting of outstanding returns by cost centre and business group
• Published guidance on dedicated charge card intranet site along with distribution of guidance with replacement Chip and PIN cards
• Improved management information in provision of key performance indicators, e.g. top 50/100 unreconciled accounts

7. Since August 2006, Exchequer Services have phased in a series of reports, which include an analysis of the outstanding returns by cardholder, cost centre and business groups that allows people to see how much is overdue for consideration at FPIG. The FPIG representatives have undertaken to circulate the reports amongst the Local Finance Manager community in their Business Groups, who inform cardholders and their local senior management teams of the position of all their respective cardholders. Similarly the business accountants, business group business managers and local finance and resource managers should pursue the issue in their business groups. Since May 2007 business groups have, through F&R managers, had online access to all corporate card spending transactions.

8. Pilots have also been implemented in SCD1, 7 and 8 and SO1 and TPHQ to trial a number of further improvements in the system. These amendments included:

• Local finance units maintaining signatory lists of authorised signatory officers on their cost centres to ensure that returns are only supervised by officers authorised to do so by their OCU
• Supervisors setting the cash withdrawal and spend limits for the cards used by cardholders within their teams
• Introduction of a new electronic form which assisted the reconciling of large amounts.

The pilot has been running from May 2007. However, take-up of the new forms has not shown any improvement on the timely return and reconciliation of accounts. Full roll-out of the new procedures has, therefore, been delayed (originally scheduled for 10 October 2007.)

9. As a result of these processes, on 4th October 2007, the card usage of one officer was referred to the Directorate of Professional Standards (DPS) for further investigation. As a consequence of initial investigations, a significant review of corporate credit card usage was undertaken by the DPS.

10. On 8 October 2007, the referral to DPS was discussed at SMT and some concerns were raised regarding the operation of the current system. The Director of Strategic Finance was, therefore, asked to review the system and report back to SMT with recommendations for improving system controls.

Previous system

11. Prior to April 2006, expenditure was charged to a suspense account rather than a cost centre prior to reconciliation. At 31 March 2006, £3.7m was held on the suspense account. In consultation with Internal Audit, the MPA Treasurer charged this expenditure to the revenue account in closing the 2005/06 accounts.

12. These old accounts were not converted to the new system in April 2006 and cannot, therefore, be included in the current management reports. The information was, however, pursued throughout 2006/07 in consultation with Internal Audit and business group business managers. This resulted in the reconciliation of some £2m of the expenditure, leaving some £1.7m still awaiting reconciliation. The intended method to address the outstanding balance is dealt with at paragraph 19.

Current Position

13. Accounts awaiting reconciliation as at 31 October 2007 for Period 1 April 2006 to 31 October 2007:

Current
£965,320

Over 3 Months
£2,016,215

Total awaiting reconciliation
 £2,981,535

14. Accounts awaiting reconciliation for period prior to 1 April 2006 total some £1.7 million.

15. The total sum to be reconciled therefore amounts to some £4.7 million.

Action Plan - Implemented by the Director of Professional Standards and Director of Strategic Finance and co-ordinated by Assistant Commissioner Operational Services.

16. Exchequer Services have provided Management Board Members with detailed records of all those who hold corporate American Express cards and together with outstanding returns, post April 2006, by business group and card holder.

17. At the direction of the Commissioner, Management Board Members have all appointed a Commander or Senior Police Staff member to examine expenditure accounts and, where there was an un-reconciled account of over three months duration, the card has been withdrawn, unless the Management Board Member has personally approved its continuance for organisational purposes. Additionally, any card that was not seen as being required for operational reasons has also been withdrawn.

18. Management Board Members are arranging for all outstanding accounts to be reconciled forthwith and returned to Exchequer Services for audit by 30 November 2007. Any account that cannot be reconciled within this time will require an explanation of the circumstances and a date by which the action will be completed. Any issues, which cause concern in relation to honesty or integrity, will be brought to the immediate attention of the Directorate of Professional Standards and, as a matter of course, any suspected financial irregularity will be reported immediately to the MPA Director of Internal Audit.

19. Exchequer Services will, by 7 December 2007, have researched and detailed all outstanding accounts for the period pre April 2006 and will circulate them to Management Board Members for reconciliation by 21 December 2007.

20. Exchequer Services will review the three month period for reconciliation with a view to significantly reducing the existing time scale. Recommendations will be taken to Management Board by 7 December 2007. In addition, discussions are in hand with AMEX to reduce the number of merchandising codes for which cards can be used.

21. Business group business managers are to work with Financial Services to establish clear cash withdrawal limits and strict management authorisation processes to include prior line manager approval and report outlining the necessity. Cash advances, not issued through the corporate credit card, will only be issued by Exchequer Services. Travel services have ceased to provide cash advances for overseas deployments.

22. Exchequer Services are also working with business group business managers to establish arrangements for long-running operational expenses to be dealt with via centrally-held, rather than local, credit cards.

23. Exchequer Services are consulting with business group F&R managers to revisit and set a single policy to monitor, reconcile and intrusively supervise corporate card expenditure across the MPS. This work will continue to be done in close liaison with the MPA Director of Internal Audit.

Investigative response by the Directorate of Professional Standards (DPS).

24. As of 13 November 2007 a dedicated team has been established to undertake this enquiry under the personal direction of the Commander DPS. The enquiry will be conducted in close liaison with Exchequer Services and Internal Audit. The Directorate of Professional Standards will pursue any evidence of dishonesty or misconduct with rigour.

25. It is not possible, at this time, to state precisely the level of inappropriate expenditure or the implications in terms of management action. A further assessment of scale and organisational implications will be made after 30 November 2007 at which time all post April 2006 returns will have been returned to Exchequer Services. The Commander DPS will provide an update report to Management Board outlining emerging findings and implications in terms of the behaviour of individual officers by 14 December 2007.

Further Actions

26. Exchequer Services and Procurement Services are well advanced in the process of competitively tendering the Service’s corporate credit card facility with the aim of having new and more comprehensive arrangements in place from April 2008 including improved management information and cardholder safety.

27. As part of the upgrading of the Service’s financial system, which is currently underway, consideration is being given to the possibility of automating expenditure returns.

28. Finance Services and Procurement Services are also in the process of developing and implementing a purchase-to-pay business improvement programme, which will improve service support through corporate contracts, and defining routes to purchase thereby reducing reliance on local procurement.

29. As part of the report regime, summary reports of outstanding reconciliations will be submitted on a monthly basis to the Director of Strategic Finance and the MPS Performance Board.

C. Race and equality impact

The equality and diversity implications of the investigation will be constantly reviewed by the Directorate of Professional Standards during the investigation.

D. Financial implications

All costs for the initial review and investigation will be met from existing budgets. The potential impact on corporate finances and claims processing are contained within the report. A supplementary report detailing the precise financial implications will be submitted once the investigation has reviewed further data and is in a position to give a more reliable indication of costs.

E. Background papers

None

F. Contact details

Report authors: Commander Stuart Osborne, Director of Professional Standards, MPS and Anne McMeel, Director of Strategic Finance, MPS.

For information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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