Driving Financial Supply Chain Using SmartPay2

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GSA SmartPay® 2010 Conference

Driving Financial Supply Chain Using SmartPay2

Adam Jackson

Vice President/Citi Global Transaction Services

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12th

Annual GSA SmartPay

Conference

Atlanta, GA August 10-12, 2010

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To ensure the best possible learning experience for participants, please adhere to the following house rules:

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Turn cell phones and pagers to vibrate•

Hold questions to end of session

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Ensure your participant badge is scanned to receive CLP credits− For each course−Must leave room and re-enter

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Take advantage of opportunities to provide feedback − Please select the “Ask Citi”

icon on any Citi PC at the conference− Answers to be emailed after the conference within 45 days

House Rules

Driving Financial Supply Chain Using GSA SmartPay2

All Audiences

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This course is designed to assist you in achieving the following objectives:

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Using SmartPay2 to optimize your agency’s financial supply chain

Goals & Objectives All Audiences


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1.

Financial Supply Chain Management

2.

Get reacquainted with the SmartPay2 Contract

3.

Concepts to Consider for SmartPay2a.

Inter/intra-Government Servicesb.

Grants Management

Agenda All Audiences


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1. Financial Supply Chain Management


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What is Financial Supply Chain Management (FSCM)?

The Financial Supply Chain refers to:

End-to-end trade processes between buyers and sellers that depend on supporting financial information to effectively manage accounting, cash and fulfillment –

Buyer’s perspective, this involves the full procurement-to-payment process. –

For the seller, it is the order-to-cash cycle.

The trade cycle involves a number of different types of parties needing to exchange information and a variety of contractual documents in a timely manner

A supply chain finance solution is a combination of technology (platform), services, applications, content, contractual agreements and finance deployment

Financial Supply Chain Management All Audiences

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Why is FSCM Important to the Federal Government?

Continuous vigor around federal financial management:–

Accountability, Risk Management–

Transparency to the public–

Optimizing transaction value

Inherent partnership: Federal Procurement and Financial Offices

Tracking federal obligation life cycle through multiple recipients–

Visibility into the transaction life cycle is paramount

Large orders are usually complex

Varying relationships between government trading partners


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The Government continues to focus on improving quality of its payment systems and tools:

Noteworthy payments statistics in 2010–

Agencies delivered more than $98 billion in improper payments in

2009 $26 billion increase

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OMB Comptroller Danny Werfel calls improper payments biggest government problem

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Federal Financial Statements in 2009 demonstrated room for improvement in accounting for high payment flow areas such as intragovernmental

transactions


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2. Get Reacquainted with the SmartPay2 Contract

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Remembering some of the key themes:

Streamline ordering, procurement, payment, administrative processes

Reduce fraud, waste and abuse

Strategic Sourcing

Streamline the dispute process

Improve accountability and performance reporting

Platform to serve multiple government functions and processes

Improve government cash management practices

Provide convenience

State-of-the-art technology and innovation

Getting Reacquainted with the SmartPay2 Contract All Audiences

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3. Concepts to Consider for SmartPay2

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Intergovernmental Transactions (IGTs)

Federal agencies conduct business with each other, resulting in an exchange of revenue, expenses, assets, liabilities and/or transfer transactions.

Three primary types:1.

Management of funds/borrowings by one agency on behalf of another

2.

Transfer of funds between agencies by agreement or statute

3.

Buying and selling of goods and/or services between agencies

FMS reports over $8 trillion moves monthly between federal agencies via IPAC–

Critical Source of Federal Financial Management challenge

Concepts to Consider for SmartPay2 All Audiences

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Managing IGTs

Today

Currently, agencies use several different procedures to process the majority of interagency transactions including:–

Paper-based, manual SF 1081: Voucher and Schedule of Withdrawals and Credits

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Paper-based, manual SF 1080: Voucher for Transfers Between Appropriations and/or Funds

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The Internet-based electronic IPAC System–

Treasury checks–

Government PCard

Agencies are advised to use IPAC by Treasury FMS to achieve a more electronic and collaborative approach to accounting for IGTs - Not Required


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Challenges with Managing IGTs

Estimated $20-$30 billion in imbalances annually

The majority of IGTs flow through Treasury/IPAC–

Built for masses–

Limitations with transaction detail–

Minimal collaboration

Ability to reflect accurate accounting in financial statements

Buyer/Seller reconciliation differences due to varying systems, processes, accounting and technology–

Visibility into transaction detail

Inconsistent and/or limited auditing records

Budget management


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Intergovernmental Payment and Collection (IPAC)

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Provides a standardized interagency fund transfer mechanism for Federal Program Agencies (FPAs).

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IPAC facilitates the intragovernmental

transfer of funds, with descriptive data from one FPA to another

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Web-based technology

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Generally more useful for larger transactions that require less transaction level detail reporting


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IPAC Transaction -

Process Flow Diagram1.0 Purchase 2.0 Fulfillment / Invoice3.0 Acceptance4.0 Payment / Collection5.0 Agency Accounting6.0 Central Accounting7.0 Reconciliation

Total Cost of Transaction is estimated at $125-$200

Transaction detail rolls up at high level

Manual and paper based reconciliation still exists

Agency financial systems are challenged


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SmartPay2 Encourages Providers to Offer an IGT Solution

C.2.12 Value Added Product and Service Offerings (Tier 2)

C.2.12.4 Inter/Intra-Governmental Services:

Support spontaneous, pre-negotiated, recurring transactions

Provide sufficient auditing detail

Manage risk

Provide required federal reporting

Adhere to government cash management principles

Transactions must be identified as inter/intragovernmental

Flat transaction fee


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Acceptance Considerations for Using a Card for IGT

C.1.22 GOVERNMENT TO GOVERNMENT TRANSACTIONS

Merchant category code 9399–

Considered low risk

Cost of acceptance should be considered for large transactions

Cards are used today for select purchases


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Accepting Cards for IGTs

FMS Acquiring Terms to Accept IGTs:

Must have a dedicated terminal or PC software for IGT use–

Should not use the same site to accept collections from the public

Must not engage in accepting IGTs unless indicated on the agency application and allowing for subsequent approval in writing by FMS

Agency will be solely responsible for all charges for IGT collections

The Agency will pay with appropriated funds within 30 days of the receipt of the invoice


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Rules on Non-Interchange Transactions

PCard is not the only application–

Closed loop solutions may also be of value in the case of large ticket purchases

B.4.5 NON INTERCHANGE BASED TRANSACTIONS

Examples given include G2G and Large Ticket

Not required to produce refunds

Considered Closed-Loop System

Allowed to be priced as flat fee transactions

IFF rate is $0.56 per transaction


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Where are IGT Solutions Included in the Contract?

VALUE ADDED PRODUCT AND SERVICE OFFERINGS TIER 2 REQUIREMENTS (Base Period)

Description CLIN

Purchase Inter/Intragovernment Services VP.0001(d)

Travel Inter/Intragovernmental Services VT.0001(e)

Fleet Inter/Intragovernmental Services VF.0001(e)

Integrated Inter/Intragovernmental Services VI.0001(e)


Description CLIN

PurchaseInter/Intragovernmental Services VP.0001(d)

TravelInter/Intragovernmental Services

VT.0001(e)

FleetInter/Intragovernmental Services VF.0001(e)

IntegratedInter/Intragovernmental Services VI.0001(e)

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IGT Solutions Using SmartPay2 –

Citi Purchasing Card

Acceptance infrastructure already exists today within the federal government

Transaction detail supports audit and controls, prevents discrepancies

Robust reporting through the current Purchasing Card EAS

Leverage data for auditing while supporting strategic sourcing

Drive refunds, increasing monetary value of the transaction to the government


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Citi Virtual Card Accounts -

Overview

Replace a real card account with a virtual card account (VCA) for card-not-present transactions

Clients request virtual card numbers (VCN’s) in real-time, set authorization controls and receive live virtual card account numbers

Authorization controls include:–

Single or multiple use–

Individual and aggregate transaction amounts–

Date and time ranges–

Individual merchant or merchant group

Transparent to the merchant at the point-of-sale–

16-digit account number, expiration date, 3-digit security code

Multiple client interface modes–

Web interface, batch file, real-time API

Robust reconcilement–

30 custom data fields


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Citi Virtual Card Accounts –

Process Flow

Transactions flow through the authorization and control processes, and post with robust reference data1. Request and receive VCA via web site, file or API with unique purchase controls2. Provide VCA for transaction3. Submit transaction (receive auth message) 4. Authorize and

validate transaction against controls in the VCA platform5. Authorization and clearing message6. Reporting with VCN reconciliation and billing/payment against real card account


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2. Provide VCA for transaction MerchantMerchant

3. Submit transaction (receive auth message)

6. Reporting with VCN reconciliation and billing/payment against real card account

5. Authorization and clearing message AcquirerAcquirer

ClientClient1. Request and receive VCA via web site, file or API with unique purchase controls

VCA

Platform

Auth

and

Clearing

Reports

VCN

and Controls

4. Authorize and validate transaction against controls in the VCA platform

Transactions flow through the authorization and control processes, and post with robust reference data

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Citi Virtual Card Accounts –

BenefitsPayment efficiency with increased security and enhanced reconciliation

Security

The real card account number is never shared

Set controls on each virtual card number to ensure it is utilized for a specific transaction

Safeguard against fraud

Efficiency

The real card account number is never shared

Set controls on each virtual card number to ensure it is utilized for a specific transaction

Safeguard against fraud

Control

Customize and pre-set authorization parameters

Set up hierarchy approvals to increase control over spend and reduce unauthorized transactions

Execute larger transactions


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Payment efficiency with increased security and enhanced reconciliation

Security

Efficiency

Control

The real card account number is never sharedSet controls on each virtual card number to ensure it is utilized for a specific transactionSafeguard against fraud

The real card account number is never sharedSet controls on each virtual card number to ensure it is utilized for a specific transactionSafeguard against fraud

Customize and pre-set authorization parametersSet up hierarchy approvals to increase control over spend and reduce unauthorized transactionsExecute larger transactions

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Closed Loop Applications

Brand Network Tools

Business Service Agreements between agencies with high trading volume


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Relevant FSMC Concepts Under SmartPay2

Intergovernmental Transactions

Grant Management


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Grant Management Context

26+ agencies manage annually over 900 grant programs, outlaying over $650 billion in federal spending to recipients–

Unique business rules and processes exist according to grant type for payment, tracking and reporting

Federal authorities are seeking to increase controls, auditing efficiency and overall transparency and accountability to grant management–

$ billions in funding are lost to misuse or mismanaged accounting

FFATA seeks transparency and accountability by requiring grantors and grantees to work collaboratively to improve grant data collection and reporting. –

Technology is at the heart of such data tracking


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Federal Funding Accountability and Transparency Act

Provides greater insight into use of taxpayer dollars

Focuses on reporting, data quality and integrity

Raised bar for financial data collection and reconciliation

Increased demands on federal legacy systems

Drives greater collaboration with recipients


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Organizational chart outlining Types of Grants including Mandatory (e.g. Entitlement, Block, Formula) and Discretionary (e.g. Education, Research, Non-Research)


Grants Management All Audiences

Types of GrantsGrant to

Federal Agency

Grant to

Federal Agency

Mandatory

non-competitive*

Mandatory

non-competitive*

Discretionary

Competitive**

Discretionary

Competitive**

Entitlement

e.g. Medicaid, Food Stamps

Entitlement

e.g. Medicaid, Food Stamps

Block

e.g. Housing

Block

e.g. Housing

Formula

e.g., Highway Construction

Formula

e.g., Highway Construction

EducationEducation ResearchResearch Non- research

Non- research

Substantial portion administered

by State & Local entities

Est. 2008: $348.2 billion

Substantial portion administered

by States, Universities and Non-profits

Est. 2008: $57 billion (excludes individuals and for-profits)

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The Grants Process: Grantor & Grantee Relationship

Grants Management All Audiences

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Observations

Payment systems exist today that electronically transfer grant funds to federal agencies and primary recipients.–

HHS; Payment Management System (PMS)–

Treasury; Automated Standard Application for Payments (ASAP)

Under the Grants Management Line of Business (GMLoB):–

HHS, Education and NSF all provide grant management capabilities, with limited functionality around the post-award process

Agencies still lack automated and collaborative tools to consistently track use of grant funds down to a transaction level, while collecting all required data elements as required under FFATA legislation


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Grant Payment Life cycle

Announcement, Application, Award, Post-Award, Close-Out

Addressable Grantee “Pain points”

Post Award: Payment Processing, Grant Monitoring, Regulatory Compliance, Adherence to predetermined program requirements/benchmarks Clost-Out:

Financial reconciliation, Preparation and delivery of final reports

Grant Management All Audiences

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Announcement Application Award Post-Award Close-Out

Front End Back End

Grantor Grantee

• Software providers (e.g. Grantium)

• Consultants (e.g. BAH, McKinsey)

• P.L. 106-107 progress

• Grants.gov focus

Back End•Oracle

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Market needs

analysis is required

Post-AwardPayment processing

Grantor monitoring

Regulatory compliance

Adherence to predetermined program requirements/benchmarks

Close-OutFinancial reconciliation

Preparation and delivery of final reports

Addressable Grantee “Painpoints”

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Challenges for Grantors & Grantees

Grantor Challenges

Accountability for how grantees use funds

Measuring grant results

Timely collection of data and compliance with laws

Grant process automation

Reconciling with financial reports

Reducing improper payments

Over $1 billion in expired funds spread across nine agencies

Reconciling funds and returning unused funds to US Treasury

Lack of definitions and formats for grant documents & online tracking

Grantee Challenges

Lack of standardization of terms

Requirements for grant recipients to submit financial and progress reports

Complying with disparate forms

9 different civilian payment systems

Requirements and policies that vary by agency


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Lack of definitions and formats for grant documents & online tracking

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Lack of standardization of terms

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Requirements for grant recipients to submit financial and progress reports

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Complying with disparate forms

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9 different civilian payment systems

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Requirements and policies that vary by agency

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Accountability for how grantees use funds

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Measuring grant results

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Timely collection of data and compliance with laws

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Grant process automation

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Reconciling with financial reports

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Reducing improper payments

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Over $1 billion in expired funds spread across nine agencies

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Reconciling funds and returning unused funds to US Treasury

Grantor Challenges Grantee Challenges

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Recovery Act Reporting, Tracking and Validation

Agencies are to submit accurate, complete and reliable data with multiple recipients of ARRA funds into Recovery.gov However...

Controls and processes must be in place between the funding partners in order to verify data accuracy

All ARRA data collected within the financial supply chain should reconcile with a high degree of accuracy between funding partners

Processes for the data collection should be automated and standardized

Existing financial systems and reporting capabilities for all agencies must be considered

The system should be nimble for flexible and high frequency reporting without losing data integrity

Data collected and processed should be fully auditable

Performance dashboards are only as good as the data


http://www.usaid.gov/cgi-bin/goodbye?http://www.recovery.gov

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SmartPay2 Solutions for Grant Management

Declining Balance Card

Virtual Cards

Closed Loop Applications


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The SmartPay2 contract does enable innovation to increase the value within the current Federal financial supply chain–

Especially in the areas of IGTs

and Grants Management

There are enormous opportunities for agencies to drive down transactional costs, while improving data quality to improve auditing and strategic decisions

Solutions are immediately available today through PCard applications currently in use, as well as new technologies that are readily available by Citi

Summary All Audiences

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Adam Jackson

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All Audiences


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Thank you for attending!

Visit the Citibank Welcome Center–

Across from Room#B212–

National Industries for the Blind will have a display of products

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Conference Slide Show –

come see yourself shine!

Visit the Citibank One-on-One Lab - B210

Visit the Citibank Mini Sessions – B209

Ask Citi Link – Tell us your thoughts

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Reminders All Audiences

Driving Financial Supply Chain Using SmartPay2

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Interactive Training Events GSA

Citi offers onsite training at no cost for agencies meeting the required minimum participant level of 20 or more as set forth in the GSA SmartPay2 Master Contract.

Please contact your Account or Client Manager if you are interested in setting up a training session. Training can be conducted at a Citi Training Location or On-site at your office.

Regional Citi Training Locations–

Norfolk, VA–

Washington, DC

On-Site at your office–

20 participant minimum

Distance Learning – Computer Based Training is available via the CLASS icon in CitiManager.


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Terms & Disclosures

Tuesday, July 28, 2009

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Driving Financial Supply Chain Using SmartPay2

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