Department of Health and Human Services

Purchase Card Preapproval Elimination

Community Member kudos icon + Community member

Purchase card transaction preapproval should be eliminated because costs outweigh benefits given the checks & limits of the DHHS purchase card program (transaction computer monitoring; monthly reconciliation, supervisor review, administrative review; audits).


There is a cost to create transaction requests & to keep & file all the records spawned by such requests. There is a cost to have a supervisory review each transaction request & provide a written response. Assuming average supervisor costs at the GS-14 Step 7 level, purchase card holder costs at half of the supervisor rate, an overhead multiplier of 2, a 0.4 minute per transaction supervisor cost, a 2 minute per transaction card holder cost, the DHHS cost for transaction preapproval was $2,331,719 in FY09. This is a conservative estimate & does not account for administrative or audit reviews.


The primary benefit of preapproval is fraud reduction. There were 5,134 purchase card holders in DHHS in FY09. If preapproval was eliminated, the worst effect would be aggressive fraud where card holders illegally buy $10,000 (the monthly limit) before being caught by supervisor or administrative review. The rate of aggressive fraud per year necessary to exceed the costs of preapproval is 4.5%. This means 1 in every 22 purchase card holders would risk job loss & criminal prosecution to actively engage in aggressive theft. This is too high a ratio. The savings of eliminating preapproval given a fraud rate of 1:10000 card holders would be on average $2,326,585, & for 1:100 $1,818,319.


If other agencies have Purchase Card preapproval requirements, then savings could be realized by eliminating preapproval in those agencies provided that their purchase card programs have checks & limits equivalent to those at HHS. The Federal Government processed 22 million purchase card transactions in FY10. If preapproval could be eliminated for all of these transactions, then over $66,000,000 per year could be saved.

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Idea No. 3550