North Dakota's public entities spend millions using purchasing cards

BISMARCK — North Dakota's state agencies, public universities and school districts run on purchasing cards.

P-cards, as they're commonly called, act almost as company credit cards for government entities. They allow public employees to pay for everything from travel expenses to office supplies without checks or reimbursements.

Over the past 15 years, the state's p-card program has grown exponentially from a few agencies to about 180 public entities. In 2018, the enrolled public entities spent a combined total of more than $123 million using p-cards, including nearly $31 million by the state's two largest universities.

The program has added more efficiency to government by streamlining what was once a burdensome purchasing process, said Jeff Larshus, the Office of Management and Budget's director of state financial services.

Transaction data obtained by Forum News Service through public records requests tell the story of p-card usage in North Dakota. This is the first in a four-part series examining the program.

The state's program was first established in 1999, but Larshus said it only involved a handful of agencies that spent sparingly. At that time, enrolled agencies used cards issued by General Electric Financial, which was later bought out by American Express.

The program grew into its robust current form over the next 20 years as the credit card and banking industry began offering the service more widely. A critical development to the program came in 2007 when political subdivisions, like local governments, schools and institutions of higher education, were permitted to join the program. Between 2016 and 2018, political subdivisions made up eight of the 10 highest spending entities.

Enrolled entities statewide spent about $22 million in 2009 when the program switched over to current card provider JP Morgan, Larshus said. In 2018, North Dakota State University spent more than $17 million by itself.

Today's program includes most state agencies, all 11 public universities and colleges, more than 70 school districts, 15 county governments and six municipal governments. Several private organizations that work adjacent to the public sector, like the North Dakota Association of Counties, have also been allowed to enroll in the program, although they do not spend public funds.

All enrolled entities have a p-card administrator who reviews purchases, requests and cancels cards and sets spending limits for employees depending on their anticipated purchasing needs.

Some cards are issued to conference attendees and explicitly designated for hotel accommodations, transportation and event registration. Others are only authorized to purchase equipment for specific departments.

While uses for the cards differ, the enrolled entities impose similar rules and guidelines on cardholders. Personal purchases are strictly forbidden across the board. All types of cards restrict the purchase of jewelry and the withdrawal of cash, and the vast majority also prohibit entertainment and liquor with few exceptions.

All prospective cardholders at state agencies must sign an agreement affirming that they will use the cards exclusively for state business and follow guidelines for keeping and filing receipts.

After a card is swiped at Target, Subway or Holiday Inn, the entity's administrator reviews the purchase and decides whether to approve it. If the transaction is approved, the funds come out of the entity's budget.

The extent to which the cards are used varies widely depending on the entity. For example, the University of North Dakota has about 525 cardholders who spent more than $13.8 million in 2018, while the Williston Public School District has only 72 cardholders, who spent about $1.2 million. Nearly 5,500 cards are issued statewide, Larshus said.

Most entities spend on travel and conference registration for employees, but the highest spending entities in the state also frequently use the cards to pay for expensive equipment, like computers, machinery and educational materials.

A closer look at the transaction records also reveals some quirky purchases made by enrolled entities.

A Bismarck State cardholder purchased a bottle of Wild Turkey bourbon at Captain Jack's Liquor Land in November 2017. College spokeswoman Marnie Piehl explained that the catering team needed the bourbon to make an espresso-bourbon sauce , presumably to serve on a cut of beef.

The University of North Dakota doled out $2,400 in 2016 for flights on Hawaiian Airlines, but the passengers were not merely fleeing frigid Grand Forks for the white sand beaches of the Aloha State. Receipts and records of correspondence between administrators reveal that two biology professors traveled to Molokai, Hawaii, to research maize genetics and paid for it with their own research funds.

Using p-cards provides a significant financial benefit to enrolled entities, Larshus said.

JP Morgan offers a rebate to entities based on their spending, which can go back into the budget to fund areas of priority. Enrolled entities received more than $2 million via the rebate in 2018, including about $600,000 that went right back into the state General Fund.

The rebate has attracted some smaller school districts and counties to join the program, said Doreen Schumacher, OMB's program administrator. The $5,000 rebate received by Leeds Public Schools doesn't sound like a lot of money, but to a small-budget district, it can make a big difference.

"Once they get their rebate check, I think they realize 'Oh, boy, we're getting money for using card versus cutting a check," Schumacher said.

P-cards also eliminate messier and less efficient methods of procurement. Writing checks is a major hassle and money-loser for any organization, and reimbursing employees for every purchase eats up time for administrators.

Using the cards also eliminates the need for entities to issue 1099 tax forms, which would be necessary under more antiquated purchasing methods. Additionally, purchases made on p-cards in North Dakota are sales-tax exempt.

North Dakota's program is still growing due to the slew of money-saving factors for enrolled entities. Nearly 50 more entities have signed up for the program since 2015, including 12 last year, Larshus said.

“We’re not able to go out to every city, every county, every school district and pitch the program, but I think we’re getting to the point where the program is selling itself,” Larshus said. “Word-of-mouth is probably the No. 1 way the program has been enhanced.”

Overall, p-card spending rose more than $11 million between 2016 and 2018. Larshus said OMB will continue recruiting political subdivisions, including the city of Fargo, which has a separate program through Public Financial Management.

Coming up next week, Feb. 2: Public employees travel all over the world for conferences, meetings and research, and they use p-cards to buy flights, conference registration, lodging and car rentals. Perhaps the most popular out-of-state destination is Las Vegas.

Coming Feb. 9: The vast majority of the purchases made on p-cards are unassuming, but several intriguing anomalies stick out in the vast dataset. What are the rules and possible exceptions of p-card use?

Coming: Feb. 16: Like anyone, the government is subject to fraudulent activity by card hackers. How often does it occur, and how is it prevented?

(Note: The 2019 dataset does not include all expenditures from North Dakota's institutions of higher education.)