Overview of the Procurement Process
Per the Finance Task Force Strategic Direction Statements, the future procurement process at VU should provide a user-friendly shopping, ordering, receiving and payment process. This process should enable any end user to make an informed buying decision, efficiently place an order, record necessary information accurately in the system, acknowledge receipt of goods and services, and authorize payment. The Central Office, however defined, should provide more consultative services, develop better information and tools, and support a variety of methods for acquisition and payment. Purchasing, receiving and payment processes should leverage available technology and advances in electronic commerce. There should be little distinction in the system between external vendors and internal vendors. All internal services (e.g., facilities services, printing services, parking and transportation services, telephone and telecommunications services, etc.) should all be accessed and paid for through the same procurement system through which users procure goods and services from external sources.
For the purposes of this demonstration script, there will be three different types of purchases, which are defined below:
• Internal – those purchases of goods or services which one university department makes directly from another university department. Examples include purchases from Printing Services, University Bookstore, and Facilities Management.
• Independent – those purchases which a department makes by directly contacting the vendor and placing the order. These purchases will be less than a specific dollar limit identified in University policies and procedures (currently $5,000). Departments are prohibited from buying certain restricted commodities, such as guns and alcohol, regardless of the dollar amount of the order.
• Assisted – those purchases that the end user records on a purchase requisition and sends to Purchasing, in cases where the amount of the purchase exceeds the specific dollar limit for independent purchases or for any restricted commodities. Purchasing seeks competitive quotes, issues formal invitation for bids or requests for proposals, or negotiates sole sources and contracts. Purchasing issues the purchase order to the vendor.
The procurement process should be one module, not several, within the integrated system. Whenever non-personnel expenses are to be incurred, all departmental employees should go to one place in the system. From this one place, they should then be able to engage in internal, independent, and assisted shopping, ordering, receiving, and payment activities. The integrated system should guide them into and through the correct avenues for all of their procurement work.
End users should have easy access to on-line shopping services in a real-time environment. Helpful navigation tools and easy to use screens should facilitate shopping. Systems features should include:
• Up-to-date electronic catalogues.
• Information on merchandise, including current prices, should also include enhanced product descriptions and information on lead times for ordering, availability, and delivery options.
• Listings of available surplus property owned either by VU (or other state agencies) should be available.
• There should be listings of “pre-shopped” or recommended items with negotiated prices, terms and conditions. This should include base as well as enhanced or deluxe models. This merchandise should have been tested and graded by the Central Office or others.
• End users should have maximal access to and control over the purchasing process in the area of “independent” procurement. This access and control will be governed by published institutional guidelines. There may be a certification process that is required before university personnel become “independent” procurers, if special training is required.
• “Smart” questions or ticklers may be generated by the system. For example, “when purchasing this type of item, it is a good idea to think about…”
• End users should have the ability to bypass the “shopping” phase and go straight to the ordering phase.
Selection of an item by an end user during the shopping phase should initiate the order and payment process. Features of the ordering process should include:
• Assistance with object code selection by providing “English” descriptions for the various expenditure codes.
• System warnings for errors such as invalid account number or object code.
• Ability to route orders to appropriate approval authorities. This routing must be flexible and not “hard-coded”.
• Ability for departments to check budgets and to encumber purchases as an option, not a requirement.
• Ability to distribute costs (i.e., split-fund) to correct accounts for all purchases, including those made using procurement cards. Ability to correct the distribution of costs between the time an order is placed and the payment is made to the vendor.
• Availability of information on the status of an order and information on when order is complete.
• Automatic liquidation and update of encumbrance amounts with actual amounts.
Delivery, Receipt, and Payment:
During the Delivery, Receipt, and Payment phases, the following capabilities are desirable:
• For standard items, delivery should be made to a departmental default address. For unique delivery needs, vendors should follow delivery addresses specified by the end user.
• Payment of all invoices below a certain dollar threshold should be made through “negative confirmation,” in which receiving documentation is not required. Above a certain dollar threshold, positive confirmation, or actual receiving documents, will be required. In either case, end users should be provided with easy access to electronic invoice information. Also, end users should have the ability to record and pay for partial shipments.
• The university will leverage advances in technology and electronic commerce to facilitate timely and easy payment. Specific features should include:
• Centralized payment process.
• Payment through Electronic Data Interchange (EDI) or Electronic Funds Transfer (EFT), where possible.
• Electronic invoices from vendors, where possible.
• Ability to scan or image paper documents for payment purposes and departmental access.
• Electronic mechanism to distribute procurement card charges to proper account before posting to the general ledger.
• Ability to support demand payments.
Central Office Services:
Services provided by the Central Office will include:
• Advice and professional consultation to all authorized university purchasers.
• Vendor information and analysis.
• Pre-shopping and negotiation of contracts.
• Identification of contract vendors based on cost, quality, and service.
• Information to support local vendors, identification and tracking of purchases made from disadvantaged vendors.
• Testing and rating of products.
• In conjunction with vendors, maintenance of the shopping areas of the system.
• Support for innovations that leverage trends in the banking industry, such as debit cards.
• Formal Invitation for Bid (IFB) and Request for Proposal (RFP) services.
• Resolution of problems with vendors.
1 Vendor Relations
Vendor Master File
1.1 Demonstrate the set up of a vendor in the system and show the information being entered and tracked for a vendor, such as:
• minority status,
• federal identification number
• remit-to addresses
• vendor-specific payment terms
• vendor performance data
1.2 Demonstrate how Business puts a vendor on hold and notifies individuals who have purchased from the vendor in the past.
1.3 Demonstrate how frequent purchasers are listed in the vendor history and how Business is informed of this action, automatically.
Vendor reporting and performance
A review of vendor activity discloses that a vendor is now receiving $2 million in business each semester. This has increased from only $2,000 one year ago. A closer analysis of the vendor’s activity is desired.
1.4 Demonstrate the ability to drill down through the vendor history to specific invoices or line items.
1.5 Demonstrate flexible search capabilities by vendor name and number, purchase order number, project, object codes (natural accounts), check number, department, account number and invoice number.
Product catalog set-up and maintenance
VU manages an in-house catalog of laboratory supplies and chemicals frequently purchased by department users. We would like to make this catalog available to users in an on-line format.
1.6 Demonstrate an on-line catalog, including the ability to load scanned images of products.
1.7 Demonstrate the ability to automatically go the Internet to retrieve a vendor catalog and update VU’s procurement database with new prices, and also notify the buyers that prices have been updated.
Vendor Maintenance of Catalogs
1.8 Demonstrate the ability to allow vendors to add/change their catalog prices, if approved in advance by VU, but restrict the vendors from seeing other vendor’s prices.
1.9 Demonstrate how a vendor’s catalog is accessed by VU departments and integrated with the VU’s purchasing system.
Independent Procurement Demonstrations
This is defined as procurement that occurs directly from an end user to a vendor, with limited assistance from Business. End users may shop, order, receive, and authorize payment without assistance from Business. Examples are:
• Certain purchases under a dollar threshold (currently $5,000).
• Purchases made using petty cash as the payment mechanism.
• All internal procurements.
• Payments made “on demand”.
• Purchases made through use of a procurement card, or equivalent.
• Reimbursements for expenses incurred by employees, such as travel, dues, the purchase of books and other materials, telephone bills, etc.
2 Internal Purchasing:
VU has an Auxiliary department that provides a wide variety of services to the university community. Most facilities services must be purchased from this department, by VU policy. Faculty1 in Dept1 would like to have someone install built-in shelving in her office. She instructs Fisadmin to begin the procurement process by shopping for this shelving service in the procurement section of the new integrated system.
2.1 Show how Fisadmin shops for this service and how an order would be placed, including information on the shelving specifications, the quality of the shelving (3 grades are offered), the room # and building # for Faculty1, the name of the contact person, their e-mail address, their phone #, a written description of what is desired by the purchaser, and the two fund codes that are to be charged for this work.
2.2 After going to the room to install the shelves, Auxiliary, after talking with Faculty1, determines that a change must be made to the order. Show how Auxiliary notifies Dept1 of this change. Show how Dept1 approves the change.
A graduate assistant (Grad1) is performing experiments in Dept1. She was given a modest budget for this and she has the authority to charge to a common overhead account in the department. Grad1 is allowed to order, but all her orders must first be approved by Fisadmin before they are submitted as firm orders. Grad1 needs a chemical that is stocked in ChemStores, the central chemical inventory at VU.
INTEGRATION POINT WITH INVENTORY MANAGEMENT:
2.3 There are many items in the on-line inventory in ChemStores. Demonstrate how Grad1 can find the correct chemical and electronically submit her request to Fisadmin for approval. Also show how Fisadmin electronically submits the request to ChemStores for order fulfillment.
3 Using a Procurement Card:
Grad1 purchases nuts and bolts for Dept1 from an approved procurement card vendor using a procurement card. The technician calls the vendor, gives the appropriate information, and the material is shipped and received within 24 hours.
It is very important that Dept1 is able to track these charges by expenditure category, by faculty member, by account code, by program code, and by subprogram code and be able to change accounting codes before and after charges hit the accounting statement.
1 After the goods have been ordered, Grad1 wants to change the fund code to be charged. Show how this is done.
2 After the goods have been received, but before the vendor is paid, show how the account code and other transaction attributes can be changed.
3 Show how the account code and other attributes can be changed after the charge has already appeared on Dept1’s accounting statement for the month.
4 Show how one purchasing card, assigned to one employee, may be used to charge purchases to any active grant account within Dept1.
5 Demonstrate how a user can place an order on-line using the VU limited purchase order, or a procurement card.
6 Show if procurement card purchases can be integrated into the inventory management function, i.e., ability to enter procurement card purchases to reflect “quantity on order”.
7 Demonstrate handling of partial receipts against an order made with a procurement card.
4 Making “On Demand” Payments:
Frequently, VU has to make “demand” payments. Good examples are bills received for dues and subscriptions, or conference registration fees. In the future, most of these will be paid using a procurement card or through a new petty cash mechanism (see below). However, there will always be those vendors who do not participate in the procurement card process (e.g., small or foreign companies, etc.) and there will continue to be departments at VU that are not allowed the autonomy afforded by the new and expanded petty cash mechanism. Dept1 has received a bill from Faculty2 for a subscription. The cost is $200.
4.1 Show how this transaction is entered, including the required tracking information (such as name of faculty member, program and subprogram code, etc.), and then can be split-funded between three account codes either on a dollar amount basis or a % of total basis.
A speaker from another university presents a seminar at VU. A check for the $900 honorarium is processed. The speaker is a U.S. citizen and a one-time vendor of VU. The seminar was held on April 29th, but the voucher was not processed until May 1st.
4.2 Explain the processing of a Form 1099 at the close of the calendar year for the honorarium, excluding the travel expenses. How does your system report this information to the IRS, using what media and who is responsible?
4.3 Demonstrate how the speaker’s social security number can be updated when it is discovered that it was incorrectly input when the payment was generated.
A foreign professor gave a lecture at the same seminar and received a $200 honorarium payment by check. The professor is not a U.S. citizen, and is a one-time vendor of the institution, and incurred $467 for travel expenses. The travel expenses are paid on the same check as the honorarium.
4.4 Demonstrate how taxes can be withheld from a payment of this type to a non-resident alien. Include how the payee is notified of this.
4.5 Explain the processing of a Form 1042S (Non-resident Alien reporting form) at the close of the calendar year.
5 Processing Travel Reimbursements:
Faculty3 in Dept2 wishes to travel to Chicago to attend a week-long conference on the latest in integrated software for higher education. The trip will be paid for from the departmental operating account.
1 Show how all estimated trip expenses can be encumbered to include the name of the faculty member, the account code, the program code and the subprogram code, and sent for approval to Dept2 Chair.
2 Show how Faculty3, in an automated and secure fashion, can request an advance of $500 of traveler’s checks, including how these are transmitted/delivered to Faculty
Upon returning from Chicago, Faculty3 wants Secretary to submit all of the trip expenses for reimbursement. The expenses total $600.
3 Demonstrate how the Secretary enters all of the information into a travel reimbursement module. She will be allowed to indicate the name of the faculty member, the program code and the subprogram code. These will help her do her annual report of “all travel from all sources for all faculty” for the chair of Dept2.
Since, for reimbursement purposes, travel is a complex event, the module must be able to help Secretary by containing the latest per diem and mileage rates allowed not only by the State but, also, by VU for instances in which non-state funds are used to support travel expenses. Secretary will be able to indicate the fund source to be used but the module should then be able to assist her in preparation of the reimbursement voucher.
4 Show how Faculty3’s travel advance is automatically deducted from the reimbursement authorized without Faculty3 having to receive the money first.
5 Show how the remainder of the money, $100, is deposited to Faculty3’s bank account and how Faculty3 is notified of this event.
Faculty3 has yet to submit a voucher for a prior trip to New York that occurred a month ago; the travel advance for that trip is now past due.
6 Show how the amount can be deducted from Faculty3’s paycheck after he has not responded to two separate messages on this subject
6 Manual Check Process:
Grad2 from Dept2 is hosting a lunch at a local restaurant. He is willing to pay for the meal but really needs to be reimbursed immediately afterwards. He brings the receipt to Secretary.
6.1 Show how Secretary enters all of the required information to generate the payment, including the accounts being charged, and have it printed on a networked printer in her office.
7 Assisted Procurement Demonstrations:
This is defined as procurement that occurs with assistance from Business; either because the use of central procurement services it is mandated by policy or because the end user, on a voluntary basis, desires assistance from Business on a procurement matter that otherwise could be completed independently. Examples are RFP’s, IFB’s, purchase orders, contracts above certain dollar threshold, etc.
Faculty2 in Dept1 decides to purchase 2 microscopes totaling $50,000 from his research account. The new scopes will ultimately be purchased from a vendor who has never before done business with VU. The procurement section of Business will assist with the purchase since the marketplace for microscopes changes very rapidly and it is wise to always shop around for the best quality and price. In addition, this is Faculty2’s first major purchase since he came to VU and he wants to be sure that all the proper procedures are followed since he does not yet have tenure.
7.1 Demonstrate how, with the least amount of effort, this item can be requisitioned and approved, the purchase order prepared and sent to the vendor, and how the item will be recorded as received.
7.2 Demonstrate how Faculty2 can enter a list of recommended suppliers onto the requisition.
7.3 Show how Faculty2 can indicate an acceptable or suggested price range for the microscopes on the electronic requisition.
7.4 Dept2 will be paying for 23% of the total purchase price. Show how they can be informed that the requisition is being sent to procurement and how they can assign their fund code and inform Dept1 of this designation.
7.5 Based upon the object code, dollar amount and/or commodity code, the integrated system immediately recognizes that this equipment must be added to the fixed asset inventory of VU. Show how it prompts the person completing the requisition screen in Dept1 to add building number, room number, and two additional codes required by the State.
7.6 Show how the purchase requisition will be sent to the person in Business who is responsible for assisting with the purchase of scientific equipment. Show how a purchasing manager can assign commodity or buyer codes to the requisition, so that the requisition is sent to the correct buyer.
7.7 Show how the system will provide the buyer with a list of vendors who sell microscopes.
VU uses two primary methods for procuring goods and services: Invitation for Bid (IFB) and Request for Proposals (RFP). IFB’s are generally used to purchase those goods and services that are well defined and where price is the determining factor. RFP’s are used when the goods and services are less defined or where factors other than price, such as the quality of the goods and services or contractual provisions, are the determining factors and must be negotiated.
7.8 Show how the buyer will survey the marketplace and create, send and evaluate bids from three separate vendors. Show how conditions, such as payment terms, contractual obligations, and hold harmless clauses, are incorporated into the bid process and its documents.
7.9 Show how to collect and enter information received from either an IFB or RFP sent electronically or by mail from multiple vendors.
7.10 When the successful vendor is identified, show how the requisition is converted into a purchase order which includes all funding, delivery and other user-defined attribute information.
7.11 Show how the purchase order could be sent via EDI, fax, electronic mail or other electronic transmission to a vendor.
Faculty2 has submitted a relatively simple requisition. In other cases, it will be desired that the requisition be funded by many accounts and it will be desired that each line of a purchase requisition can be funded separately from all other lines, on either a dollar amount or % of total basis.
7.12 Demonstrate how the system would take the requisition for the 2 microscopes and use it as the basis to prepare a new requisition two months after payment has been made for the initial order of 2 microscopes.
7.13 Demonstrate various “word processing” capabilities available for creating the purchase requisitions, such as:
• Macros for standard text
• Use of pre-established, boilerplate templates. Include templates of documents that could be incorporated as attachments to the requisition or prepared as separate documents (i.e. personal service contracts, license agreements, etc…). Show any capability to assign unique document numbers to these file documents.
• Automated scrolling of screens
7.14 It is likely that other VU departments will want to purchase microscopes from the same vendor at the same time. Demonstrate how the requisitions from various schools/departments can be consolidated or “stacked” on one purchase order per vendor and how this would be handled at a university-wide level without losing any of the detailed information that is important to each school.
8 Delivery Instructions:
8.1 Demonstrate the ability to accommodate detailed delivery instructions, including internal delivery information and multiple delivery points either on or off campus.
8.2 Show how the vendor who received the order can communicate delivery dates and other important information to the ordering department in an electronic fashion.
9 Miscellaneous Features of the Assisted Buying Procurement System:
9.1 Demonstrate the ability of a buyer to specify acceptable ranges for price and quantity.
9.2 Show how the system will calculate a discount for a line item. Show gross prices, discount percent or dollar, net unit price, extension of net unit price.
9.3 Demonstrate the ability of a buyer to override certain fields in the bid/purchase order document.
9.4 Show what tolerances may be set to allow small discrepancies in purchase order amount and invoice amount to be paid, without correcting the purchase order.
10 Change Orders:
The purchase order for the microscopes is sent to the appropriate vendor. Suddenly, the Faculty2 decides that 3, instead of 2, microscopes are needed. He has the funds available for this.
10.1 Show how the change order process works. Start with Faculty2’s decision to buy an extra microscope, show how he gets approval for the additional purchase, show how all this information is transmitted to the buyer, show how the buyer expands the original order to the vendor to accommodate the new need, show the impact on the encumbrance field in the accounting system.
11 Standing Order Processing:
The Dept2 must frequently order gas cylinders from the same vendor. As a result, Business suggests that a standing purchase order (SPO) be established with a vendor.
11.1 Demonstrate the set-up of a standing purchase order with a maximum transaction limit of $1,000. Show how your system will differentiate between an SPO that represents a firm commitment to buy a specified amount over a period of time versus an SPO that represents a target amount (that may or may not be reached) to be purchased over time.
11.2 Show how the SPO can be renewed.
12 Voucher Processing
12.1 Demonstrate the ability to spread discounts across multiple account codes used on one invoice.
12.2 Demonstrate the ability to change the terms on one invoice to 2%-10 days if these better than the original terms offered on the invoice.
12.3 Demonstrate ability to generate payment immediately instead of waiting until 30 days have passed.
After they have approved payment, the Athletics department finds that the bottom drawers of 10 of the 20 desks they ordered stick and are difficult to open.
12.4 Demonstrate the ability for the payment to be held. Who would be able to do this? How would they do it?
12.5 Demonstrate the ability to split the invoice to allow payment only of the portion of the invoice not in dispute.
12.6 Demonstrate ability to capture and monitor retainage from invoices if the bid allows it, and ability to monitor and release the retainage upon completion of the contract terms.
13 Receipt matching
11 Demonstrate a two-way and three way matching: 1) receipt acknowledgment and Purchase Order and 2) receipt acknowledgment, Purchase Order, and invoice. Show how, in one case, Dept1 has not received all of its desks ($10,000 of the total invoice).
12 Demonstrate how an invoice amount that is different from the purchase order amount is handled by the system and the capability to have a user-defined tolerance level for the difference.
14 Payment Processing
14.1 Demonstrate the ability to close a purchase order upon payment of the final invoice (order complete, detail complete) with the ability to reopen.
14.2 Demonstrate the ability to void and reissue checks. Include any reversing entries.
14.3 Demonstrate the ability to void a check and reissue it to a different vendor. Include any reversing entries.