Committee Reports > List of Committees > Dáil > 1985 > Committee on Public Expenditure > Report - Review of a Proposal to Introduce a Charge Card System for Civil Servants Travelling on Official Business

APPENDIX III

Letter from the Department of Finance to the Clerk to the Committee

In reply to your letters of 25 July and 17th December, I enclose a memorandum setting out this Department’s comments on a proposal by Diners Club (Ireland) for the introduction of a credit card system in the public sector.

I very much regret the delay in replying.

Yours sincerely,

Phelim Molloy

15 January, 1985.

Comments of the Department of Finance on the proposal for the introduction of credit cards in the public service

1. The proposal for the introduction of credit cards on a widespread basis in the public service for travel purposes must be viewed in the light of the following considerations:-

Expenditure on travel and subsistence

2. Expenditure from the Exchequer on travel and subsistence for the Civil Service, Gardai and the Defence Forces during 1984 was of the order of £35 million broken down roughly in the following proportions

3. Travelling and subsistence rates for the Civil Service are fixed by the Minister for the Public Service in accordance with arrangements provided for under the scheme of conciliation and arbitration for the civil service. Staff engaged in travel are regularly reminded of the need to minimise travel and, where travel is unavoidable, to achieve maximum economies in travel costs.

Foreign Travel and subsistence

4. Foreign air travel is usually booked directly through Aer Lingus by Government Departments who secure a 10% discount on credit terms which are at least as favourable as those available from credit card companies and with no penalty for late payment. Travel costs, broadly speaking, accounted for about two-thirds of gross expenditure on foreign travel and subsistence (£4.9 million) in 1984.

5. Given Government policy to favour use of Aer Lingus for overseas travel, the main use that officials travelling overseas would presumably have for credit cards would be to settle hotel bills.

Hotel accommodation costs are tentatively estimated at between 15%-20% of the total foreign travel and subsistence bill, viz about £900,000 in 1984. Based on that figure and the cost to the Exchequer of borrowing short-term funds the saving arising from an average credit period of six weeks would be about £15,000 per annum.

Domestic Travel and subsistence

6. Travel and subsistence expenses within Ireland are made up of (a) mileage allowances and (b) per diem subsistence allowances both of which are determined by the Minister for the Public Service as described above. Adoption of a particular credit card could conceivably present difficulties for officers travelling in parts of the country where the outlets prepared to accept that credit card may be few in number or even non-existent. In any event it must be borne in mind that home subsistence includes, in addition to the normal allowances to travelling officers, various costs relating to officers being transferred, removal expenses, etc.

7. Undoubtedly, however, credit cards could be used for petrol purchases. It is estimated that, on average, 28% of the civil service mileage rate relates to petrol costs. The total estimated domestic travel bill in 1984 is about £18 million. Accordingly, on the assumption that only regular travelling officers would have credit cards and that 28% of their travel costs would relate to purchases of petrol, a tentative estimate of the value of credit card purchases of petrol would be of the order of £4.5 million. The interest saving on this, calculated on the same basis as above, would be about £75,000 per annum.

Cash flow saving

8. The foregoing calculations provide broad orders of magnitude which put the total cash benefit to the Exchequer from the use of credit cards in or about £100,000, based on 1984 expenditure figures. It should be noted that this saving assumes that travel and subsistence expenses of officials are paid promptly. This is by no means always the case.

Administrative and other costs of operating cards

9. No Government costs would be reduced by the elimination of existing payment processes. In fact costs would be increased as each individual travel claim would still have to be examined in accordance with the existing regulations and a special suspense account would be necessary for charging private purchases incurred by card holders. Two systems would therefore be in operation and the additional work arising from extracting the recording items from card accounts and dealing with queries would be time-consuming. Limited experience of the use of credit cards in this Department has shown that charges occur that require clarification and involve additional paperwork and phone calls from Accounts Staff. It is estimated that the work arising from the operation of the dual system would require additional clerical staff whose pay and overhead costs would exceed the cash flow savings indicated in paragraph 8 above. By way of illustration, the pay and overhead costs of a clerical officer are estimated at some £11,000 per annum at present giving a ‘breakeven’ figure of nine additional clerical staff.

10. Any delay by cardholders in submitting receipts could result in delays in paying the account with consequential charges for interest.

11. It is likely that fees would be payable in respect of cards although it is not possible to quantify this cost because the Diners Club submission indicates that the normal fees are subject to negotiation depending on the number of cards and expected turnover.

Control/Fraud

12. The Diners Club submission does not advert to the potential scope for abuse of the credit card nor is it clear who would shoulder the liability if any cards were fraudulently used by officials to whom they were issued.

Conclusion

13. On the basis of the foregoing, the Department of Finance believes that the widespread introduction of a credit card system to the public service for travel / subsistence expenditure is unlikely to generate net savings for the Exchequer on travel and subsistence costs. The Department is receptive to proposals which would enable the Exchequer to achieve savings on these costs and would be prepared to look again at the use of credit cards if circumstances change. The Committee may wish to suggest to the credit card companies that they should keep this Department posted on any relevant changes in the conditions under which their cards are issued.