Procurement -- commonly known as purchasing -- plays an important role in all businesses. The purchasing department is responsible for securing the resources needed by the company. Also in charge of spending the company's capital, a well-run procurement department follows processes to ensure integrity each time a purchase is made. An audit reviews the procurement process to reduce fraud and offer suggestions for improvement. While audit procedures vary among organizations, there are several key procedures included in all procurement audits.
Purchase Order Review
A purchase order submitted to the procurement department starts the purchasing process. The purchase order document contains all the vital information for ordering the needed item. During the audit function, a random sample of purchase orders is reviewed for accuracy. Check to see that the proper authorization signature appears on the document. Cross-check the purchase order with the packing list, bill of sale and final invoice to ensure the item description, quantities and price match from one document to the next. Additionally, check a sample of receiving receipts to make sure an authorized purchase order exists for goods received.
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Vendor Evaluation and Selection Review
Establishing qualified suppliers is a crucial function of the procurement department. An audit reviews the process for placing a vendor on the approved supplier list. Review suppliers against the approval criteria, and flag any that don't meet the criteria. Once on the approved list, the vendor receiving the order is determined by its ability to supply the product in accordance with the company's standards for quality, price and delivery. Audits review the selected vendor list as well as the selection process. For example, a selection process might require collection of three competing bids from the approved supplier list, with the order being awarded to the supplier with the lowest bid. Mark any instances when the selection does not follow the process or when an order is placed with an unapproved vendor.
Internal Process Review
In addition to reviewing the paperwork side of purchasing, audit procedures also include an evaluation of employee functions during the purchasing process. Auditors might, for example, check if a list and samples of authorized signatures exists and if employees are using the list when verifying purchase orders. Review steps in the formal bidding process to make sure they are being followed. Ask if accounts payable and receiving checklists are being implemented. Determine if conflict-of-interest policies and opportunities for training and purchasing certification are available for employees.
Findings and Suggestions
Audits provide an opportunity for companies to assess the effectiveness and efficiency of their procurement process. At the conclusion, a prepared report illustrates problem areas and cites examples. If you have contracted with a firm specializing in audits, a common end-of-audit procedure is to offer suggestions for improvement. Corrective action can be implemented based on the suggestions to improve the purchasing function, reduce fraud and enable cost savings. For example, an audit might identify that paper purchase orders are being lost or misfiled, resulting in a suggestion and opportunity for automation of the process.