PROCUREMENT AUDIT ISSUES

By

Kastuv Ray

Introduction

Every organisation/company needs to purchase goods and services in

order to function properly. Therefore the internal controls in place for
the procurement system need to be robust.

Typical Risks to a Procurement System

Listed below are common risks identified at the outset of a

procurement audit:

• Goods ordered are not required by the organisation.

• Goods ordered do not comply with corporate policy.

• Goods ordered do not provide value for money.

• Goods are not received by the organisation.

• Lack of a central purchasing policy may not provide the opportunity

to negotiate discounts and best prices.

Common Issues

In reality, the main risks identified above may not materialise. Detailed
below are issues that usually arise in an organisation as a result of a
procurement audit.

• New employees do not have access to purchasing procedures.

• No formal vetting of contractors.

• Lack of a coordinated approach to purchasing.

• Use of out-of-date or incorrect order forms.

• Authorisation of orders by individuals who do not have the authority

to do so.
• Use of alternative suppliers as opposed to the preferred suppliers
catalogue.

• Non-compliance with Financial Regulations, for example the number

of quotes obtained.

Controls

In light of these issues, the internal auditor should make the following
recommendations:

• Management should ensure that new employees responsible for

purchasing are provided with purchasing procedures and are required
to sign a statement stating that they have read and understand the
procedures.

• Formal vetting of contractors should take place by way of credit

checking and obtaining references.

• Departments should return all old order forms to the Purchasing

Officer. The purchasing procedures should include a section that all old
order forms used will be returned to the individual making the order.

• A Purchasing Officer should be appointed to coordinate the

purchasing policy (this is particularly relevant if the organisation has
recently devolved it’s purchasing system).

• The officer checking the order form should ensure that the
signatory who signed the order form is actually authorised to do so.

• Where alternative suppliers are used as opposed to preferred

suppliers, a record should be kept of the reason for use (for example, if
the alternative supplier quoted a lower price). This recommendation
could be further enforced by inclusion in the purchasing procedures.

Conclusion

The list above details common issues that usually occur within an
organisation. The issues all depend on the findings of the audit and on
the robustness of the internal controls in the system.