The Nature and Scope of

Procurement Audits and

Investigations
 Definition of Procurement Audit
 The process of procurement audits
 Documents used in procurement audit process
 Stakeholders and their roles in procurement audits.

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 What is Procurement Audit?
Procurement is the simple process of purchasing necessary products or
services for the business, from the best suppliers and at the right price. For
example, a company might procure raw materials, facilities, technical
equipment, telecommunications and training services, among many others.
Since most businesses spend a significant portion of their operating budget on
goods and services, even the slightest problem can have a direct impact on
profits. Eliminating fraud, errors and waste in the supply chain can have a
positive influence on the company's bottom line and reputation.
A procurement audit is a management process that reviews different contracts
and contracting processes to determine the completeness, efficacy as well as
the accuracy of the procurement process. A structured review stems from the
Plan Procurement Management process through the Control Procurements.

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Where risks are identified, the company can put controls in place to contain
the risk within acceptable limits. Procurement audit helps the company to
meet its objective.
Business processes need various forms of internal control to facilitate
supervision and monitoring, prevent and detect irregular transactions,
measure ongoing performance, maintain adequate business records and to
promote operational productivity. Thus, procurement audit helps firms to
strengthen their internal controls.

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Importance of Procurement Audit
Procurement audit protects the interests of the procurement stakeholders, for
example, the investors, shareholders and the citizen would want to know how
their money is spent and the value it adds to them.
Procurement audit helps the company to meet its objective. Business
processes need various forms of internal control to facilitate supervision and
monitoring, prevent and detect irregular transactions, measure ongoing
performance, maintain adequate business records and to promote operational
productivity.
Procurement audit being an independent examination of the procurement
records, transactions and procedures gives credibility to the procurement
records. The various users can therefore place reliance on them.
Procurement audit ensures that directors fulfill their statutory obligations and
acts as a precaution against frauds on the part of employees.

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Procurement audit helps the procuring entity to detect and prevent
procurement fraud.
The Procurement audit provides recommendations on ways of
improving the procurement and internal control system and in the
standards of the company’s reporting to its members.
Procurement audit ensures that the procurement records are prepared
in accordance with the procurement laws and regulations and
generally accepted standards. This improves the comparability of the
procurement record.
Procurement audit is a legal requirement and thus it prevents the
company from legal suits.

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Fundamental Principles of Public Procurement Audit
Transparency
Integrity
Integrity of the Procurement Process
Integrity of Public Procurement Practitioners
Economy
Openness
Fairness
Accountability

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 DRIVERS FOR PROCUREMENT AUDIT
Process and operational efficiency gains
Operational efficiency can be defined as the ratio between an output gained from the
business and an input to run a business operation. When improving operational
efficiency, the output to input ratio improves. Inputs would typically be money (cost),
people (measured either as headcount or as the number of full-time equivalents) or
time/effort. Outputs would typically be money (revenue, margin, and cash), new
customers, customer loyalty, market differentiation, production, innovation, quality,
speed & agility, complexity or opportunities.
The concept of operational efficiency encompasses the practice of improving all of
your processes (all your company’s activities that lead to your final product or
service). For example, a supermarket has various internal methods (of production,
hiring, sales and communications, for example) and all of the processes help the
company achieve a target, which may be in terms of product sales.

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Risk Management
Risks can come from various sources including uncertainty in financial markets,
threats from project failures (at any phase in design, development, production,
or sustaining of life-cycles), legal liabilities, credit risk, accidents, natural causes
and disasters, deliberate attack from an adversary, or events of uncertain or
unpredictable root-cause. There are two types of events i.e. negative events can
be classified as risks while positive events are classified as opportunities.
First, it is a prerequisite to understand the sustainability-related risks that come
along with working with suppliers in various countries. If realized, these risks
could cause harm to parties involved, including customers and business
partners. Procurement audit seek to ensure that all human rights, safety and
environmental standards, and legal requirements are followed through various
forms of sustainability supplier assessments and ways to help them develop in
these areas

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Improved compliance
The process of carrying out a procurement audit is rigorous and requires strict
rules to comply with. By following these standards, the company complies
with every standard regulating such procedures.

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THE PROCESS OF PROCUREMENT
AUDITS

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. Next is the
explanation of the key components of the procurement audit.

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Components of Procurement Audit
Purchaser 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.
Crosscheck 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 do
not 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.
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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.

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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.

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Documents Used in Procurement Audit Process
Purchase orders
Document initiating the acquisition of materials and services. A purchase
order (PO) is a commercial document and first official offer issued by a buyer
to a seller indicating types, quantities, and agreed prices for products or
services. It is used to control the purchasing of products and services from
external suppliers.
Purchasing manual
Policies and procedures of the organization regarding purchasing. The
Purchasing Manual is a "Guidebook" to how the County acquires it goods
and non-professional services of all kinds. Its purpose is to educate both our
employees and our vendors in how to buy and sell to Lee County.
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Vendor lists
Lists of authorized vendors to contact for purchasing. A Vendor List is a selected or
contracted suppliers list for a project or company. Additional goods or materials can
be purchased or supplied from the Vendor List without any further technical
qualification work process and can be used for the standardization.
Purchase file
List of outstanding purchase orders. A buyer-generated document that authorizes a
purchase transaction. A purchase order sets forth the descriptions, quantities, prices,
discounts, payment terms, date of performance or shipment, other associated terms
and conditions, and identifies a specific seller. Also called order.

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Receiving documents
Indication of goods received; this should reconcile with purchase orders. Receiving
documents contain information about where goods should be delivered. They may
contain a requesting location. The requesting location comes from a requisition or
from a direct entry on the purchase order.
RFQs or RFPs
These are documents asking vendors to bid on a particular item. A request for quote
(RFQ), also known as an invitation for bid (IFB), is a process in which a company
solicits select suppliers and contractors to submit price quotes and bids for the
chance to fulfill certain tasks or projects. The RFQ process is especially important
to businesses that need a consistent supply of a specific number of standard
products. Companies may send RFQs alone or before a request for proposal (RFP).

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STAKEHOLDERS AND THEIR ROLES IN
PROCUREMENT AUDIT

A stakeholder of a company is an individual or group that either is harmed by,

or benefits from, the company or whose rights can be violated, or have to be
respected, by the company. Stakeholders have legal decision-making rights
and may control project scheduling and budgetary issues. Most project
stakeholders have responsibilities to businesses that include educating
developers, financing projects, creating scheduling parameters and setting
milestone dates.

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Categories of Stakeholders
External Stakeholders
These stakeholders include a number of parties who are not directly
connected to the organization, but who contribute to its activities, or are
impacted on by its activities. They include the suppliers, government,
financial institutions, tax authorities, pressure and interests’ groups, the
media, local communities and wider society.

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Internal Stakeholders
They are members of organization; the directors, managers and employees
who operate within the organization’s boundaries. Key internal stakeholders
in procurement and plans and activities include senior management;
procurement managers; and the managers and staff of other functions or
units of the organization whose work and goals interact with those of the
procurement or supply chain function. Internal stakeholders include;
Department/Budget owners
Finance
Legal
Senior Management

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THANK
YOU

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