You’ve created exact procurement, automatic approval, and vendor risk profiles.
It’s in control, you say. Must we evaluate our procurement history auditing procedure quarterly?
The thing is:
The biggest and best companies can be cheated: Facebook and Google lost $100m to a single crook over two years.
Use our seven-step procurement audit method to maintain purchasing compliance, improve buying processes, and identify abnormalities and procurement fraud to avoid a similar situation.
Procurement Audit
Companies periodically conduct procurement audits to maintain compliance, identify inefficiencies, and, most crucially, detect fraud.
Companies buy everything from huge technical stacks covering multiple software categories to a variety of tangible commodities, thus policy and reality may differ. You perform a procurement audit to ensure everything went as planned. The audit answers queries like
- How well has our purchase followed our processes?
- Can all of our purchases and payments be verified as expenses?
- What processes should be altered or enhanced?
Most firms should conduct procurement audits quarterly, following the same process to guarantee consistency.
Seven steps to a procurement audit
1. Determine who audits procurement history.
Your procurement audit must begin with clear duties and reporting lines.
Often, the procurement team, lead by the head of procurement or procurement manager, conducts the audit.
However, this may raise audit relevance and usability difficulties.
If procurement managers audit procurement, they may miss minor errors or anomalies.
Therefore, assigning audit tasks to others may be a good option.
The procurement leader may examine current processes with a senior leadership team member. Others, such procurement specialists or officials, analyse their colleagues’ purchase contracts to avoid conflicts of interest.
2. Brief important people
This stage of the audit should involve briefing key leadership stakeholders on the audit.
Inform them of the data you will review, who will audit which procurement actions, and how you will deliver your results. They can discuss specific concerns or queries with you, such as whether a process is still relevant or beneficial.
Before starting, brief your audit team on the methodology and get input.
Write to the team and ask questions like
- Which processes seem unduly complicated or unnecessary?
- Which procurement methods put the organisation at risk?
- In what ways would you alter our purchasing procedures?
Then, meet with each team member individually to discuss their opinions and include pertinent suggestions into your investigation.
3. Use purchase order and requisition forms.
You examine the audit procedures, starting with the forms you process:
- Purchase orders
- Requests for purchases
- Requests for proposals
- Requests for information
- Requests for quotes
Depending on your company’s purchase volume, auditing all procurement paperwork may be impossible.
You should audit a reasonable sample of form types, vendors, and procurement team members.
Check your forms to ensure:
- Follow your buying recommendations
- Include required signatures and authorization.
- Include realistic figures that match your buying needs
- Pricing should match your vendor contract.
4. Assess vendor connections
Next, examine your relationships and contracts for internal controls compliance.
Compare each provider to your risk management, financial stability, pricing, and performance criteria.
If contradictions develop, contact the relationship builder. Determine if they made a fair exemption with consent.
Even mid-sized organisations have hundreds of ties and contracts, making it impossible to audit them all.
Instead, focus on ties developed after the last procurement audit unless your vetting requirements have changed, in which case you should assess them all.
5. Examine procurement methods
This step emphasises procurement processes and routines rather than inspecting specific purchases for compliance.
Developing efficient procurement processes requires balancing risk and efficiency.
Risk decreases with more purchasing process steps, including risk assessments, approval workflows, and vetting.
More phases in the procurement process take longer to complete and benefit from the new vendor relationship.
Use your risk mitigation guidelines and procurement department input to optimise each process and establish the proper balance between the two aims in this audit step. Identifying flaws or discrepancies in the last few phases should help.
Imagine you found multiple software platform procurement problems but can’t pinpoint where they happened. You might develop different approval processes for each SaaS purchasing stage.
6. Find out-of-process spending
Some expenditures won’t go through purchasing or follow your processes.
Team leaders use corporate spending cards, emergency purchases occur, and software overages occur without procurement team knowledge.
To ensure such spending is lawful and within expectations, audit each case.
See specifically:
- Unexpectedly high purchases
- Stranger suppliers
- Reordering from same vendor
Detect fraudulent purchases with this method. You can also utilise it to find formal agreement opportunities.
If one of your team members frequently buys from a vendor, it may be time to create a formal arrangement.
7. Prepare a purchase audit report
Creating a report from your results is the final stage.
Share it with leadership and procurement after completion.
Use simple language and graphs, pictures, and photographs to describe your findings.
This example employs simple language and a table for skimming:
Implement process adjustments after filing the audit report in a shared folder for easy access.
A procurement audit checklist
Use this checklist for every procurement audit to ensure report consistency:
- Assign audit duties.
- Inform leadership.
- Ask procurement for input.
- Audit POs, RFQs, and requisitions
- Check vendor relationships
- Process procurement audit
- Audit out-of-process spending
- Create the audit report
