Business procurement audit

DELIVERED BY:BSS Management ConsultancyVisit www.businessservicessupport.com Tel: 0845 226 4315

Procurement Audit CourseBusiness Services Support Limited Training

copyright© to Business Services Support Limited 2011

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Objectives

To give delegates a good understand of the why and how of carrying out an audit of the procurement function, its

procedures and practices


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Format

What are the procurement procedures, are they followed?

What guidelines exist regarding legal agreements, are they complied with and what is the procedure for non-compliance

How are contract management issues identified and reported

Is technical compliance and physical completion review evidenced?

How is fraud (and corruption) identified and reported?


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Two Basic Issues

1. Is the function performing well?

Yes No

2. Are there improvements that need to be made?

Yes: what are they?

No: all operating well

Assessing Supplier’s Financial Strengths & Systems


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Stages to the Audit

1. Risk assessment approach

2. Evaluate internal controls

3. Test controls

4. Analyse results of tests to determine the way forward

5. Perform substantive testing

6. Audit completion meeting: findings and recommendations

7. Write, issue and discuss audit report


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Procurement Audit Procedures

Tenders and award of contracts

•What is the policy and process?

Purchase Order

•Who authorises purchase orders?

•Are POs used at receiving and payment stages?

Receiving

•Do physical goods (and services) match those ordered?

•Are all terms on receiving document appropriate?


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Accounts Payable

Do invoices match orders, and receipts?

Are invoices accurate, payments correctly made and recorded?

Management

How is procurement managed?

Are controls in place and adequately monitored and followed up?



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Legal Agreements

What are our key procure

ment requirements?

Does the agreement comply with our sta

ndards?

What do our procurement procedures say about non-compliance?

What is our legal position

with the contracting partie

s?



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Procurement Risk Management

KEY RISKS INCLUDE:

• Adverse impact on budgets, cash-flow and profitability

• Customers kept waiting or turned down

• Helplessness in dealing with supplier price increases.

• Output prices forced up with loss of competitiveness.

• Poor supplier performance or, worse, allocation or loss of supply.

• Fragmentation and loss of procurement negotiating leverage.


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KEY RISKS INCLUDE:

• Legally unsound contracts heavily biased in suppliers’ favour.

• Unproductive use of human resources.

• Insufficient 'internal challenge’ of specifications and decision making.

• Decision-makers prey to the tactics of salespeople.

• Political embarrassment or damage to company image and reputation.



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KEY RISKS INCLUDE:

• Exposure to internal and external fraud

• Exploited and manipulated by monopolies, cartels and hostile contractors.

• Supplier innovations passed to competitors.

• Beaten to the market by competitors with new products or services.


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KEY RISKS INCLUDE:

• Damage to brand and company reputation by unethical behaviour or incompetence.

• Organisation is penalised for non-compliance with regulatory requirements.

• Organisation’s activities become subject of public scrutiny and investigation


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Key Internal Controls

Reporting controls

Recording control

s

Reconciliation controls

Authorisation controls

Segregation of duties

Supervisory controls

Receiving controls


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“..methods and techniques for testing and validating exposures should be reflective of the risk materiality and

likelihood of occurrence”

Audit Testing


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TYPES OF TESTS

1. Walkthrough Tests: “walk” one or two transactions sequentially through all the processing stages of the system

2. Enables the auditor to:

Confirm their understanding of the system

Highlight key controls which would need to be evaluated further

PROCUREMENT:

Contract → Purchase Order → Receipt → Invoice→ Payment

Audit Testing


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Substantive Tests - objectives of such tests may include evidence of:

• Completeness

• Existence

• Valuation

• Ownership

• Disclosure

Procurement: amounts owed to creditors at the end of the period, goods ordered not yet received etc

Audit Testing


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Types of tests

Audit Interviewing: useful for

Finding out information

Gaining access to other individuals

Further information

Gauge opinions

Procurement: how are suppliers authorised?

Audit Testing


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Audit Interviewing: key

• Preparation: –Know the interviewee–Know yourself!–Know what you want to accomplish

• Opening of the interview: establish rapport and mutual confidence

• During the interview: tact, patience and firmness, be a good listener. Types of questions, accuracy of information

• At the end of the interview: summarise, thanks, next steps

• After the interview: follow up, document findings

Procurement: how are suppliers authorised?

Audit Testing


Fraud Prevention

Key Control is Communication:

• What is “fraud”?

• How can it happen?

• What is its impact?

• What can you do to prevent it?

• What can you do if you suspect it?

• What lessons can we learn from previous frauds?


Fraud Prevention Fraud awareness training

External

Our ethics and policies

What to look for

Procurement fraud training

Procurement risks

Associated controls

Education

Business procurement audit