Following are the general controls that are applicable to all organizations. These may be used for evaluation during audit of purchase department. However, additional controls may be added depending on the business process & domestic regulations.
1. Appropriate segregation of duties should be ensured in a manner that requisitioning, vendor account creation, ordering, receipt, bill booking, bill passing & payment is done by different individuals & there is no conflict of interest.
2. Product wise & overall purchase budget should be prepared at the beginning of the year & month wise breakup should be made. Further, actual procurement cost should be compared with the monthly budgets to identify deviations & take corrective action.
3. Criteria should be defined for calculation of savings on procurement by the Company (e.g. benchmarking with peers & market). Further, targets should be defined for savings to be achieved by the Purchase department & actual achievement should be compared on a monthly basis.
4. Adequate analysis of financial records & operations of new vendors should be conducted before placing orders for regular items. This will ensure that the vendor will be able to meet company's long term requirements.
5. Appropriate System blocks (receiving blocks) should be incorporated in System to ensure that incoming material is accepted only against authorized purchase orders.
6. Appropriate Audit blocks should be applied in System to ensure that bills for incoming material is booked only against genuine goods receipt note & purchase orders. Further, the rates & terms of bill is matched with that in the purchase order. Further, processing of duplicate invoices against same purchase order or goods receipt note should be restricted in System.
7. System should restrict processing of incomplete purchase orders, similarly, it should restrict processing of duplicate purchase orders against same requisition.
8. System restrictions should be in place to ensure that purchase quantity is not more than requisitioned quantity (except in cases where minimum order quantity is more / less than the requisitioned quantity).
9. Open (old) purchase orders that are not utilized for significant period of time should be cancelled & material receipt against such order should be blocked to prevent unauthorized procurement.
10. Adequate quotations should be invited from approved vendors & a comparative statement should be prepared to ensure proper decision making & lowest cost.
11. Proper authorization of payments towards procurement should be ensured according to company's delegation of authority. Further, utilization of credit period should be ensured.
12. Scrutiny of vendor ledger accounts & purchase ledgers should be conducted on a periodic basis to identify any unwarranted entries & unauthorized activities.
13. Procurement rates should be benchmarked with peers & market to identify weaknesses in company's negotiation process & take corrective action.
14. Alternate vendors & products should be developed to prevent dependence on single vendors or products that may lead to stop-supply scenario.
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