Procurement Audit Course

P ROCUREMENT AUDIT C OURSE
B USINESS S ERVICES S UPPORT L IMITED T RAINING
www.businessservicessupport.com
O BJECTIVES
To give delegates a good understand of the why and how of
carrying out an audit of the procurement function, its
procedures and practices
2
COPYRIGHT TO BUSINESS SERVICES SUPPORT LIMITED
2011
F ORMAT
What are the procurement procedures, are they

followed?
What guidelines exist regarding legal agreements, are

they complied with and what is the procedure for noncompliance
How are contract management issues identified and

reported
Is technical compliance and physical completion

review evidenced?
How is fraud (and corruption) identified and reported?

3
2011
A SSESSING S UPPLIER S F INANCIAL

S TRENGTHS & S YSTEMS
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
4
2011
S TAGES TO THE A UDIT

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
5
2011
P ROCUREMENT A UDIT P ROCEDURES

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?
6
2011
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?
7
2011

Legal Agreements
What are our

key
procurement
requirements?
Does the
agreement
comply with
our standards?
What do our
procurement
procedures say
about noncompliance?
What is our
legal position
with the
contracting
parties?
8
2011
P ROCUREMENT R ISK M ANAGEMENT

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.
9
2011

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.
10
2011

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.
11
2011

KEY RISKS INCLUDE:
Damage to brand and company reputation by unethical

behaviour or incompetence.
Organisation is penalised for non-compliance with

regulatory requirements.
Organisations activities become subject of public

scrutiny and investigation
12
2011
K EY I NTERNAL C ONTROLS
Receiving
controls
Reporting
controls
Supervisory
controls
Reconciliation
controls
Segregation
of duties
Authorisation
controls
Recording
controls
13
2011
AUDIT T ESTING
..methods and techniques for testing
and validating exposures should be
reflective of the risk materiality and
likelihood of occurrence
14
2011
AUDIT T ESTING
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
15
2011
AUDIT T ESTING
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
16
2011
AUDIT T ESTING
Types of tests
Audit Interviewing: useful for
Finding out information
Gaining access to other individuals
Further information
Gauge opinions
Procurement: how are suppliers authorised?
17
2011
AUDIT T ESTING
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?

18
2011
F RAUD P REVENTION
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?
2011
F RAUD P REVENTION
Fraud awareness training
External
Our ethics and policies
What to look for
Procurement fraud training
Procurement risks
Associated controls
2011

Procurement Audit Course

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P ROCUREMENT AUDIT C OURSE

B USINESS S ERVICES S UPPORT L IMITED T RAINING

What are the procurement procedures, are they

What guidelines exist regarding legal agreements, are

How are contract management issues identified and

Is technical compliance and physical completion

How is fraud (and corruption) identified and reported?

A SSESSING S UPPLIER S F INANCIAL

Is the function performing well?

Are there improvements that need to be made?

Yes: what are they?

S TAGES TO THE A UDIT

6. Audit completion meeting: findings

P ROCUREMENT A UDIT P ROCEDURES

What is the policy and process?

Who authorises purchase orders?

Are POs used at receiving and payment stages?

Do physical goods (and services) match those

Are all terms on receiving document appropriate?

P ROCUREMENT A UDIT P ROCEDURES

Do invoices match orders, and receipts?

Are invoices accurate, payments correctly made and recorded?

How is procurement managed?

Are controls in place and adequately monitored and followed

P ROCUREMENT A UDIT P ROCEDURES

What are our

P ROCUREMENT R ISK M ANAGEMENT

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

Fragmentation and loss of procurement negotiating

P ROCUREMENT R ISK M ANAGEMENT

Legally unsound contracts heavily biased in suppliers

Unproductive use of human resources.

Insufficient 'internal challenge of specifications and

Decision-makers prey to the tactics of salespeople.

Political embarrassment or damage to company image

P ROCUREMENT R ISK M ANAGEMENT

Exposure to internal and external fraud

Exploited and manipulated by monopolies, cartels and

Supplier innovations passed to competitors.

Beaten to the market by competitors with new products

P ROCUREMENT R ISK M ANAGEMENT

Damage to brand and company reputation by unethical

Organisation is penalised for non-compliance with

Organisations activities become subject of public

Walkthrough Tests: walk one or two transactions

Enables the auditor to:

Confirm their understanding of the system

Highlight key controls which would need to be evaluated

Procurement: amounts owed to creditors at the end of the

Audit Interviewing: useful for

Finding out information

Gaining access to other individuals

Procurement: how are suppliers authorised?

Know the interviewee

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.

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