Business Services Support Limited offer procurement audit training course as part of its training programme. This presentation takes you through some of the salient points to watch for in procurement auditing.

1. P ROCUREMENT AUDIT C OURSE
B USINESS S ERVICES S UPPORT L IMITED T RAINING
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2. 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
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3. 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?
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4. 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
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5. 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
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6. 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?
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7. P ROCUREMENT A UDIT P ROCEDURES

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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8. P ROCUREMENT A UDIT P ROCEDURES
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?
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9. 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.
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10. P ROCUREMENT R ISK M ANAGEMENT
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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11. P ROCUREMENT R ISK M ANAGEMENT
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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12. P ROCUREMENT R ISK M ANAGEMENT
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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13. K EY I NTERNAL C ONTROLS
Receiving
controls
Reporting
controls
Supervisory
controls
Reconciliation
controls
Segregation
of duties
Authorisation
controls
Recording
controls
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14. AUDIT T ESTING
“..methods and techniques for testing
and validating exposures should be
reflective of the risk materiality and
likelihood of occurrence”
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15. 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
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16. 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
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17. 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?
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18. 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?
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19. 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?
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20. F RAUD P REVENTION

Fraud awareness training


Our ethics and policies


External
What to look for
Procurement fraud training

Procurement risks

Associated controls
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2011