Internal Audit report on the Procurement Function of Sure Shot Engineering Co. highlighted certain inconsistencies like inducting vendors with no apparent reason to do so, disqualifying some vendors on technical grounds, after commercial bids were opened and when they were at L1 level, repeated rounds of negotiations where original L1 becomes L3 and vice versa, inadequate procedure documentation, poor record keeping of bidding process followed for finalized purchase orders, significant disparity in the price of items procured at different locations at the same time, and so on. Recommend steps to strengthen purchase policies, procedures and practices which could bring in significant savings to the organization apart from ensuring proper governance.
Vendor Induction Process: Is there a process in place to shortlist and select vendors after due diligence, reference check, address proof, tax registrations and range of supplies?
Annual Purchase Plan: Is a purchase plan drawn up as a part of company’s budgeting exercise? Does the Head of Procurement know which are the items and materials which he is expected to purchase over the next one year? Are the top 20 items, which constitute majority in terms of value, reviewed for availability of good vendors to help in competitive bidding? Are Capital Expenditure items (Capex) a part of the Annual Purchase Plan?
Segregation of Duties (SOD): Is there operational SOD between vendor induction and bidding processes, such that no individual is able to favor any vendor in both the processes?
Purchase Planning Cell (PPC): Is there a PPC in place which specializes in scanning the environment for good vendors? Does it work on the Annual Purchase Plan to ensure that majority of items, in value terms, required to be procured during the year are supported by good vendor base?
Competitive Bidding: Is there a process which ensures adequate number of good vendors for each purchase, and genuine competition amongst the vendors to obtain the best prices?
Commitment Control: Is there an approval process, based on Authority Matrix, with reference to the Annual Purchase Plan, for each important purchase, before commitments are made?
Integrated Systems: Does the organization release Purchase orders as “word” document, with no automated processes to keep track, or does it employ any ERP system with integrated modules of Purchase, Stores and Accounts Payable to serve as a good control measure?
Review of Open Purchase Orders: Is there a process in place to review and follow up for Purchase Orders due for delivery, and cancellation where vendor does not make supplies within reasonable / expected date of delivery, such that old open purchase orders do not remain in the system and become a control weakness?
Training to Procurement Staff: Is there adequate training to staff in indirect taxes like excise, customs duty, sales tax and service tax, and in exploiting data available in the environment and in the organization’s database?
Management Reports: Does internal reporting highlight variations in purchase prices when compared with earlier procurements, lead time in procurement, purchase orders against which deliveries are due, purchase orders against which deliveries need to get expedited or postponed, based on current consumption pattern, and purchase orders which need to be closed?
Strict adherence to Policies: Are purchase policies and procedures robust, communicated to all concerned, strictly followed and post transaction audits are conducted to review compliance?
Thank you for your attention.
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Tulasi S Sastri
FCA., CISA
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