This article is about
How to check Purchases in any organisation during Audit:-
Remember that during audit whatever document you take from client take his signature on the same basically its a approval from client side that we provided the document to auditor and the provided document discloses correct information.
Before doing audit of anything you should have knowledge of the system which you are going to check.
In purchases the normal steps which are generally followed by any organisation are as under:-
Deptt. which needs material sends a requisition letter to store
store checks the same material in his store and if available he will provide the same to the requisite deptt. but in case he is also short of that material or his available stock is going below the minimum level of stock (safety stock) then he will send his requirement of material to Purchase deptt. so first thing we have to check is requisition letter in purchase deptt. without requisition letter purchase deptt. cannot purchase material.
after sending request to purchase deptt., purchase deptt. will invite quotations from different suppliers(There may be a scam at this point) you have to check that whether he is inviting quotations without giving any benefit to one party or there may be a case where it is required by the client to purchase a particular material from a authorised supplier for quality assurance purposes. there must be atleast 3 quotations. After inviting quotations it is necessary for the purchase deptt. to choose that supplier which is offering best prices with best quality and fullfilling our all requirements and the comparison made by the purchase deptt. must be verified by the senior authority like CEO or as per the policy of the Organisation. after selecting the supplier Purchase deptt. have to prepare Purchase Order in the name of supplier which was selected during comparison we also have to cross check the rates quoted by supplier in quotation and in actual invoice and in purchase order. In quotation everything should be clearly mentioned that whether the prices are inclusive or tax or not and who will borne the freight charges etc.(which we generally not consider but that matters alot ). In PO we also have to check about Delivery Period and Clause for late delivery (Liquidatory Damage clause)
After checking of P.O. we have to verify invoice with po we should verify the qty. and unit price with the qty and price as mentioned in P.O. after that we should check the date of invoice and receiving of the same.
Receiving on the invoice is very important bcoz from receiving date we can know that on which date we received the material and whether LD clause is applicable on that or not.
After checking the above mentioned points we should check that where payment made according to the terms of payment as mentioned in PO or agreement entered with supplier.
In some cases of purchase Inspection of material by third party is also required for quality assurance so in that case inspection certificate should be attached there and proof of correct weight like weighing slip or transporters slip should be attached there as Proof of delivery.
In case there is difference in Actual qty received and the qty mentioned on invoice, intimation should be made to supplier and debit note should be attached there.
Debit Note: which reduces amount Payable
Credit Note: which reduces amount Receivable
Below points should be verified in internal audit procedure.
1. High quantity has been purchased without proper estimation.
2. Old PO with low rate is pending however company is purchasing the material against new PO having higher rate.
3. Only L1 vendors are selected or not.
4. Segregation of duty i.e. Person should not be the same for making GRN/SRR and passing the Invoice.
5. System to control the duplicate invoice passing.
6. How much new vendors are developed in the current period.
7. Rate of taxes mainly those which become the cost of company like CST etc.
8. Compliance of delivery schedule.
9. System for measurement of received goods is sufficient or not like weighment bridge, counting process etc.
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