Internal controls assessment primer The internal controls assessment primer helps you evaluate the strength of your internal control environment for commonly recognized control objectives for the process of purchasing materials and supplies. Please note that this resource is not a comprehensive tool to verify your compliance with any legal or regulatory requirements. You should use it solely as a guide to help you assess your current control environment. Effectiveness and efficiency of operations 1. Materials purchased satisfy the company's requirements and needs. 2. Materials are purchased at an appropriate price. 3. Orders are placed on a timely basis. 4. Materials are received on a timely basis. 5. The receiving process is efficient and cost-effective. 6. Materials received are processed on a timely basis. 7. Materials received meet required quality standards. 8. Physical safeguards are adequate. 9. The receiving process is safe. 10. Employees and management are provided the information they need to control the process of obtaining materials and supplies. 11. Purchase orders are properly authorized. 12. Purchase orders are accurately and completely prepared and recorded on a timely basis. 13. All purchase order transactions are reliably processed and reported. 14. Receipts of materials and supplies are properly authorized. 15. Receipts of materials and supplies are recorded accurately and completely on a timely basis. 16. All material and supply receipt transactions are reliably processed and reported. 17. All materials requisitioned are properly transferred. 18. Performance measures used to control and improve the process are reliable. 19. Management develops strategic business alliances with suppliers. Compliance with applicable laws and regulations 1. Materials are obtained in compliance with applicable laws and regulations. The output report ranks the strength of your controls for each objective and provides examples of the business risks exposed if proper controls are not in place and functioning as designed. Although a lower score indicates an opportunity to strengthen controls, such efforts may prove unnecessary if the business risks and controls are irrelevant to an organization. Each company should determine its sensitivity to risk when evaluating its strengths and weaknesses and deciding where to invest in control measures. To complete the assessment, select Yes, No, or Not applicable for questions associated with each control objective. You do not need to complete the entire questionnaire to review a results report. Simply complete the questions for the control objectives of interest to your organization and select the results option at the end of the questionnaire. Effectiveness and efficiency of operations A. Materials purchased satisfy the company's requirements and needs. 1. Production problems related to substandard materials and parts are monitored. Yes No Not applicable 2. Ways to simplify vendor investigation procedures are considered. Yes No Not applicable 3. The company investigates and periodically updates vendor capabilities regarding product line and product specifications, product quality, and capacity and order lead times. Yes No Not applicable 4. Procedures are specified for notifying vendors of potential performance problems and for appropriate investigation and follow through. Yes No Not applicable 5. Data is developed on alternative vendors and the vendor selection decision is periodically reevaluated. Yes No Not applicable 6. Purchasing agents, buyers, and cross-functional teams are evaluated consistently with management's objectives of reduced inventories, improved quality, lower costs, and frequent reliable deliveries. Yes No Not applicable 7. Other measures are used to address issues such as supplier relationships, frequency of returned purchases, production problems related to out of stock materials, and quality problems. Yes No Not applicable 8. Vendor representatives are involved in product design and development. Yes No Not applicable 9. Approved suppliers are periodically and systematically monitored for just-in-time purchasing to ensure that their actual performance meets expectations. Performance reporting includes: percentage of on-time delivery, accuracy of shipments, product quality, and actual cost performance compared with original cost projections. Yes No Not applicable Go back to top B. Materials are purchased at an appropriate price. 1. A mechanism has been developed for determining the total cost of major purchases from particular vendors. Considerations should include: percentage of on-time delivery, accuracy of shipments, product quality, and actual cost performance compared with original cost projections. Yes No Not applicable 2. Purchasing is centralized within the company. Yes No Not applicable 3. Materials and supplies are ordered from one or a few vendors to maximize the benefits of volume purchases. Yes No Not applicable 4. Appropriate performance measures are used to monitor process performance, such as percentage of purchases made under a bid process, amount of volume discounts obtained, and actual cost performance compared to original cost projections. Yes No Not applicable 5. The performance of winning vendors and whether their pricing structures remain at competitive market rates is periodically evaluated. Yes No Not applicable Go back to top C. Orders are placed on a timely basis. 1. Communication channels are established between the marketing, production, and purchasing functions. Yes No Not applicable 2. Production schedules and material requirements are documented. Yes No Not applicable 3. Production needs are periodically reconciled with purchase orders and inventory levels to ensure they are adequately aligned. Yes No Not applicable 4. Long-term needs are analyzed and forward contracts are established with standing orders. Yes No Not applicable 5. The production scheduling system is integrated with the purchasing system. Yes No Not applicable 6. The computer system is used to generate purchasing requirements based on production schedules recorded in the purchasing system and on standard bills of material master files. Yes No Not applicable 7. The computer automatically generates purchase orders based on these material requirements, current stock levels, and previously specified desired minimum stock levels. Yes No Not applicable 8. The company has at least considered using electronic data interchange (EDI) to place orders directly into the suppliers order entry system. Yes No Not applicable Go back to top D. Materials are received on a timely basis. 1. Just-in-time inventory techniques have been implemented. Yes No Not applicable 2. Supplier performance ratings have been developed, applied, and monitored. Yes No Not applicable Go back to top E. The receiving process is efficient and cost-effective. 1. The physical activities of the receiving process are reviewed. Yes No Not applicable 2. The receiving area and procedures are designed to reduce the number of activities and the time required to complete activities. Yes No Not applicable 3. Employees are trained in the process of materials handling. Yes No Not applicable 4. Employees are encouraged to share ideas and suggestions on ways to improve the process. Yes No Not applicable 5. Storage space is limited in the receiving area to enforce the efficient distribution of goods away from receiving. Yes No Not applicable 6. Material routing procedures for received items are maintained. Yes No Not applicable 7. Inbound functions are provided with instructions for routing nonroutine material. Yes No Not applicable Go back to top F. Materials received are processed on a timely basis. 1. Production is notified when materials and supplies are received. Yes No Not applicable 2. Communication channels have been established between purchasing, production, and receiving to ensure all parties are aware of material needs and the timing of these needs. Yes No Not applicable Go back to top G. Materials received meet required quality standards. 1. Current lists of specifications to be used in inspecting and testing goods are maintained. Yes No Not applicable 2. Receiving verifies specifications with purchasing or other appropriate personnel. Yes No Not applicable 3. Receiving personnel are trained to inspect the quality of materials received, or the materials are sent to other trained personnel to ensure they meet the company's minimum standards for production use. Yes No Not applicable 4. Strategic alliances or partnerships have been developed with suppliers to ensure the supplier builds in quality. Yes No Not applicable 5. The number of suppliers is optimized to achieve total delivered cost targets and meet specific customer needs. Yes No Not applicable 6. Suppliers are involved in the new product development and value analysis process. Yes No Not applicable Go back to top H. Physical safeguards are adequate. 1. Access to receiving and storage areas is restricted to authorized personnel. Yes No Not applicable 2. Receiving gates or loading docks are kept closed when no delivery is in process. Yes No Not applicable 3. Entry to facilities is checked, appropriate visiting documents are issued, and random checks of people on the premises are performed. Yes No Not applicable 4. The receiving function is physically segregated from production facilities and shipping, unless good business practices dictate otherwise. Yes No Not applicable 5. Incoming goods are secured and safeguarded upon receipt. Yes No Not applicable 6. Appropriate handling and storage practices are communicated to employees to prevent damage to materials. Yes No Not applicable Go back to top I. The receiving process is safe. 1. Employees are fully trained in the safe handling and storage of non-hazardous materials. Yes No Not applicable 2. Procedures have been established for reporting and addressing safety concerns. Yes No Not applicable 3. Procedures and policies that comply with relevant rules and regulations concerning safety are maintained. Yes No Not applicable 4. Employees are fully trained in the safe handling and storage of hazardous materials. Yes No Not applicable 5. Hazardous materials are stored in appropriate containers. Yes No Not applicable 6. Hazardous materials are segregated from the main facilities used by employees. Yes No Not applicable 7. Handling and storage procedures and facilities are inspected regularly. Yes No Not applicable Go back to top J. Employees and management are provided the information they need to control the process of obtaining materials and supplies. 1. Approved suppliers are periodically and systematically monitored to ensure that their actual performance meets expectations. Performance measures may include percent of on-time delivery, accuracy of shipments, product quality, and actual cost performance compared with original cost projections. Yes No Not applicable 2. Purchasing agents, buyers, and cross-functional teams are evaluated in a manner consistent with management's objectives of reduced inventories, improved quality, lower costs, and frequent reliable deliveries. Yes No Not applicable 3. Appropriate performance measures are selected to ensure that the procurement and receiving processes are properly controlled. Yes No Not applicable 4. Quantifiable and controllable measures are selected that 1. link the process to the company's goals and to customer expectations, and 2. stimulate continuous improvement. Yes No Not applicable 5. The process used to collect the required data and calculate the measures is defined. (For example, the company defines whether data collection is an integral part of the operating process or a separate process, and whether it is cost effective). Yes No Not applicable 6. Management understands how the procurement and receiving processes contribute to customer satisfaction and overall company objectives. Yes No Not applicable 7. Selected performance measures support the creation of value and customer service by reflecting quality and time as well as costs. Yes No Not applicable Go back to top K. Purchase orders are properly authorized. 1. The requesting department is required to prepare the purchase requisition for all materials and supplies purchased. Yes No Not applicable 2. Vendors are notified of company personnel authorized to approve purchase orders. Yes No Not applicable 3. Requisitions are approved before purchase commitments are made. Vendors, prices, quality, quantities, and terms are approved. Yes No Not applicable 4. Computer system input screens and routines are used to generate purchase order documents and transactions. Yes No Not applicable 5. Computer system routines have been designed to automatically verify that purchase orders are created only for authorized vendors. (For example, the system automatically verifies the vendor against the vendor master file during purchase order entry.) Yes No Not applicable 6. Purchasing personnel are provided with current prices, vendors, specifications, and terms, such as supplier extranet sites or computer inquiry terminals that have direct access to vendor product and inventory record files, to ensure that only authorized terms are used to create purchase orders. Yes No Not applicable 7. All changes to purchase orders require formal approval from management. Yes No Not applicable 8. Established policies and procedures define spending limits and approval procedures for purchase orders. Yes No Not applicable 9. Approval limits are configured in the purchasing system, which allows authorized users to approve orders or requisitions within the approved limits. Yes No Not applicable 10. Systematic inventory reorder points are monitored and controlled. Yes No Not applicable 11. Access to change the inventory reorder points is limited to management. Yes No Not applicable 12. All purchasing responsibilities are segregated, including supplier selection, from disbursement and accounting activities. Yes No Not applicable 13. Initiation and editing of purchase requisitions or orders is restricted to authorized users independent from vendor maintenance, goods receipts, accounts payable, and processing disbursements. Yes No Not applicable 14. Purchasing agents or buyers are rotated periodically among purchasing responsibilities to ensure independence. If business conditions make it impractical to rotate agents or buyers, other compensating controls are implemented. Yes No Not applicable 15. An approved-vendor master file is used by the system for verifying acceptable vendors during purchase order creation. Yes No Not applicable 16. New suppliers are added to the established master file only if they meet the criteria established by management. Yes No Not applicable 17. Criteria for supplier selection are defined and communicated by management to ensure that goods and services are obtained only from properly approved suppliers. Yes No Not applicable 18. Suppliers are investigated prior to approval. Such factors as price competitiveness, reputation, product quality, delivery abilities, and financial solvency are considered. Yes No Not applicable 19. Competitive bids are obtained for all purchases over amounts specified by management. Yes No Not applicable 20. Justification and management approval are required for the absence of competitive bids or for the acceptance of a price other than a lowest bid. Yes No Not applicable 21. Computer system controls, such as access control software, are installed to preclude unauthorized purchase transactions. Yes No Not applicable Go back to top L. Purchase orders are accurately and completely prepared and recorded on a timely basis. 1. Computer system routines or prenumbered purchase order forms are used to assign purchase order numbers to order requests. Yes No Not applicable 2. Prenumbered forms are safeguarded from unauthorized use. Yes No Not applicable 3. Batch totals are used before processing is complete for systems that input purchase orders into a temporary file. Yes No Not applicable 4. Purchase orders have fields of pertinent commitment information, including item descriptions, quantities, price, price adjustment mechanisms, delivery requirements, freight terms, taxes, payment terms, and account distribution. Yes No Not applicable 5. Key data fields must be populated to process a purchase order, including ship to address, vendor, buyer, item catalog, and unit of measure. Yes No Not applicable 6. Appropriate personnel, such as the original requestor, review generated purchase orders to ensure that items ordered are correct. Yes No Not applicable 7. Purchase orders are time sensitive and voided by the system if not fulfilled after a given period. Yes No Not applicable 8. Open purchase orders are reviewed regularly (such as weekly or monthly) for validity and invalid orders are removed after 30 days. Yes No Not applicable 9. Computer system routines are used to generate exception reports for identifying purchase orders that have been outstanding for excessive lengths of time. Yes No Not applicable 10. Shipment mode and delivery date are specified on purchase orders. Yes No Not applicable Go back to top M. All purchase order transactions are reliably processed and reported. 1. A one-to-one check between the entered information and the source documents occurs to ensure the accuracy of key data fields, including date. Yes No Not applicable 2. Authorization is required for all changes to program routines. Yes No Not applicable 3. User approval is required for program change test results. Yes No Not applicable 4. Tape and/or disk management systems are used to ensure that appropriate versions of transaction files, master files, and programs are used for processing. Yes No Not applicable 5. Computer system controls, such as access control software, have been installed to preclude unauthorized changes in the versions of files and programs used to process transactions. Yes No Not applicable 6. Computer system controls, such as access control software, have been installed to protect files and programs from unauthorized use, modification, or deletion. Yes No Not applicable Go back to top N. Receipts of materials and supplies are properly authorized. 1. Only materials supported with an authorized purchase order or its equivalent are accepted. Yes No Not applicable 2. All other receipts are returned to the supplier, or they are investigated for propriety in a timely manner. Yes No Not applicable 3. Receipts that bypass central receiving are subject to validation (of receipt or performed service) and properly approved prior to vouching. Yes No Not applicable 4. Computer system routines are used to verify that any material orders received are for legitimate, outstanding purchase orders. (For example, they match the purchase order number entered as part of the receiving transaction with records contained on the purchase order master file). Yes No Not applicable 5. Appropriate tolerance limits are established for key receiving system inputs and over deliveries are automatically blocked for investigation if they are not within the delivery tolerance. Yes No Not applicable 6. The computer application is used to generate exception reports for any over deliveries or material receipts for which there is no outstanding purchase order on file. Yes No Not applicable 7. Computer system controls, such as access control software, have been installed to preclude unauthorized entry of receiving transactions into the system. Yes No Not applicable 8. Receiving reports are safeguarded from theft, destruction, and unauthorized use. Yes No Not applicable 9. Authorized personnel are designated to correct errors in original receiving reports and reenter them into the system. Yes No Not applicable Go back to top O. Receipts of materials and supplies are recorded accurately and completely on a timely basis. 1. The accuracy of vendor, inventory, and open purchase order information are periodically verified and updated to reflect receipts. Yes No Not applicable 2. The computer system is configured to require a valid purchase order in order to receive goods. Yes No Not applicable 3. Incoming goods are matched to purchase orders upon receipt and entered into the computer system for processing. Yes No Not applicable 4. Batch totals are used before processing is complete for goods received that input into a temporary file before subledger updates. Yes No Not applicable 5. Incoming goods are test counted, weighed, or measured on a sample basis to determine the accuracy of the suppliers' shipments. Yes No Not applicable 6. A one-to-one check of goods received and entered in the system is completed to ensure the correct receiving date and receiving information (quantity, amounts, and vendor). Yes No Not applicable 7. Goods received are date-stamped by the computer system when entered for proper period (such as month or year end) recording. Yes No Not applicable 8. Open receipts are reviewed daily and followed up for clearance after one day. Yes No Not applicable 9. Receipts are reviewed daily for completeness and all unmatched goods are investigated and resolved. Yes No Not applicable 10. All discrepancies are noted on the standard receiving reports, and these discrepancies are reviewed by management and resolved with the supplier. Yes No Not applicable 11. Incoming goods are inspected for issues such as damage, quality characteristics, and product specifications. Yes No Not applicable 12. The company periodically counts materials on hand, reconciles with perpetual records, and investigates any differences. Yes No Not applicable 13. Receiving documents or online computer input routines are used to record the actual receipt of materials and supplies. Yes No Not applicable 14. Computer routines are used to match quantity of receipts with the purchase order. Yes No Not applicable 15. Reconciliation controls have been implemented to ensure that all receiving transactions are entered into the system if receiving documents are initially used to record receipts of materials and suppliers. Yes No Not applicable 16. Computer system routines are used to match each line item of the receiving transaction with the line items of the corresponding purchase order record. Yes No Not applicable 17. Computer controls have been installed and are designed to highlight discrepancies on exception reports and denote purchase orders on file with partial receipt indicators. Yes No Not applicable 18. Computer procedures have been designed to close purchase order records when all line items match and have been received. Yes No Not applicable 19. Procedures for promptly updating inventory records are maintained. Yes No Not applicable 20. The company matches dates on receiving information and inventory information and follows up with any discrepancies. Yes No Not applicable 21. The company monitors instances of invoices presented for payment when materials were accepted without a valid purchase order. Yes No Not applicable Go back to top P. All material and supply receipt transactions are reliably processed and reported. 1. Authorization of all changes to program routines is required. Yes No Not applicable 2. User approval is required for program change test results. Yes No Not applicable 3. Tape and/or disk management systems are used to ensure that appropriate versions of transaction files, master files, and programs are used for processing. Yes No Not applicable 4. Computer system controls, such as access control software, are used to preclude unauthorized changes in the versions of files and programs used to process transactions. Yes No Not applicable 5. Computer system controls, such as access control software, are implemented to protect files and programs from unauthorized use, modification, or deletion. Yes No Not applicable Go back to top Q. All materials requisitioned are properly transferred. 1. Materials are transferred only on the basis of a properly approved requisition. Yes No Not applicable 2. Appropriate documentation is required for materials transferred from receiving to other business activities. Yes No Not applicable 3. Transfer documentation accompanies all transfers, and stores or other activities personnel verify materials and quantities received. Yes No Not applicable 4. Transfer documents are prenumbered, and missing documents are investigated. Yes No Not applicable Go back to top R. Performance measures used to control and improve the process are reliable. 1. Controls have been implemented to automatically calculate and process the performance measures based on data captured at the transaction source, such as processing time, number of defects, and on-time delivery. Yes No Not applicable 2. Performance measures are periodically reviewed to ensure that they reflect actual process performance. Yes No Not applicable 3. Quality reports and customer surveys are used to capture relevant information about process performance. Yes No Not applicable 4. The information captured is communicated to employees responsible for vendor relations and improving the procurement and receiving process. Yes No Not applicable 5. Management and employees understand the linkage between the measures and customer satisfaction. Yes No Not applicable 6. Management and employees accept these measures as tools to improve process performance. Yes No Not applicable 7. Performance measures are linked with employee performance evaluations. Yes No Not applicable Go back to top S. Management develops strategic business alliances with suppliers. 1. Strategic business alliances have been developed with suppliers. These suppliers are involved in developing better ways to process accounts payable. Yes No Not applicable 2. Efforts are made to improve vendor relations continuously. Yes No Not applicable 3. Objectives have been developed to identify potential candidates for strategic alliances. Yes No Not applicable 4. Due diligence reviews of potential vendors are performed. Yes No Not applicable 5. Partnership relationships are formalized and documented. Yes No Not applicable 6. The purchasing and accounts payable processes have been reengineered in cooperation with strategic partners to eliminate redundancies. Yes No Not applicable 7. Documented and enforced procedures exist to evaluate and approve long-term supply contracts and to verify they are in accordance with the company's business strategy. Yes No Not applicable 8. Integrated system technologies, such as EDI, are used to streamline the accounts payable process and build linkages with strategic partners. Yes No Not applicable Go back to top Compliance with applicable laws and regulations A. Materials are obtained in compliance with applicable laws and regulations. 1. Legal review of all relevant laws and regulations is required. Yes No Not applicable 2. Procedures have been developed that comply with laws and regulations. Yes No Not applicable 3. Industry organizations or regulatory bodies are consulted about compliance with laws and regulations and possible future requirements. Yes No Not applicable 4. Political, lawmaking, and regulatory environments are monitored to ensure that company procedures continually comply with any industry standards and applicable laws and regulations. Yes No Not applicable 5. Policies and procedures concerning compliance with laws and regulations are documented. Yes No Not applicable 6. Information about compliance policies and procedures is distributed to appropriate personnel. Yes No Not applicable 7. A legal officer has been designated and is generally responsible for compliance with laws and regulations and is available to advise management. Yes No Not applicable 8. Standard purchase order terms and conditions are reviewed by the appropriate personnel to ensure that they comply with legal and regulatory requirements. Yes No Not applicable 9. Proper competitive bidding procedures are performed according to company policy and government regulations. Yes No Not applicable 10. The purchasing policy states that ethical and procedural requirements must be met when evaluating vendors. Yes No Not applicable IDEAL ANSWER IS YES FOR BETTER INTERNAL CONTROL