How to do Audit of Purchase Department

In our list of Internal audit checklist series, today we are going to teach you how to do Audit of Purchase Department. Previously we taught you audit of HR Department and today i am sharing with you my experience of auditing in purchase Department.

Every auditor should kept in his mind following things before audit of Purchase Department of any organisation.

Audit Of Purchase Department : checklists

  • Check whether there is an approved Vendor list of suppliers / authorized dealers/ AMC has been prepared and being updated on a regular basis by an executive authorized by authority.  The Approved Vendor list should carry all the items of purchases – Raw Material / service / Consumables / Packing material etc. The vendor list can be in ERP or an Excel file as per the scale of purchase.
  • Check whether organization is having approved Purchase Manual. Purchase Manual should include policies / procedures (SOP) / and all the matters relating to purchase process.
  • Find out the Variations in rates of items purchased over a period of time . The purchase register whether prepared Manually / in ERP/in SAP must having an item Code / Name of the item and purchases made of that item over a period of time at varying / same rates with reference to the Purchase Order Number.
  • Reasons for purchases made at different rates should be asked. Any Rate Variations without a proper justification should be reported in observations.( As per my exp difference in Rates is majorly due to quality of goods. )
  • Check on the possibilities of entering into Quarterly / monthly / annual rate contracts with the suppliers where the consumption level is high. (Mostly done for IT services)
  • A scrutiny of Purchase Orders should be done on sample basis to ensure that comparative statement of quotations are prepared and attached with PO and also properly authorized as per DOA matrix and the order should be placed on the lowest bidder after considering factors like quality / delivery / payment terms / profile & competence of the vendor to deliver material.
  • Check whether the comparative statements of quotations (CSQ) are duly approved by an appropriate authority (as per DOA) and dated.
  • Comparative statements should be prepared on cost criteria. All the costs such as the base price / taxes / duties/ freight & cartage/ insurance / interest etc should be indicated in the comparison and the final cost of comparison should be the landed cost of the item.
  • Ensure that a proper justification (Technocommercial) is given in writing on CSQ itself wherever the purchases are made from a vendor not being the lowest bidder.
  • Ensure that a sufficient number (at least 3) of quotations / offers are called from the suppliers at the time of making a comparative statement. If it is not possible proper justification should be recorded
  • In case of single offer / quotation cases obtain reasons for placing the order on specific parties.
  • Ensure that in case of Repeat orders Quotations are called from the competitive suppliers again and a fresh comparative statement prepared. Further a Repeat order should not be placed beyond 6 months from the date of the original PO.
  • Ensure that a justification note is put in writing and got approved from appropriate authority on every comparative statement giving reasons for awarding the PO to a supplier.
  • Carry out a scrutiny of Indents / Purchase requisitions to ensure that the purchase orders are placed as per the requirements given in the Indents.
  • Ensure that the quantity discounts / rebates offered by the suppliers as the PO terms have been availed by the company.
  • Obtain a list of pending Purchase Requisitions for conversion into PO and comment upon the old pending PR’s.
  • Obtain a list of all pending POs for delivery of material and comment upon the old pending PO where the due date of delivery of material has expired. (Make PO Tracking sheet for the same)
  • Ensure that the Purchase Orders have been signed / authorized by authorities as per the financial limits given in the Purchase Manual / Policy. Any Deviations should be reported.
  • In case of amendments in the PO ensure that the amendments are duly approved by an appropriate authority as per DOA MATRIX and reasons for the amendment (Rate or Quantity) should be documented.
  • Check on the possibilities of entering into Quarterly / monthly / annual rate contracts with the suppliers where the consumption level is high. (Mostly done for IT services)
  • Examine whether there is any system of standard costing or Budgetary Control  in the Purchase Department.

Hope now you can do  Audit Of Purchase Department very easily if you are having any queries related to Audit must ask below in Comments we will try to solve it.

Thank You !!!