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When a business purchases the resources needed to operate, managing the company spending is necessary to prevent overspending and build good relationships with suppliers that you can depend on in the future. This essential process is called a procurement audit.
Procurement management includes a series of processes. The audit is just one of them. The additional procedures include:
Procurement audits focus on analyzing suppliers and contracts to determine the efficiency, accuracy, and legitimacy of current processes. Additionally, the results also help shape future purchasing procedures.
Spending includes direct costs (ex: staff salaries, insurance), production costs (ex: raw materials used in manufacturing), and indirect costs (ex: professional services, travel).
The management and enforcement of procurement practices is a big job. The audit process helps the purchasing department stay on top of multiple areas:
It's important to note, procurement audits will not yield their full benefits overnight, but they will provide a step-by-step process improvement.
Here are some best practices for procurement audits that detect problems, identify resources needed, and drive robust internal controls.
Getting buy-in from supervisors should be the priority. Gather manager input to help you focus audit efforts. Are any particular suppliers not delivering needed results? Start there, then proceed to processes and policies that require acknowledgment.
In addition to management, stakeholders give approvals and make purchases. They are unwilling to give up control that quickly, so ensuring they understand your intentions is essential. Show them how the audits improve process integrity. Get feedback as well; some stakeholders may be able to share pain points or have ideas for specific changes they think the company should pursue.
Make sure purchase orders (POs) are complete and correct, including PO numbers, supplier information, full product descriptions, pricing accuracy, and authorized signatures. Then compare them to final invoices and payments. You may need to double-check sample POs and invoices for each supplier if working manually due to the volume.
Supplier selection is an additional primary responsibility of procurement. In addition to developing the ability to place bulk orders covering multiple departments, each contract should be analyzed to see if it corresponds to the company’s standards.
It’s not unusual for procurement audits to uncover new discounts, better payment terms, etc., that the project team missed originally.
Procurement audits don’t end with your suppliers. The audit also needs to analyze your company’s procurement procedures, such as how contracts are approved. Furthermore, each step in the process must be monitored and maintained to ensure it meets specifications.
Compile a report of all audit findings with actionable insights to encourage corrective action. If the data identifies inefficient contracts, failures to comply, or potential fraud, talk with project management about ways to correct the problems.
Project management includes many contracts, processes, documents, and feedback. Here’s a checklist that covers most procurement audit responsibilities.
As difficult as audits can be, they are much easier to complete if you have an automated system to help out. Online services can provide tasks such as:
Automated procurement tools can also be set up to automatically send the proper documents to the right people, ensuring that all stakeholders are kept informed, and audits can be completed more quickly.