A procurement internal audit implementation is a process in the procurement management cycle and a vital part of the procurement process. As companies procure the resources needed to get things done and run smoothly, spending must be managed to prevent overspending and build trusted connections with suppliers for coming projects.
However, procurement management covers multiple processes, one of which is auditing. Others include:
- Purchase orders/requisitions,
- Supplier inquiry,
- Contract negotiation,
- Supplier management,
- Approval of orders and invoices,
- Keeping records,
Auditing specializes in reviewing procurement contracts and suppliers to analyze the procurement effort’s accuracy, efficiency, and legality. The resulting records will also help influence future purchases.
Expenses can occur in any form. Direct costs such as employee wages, insurance, and production costs are associated with raw materials for manufacturing. Indirect costs, such as professional services and travel costs, are also a consideration. So how can you properly understand your spending activities and scrutinize them to be competitive in the market?
Why do you need to care about internal audits in procurement programs?
Procurement departments have a lot to do with managing and enforcing procurement practices. Auditing will help in many aspects of the job.
Spending Performance:
An audit lets you step back and see where your money is going. Finding new ways to lower barriers, negotiating more robust supplier contracts, sourcing higher quality suppliers, and improving overall spending can increase profitability.
Streamline your workflow:
When you have the opportunity to review your procurement process, you can quickly identify redundant or outdated business practices that are slowing down your procurement cycle. For example, you can order similar products from multiple sellers or suppliers and bundle them together for bulk orders.
Supply Chain Visibility:
For direct procurement procedures, structured spend audits formally assess the supply chain ecosystem and prevent management errors. When suppliers see that you value policy compliance, they will be more motivated to evaluate their practices.
Legality:
Auditing detects and prevents fraudulent invoices. Unfortunately, with so many daily purchases, rogue spending can easily slip through the cracks. For example, billing schemes are the most common form of fraud for small businesses.
Risk Management:
Similarly, fraudulent spending often leads to fraud and compliance breaches. Again, formal internal audits point you in the correct direction when taking corrective action for industry standards and legal policy violations.
Audit Trail:
Conducting your internal audit is a step in the right direction, but sometimes you also need an external audit from another company or government agency. Either way, you already have an audit trail.
Expect all audit benefits to come after a while. Audit trails help you make incremental improvements while cutting unnecessary costs and simplifying contracts without compromising the quality of your work.
Process Of Implementing Procurement Internal Audits
Identify problem areas in your procurement practices; your findings will lead to more robust internal controls and help you determine the resources needed for internal operations. Below are some critical steps to an effective procurement audit.
Talk to top management.
Getting supervisors involved in your planning is your top priority if you work in procurement or project management. Gather any input from your manager so you can prepare and know where to focus your efforts.
This is an opportunity to highlight any areas of concern. For example, do some suppliers need to deliver the results you need? It would help if you started there first. Likewise, any specific processes or policies that require validation should be raised with senior management.
Get your stakeholders involved too.
With management at the helm, the organization’s stakeholders conduct approval and procurement. These people are often reluctant to relinquish control of their resources, so it’s important to let them know your intentions. Shows that audits improve the integrity of the procurement process.
Also, please take advantage of the feedback you get from them. Some stakeholders in the procurement process may come up with specific weaknesses or changes they would like to make. For example, a different contract may be appropriate, or a particular function or policy needs to be considered.
View your purchase form
A purchase order is a document your company sends to suppliers to make new purchases. Review your purchase orders first and make sure to fill them out completely and accurately. The specific fields to check for these purchase forms are:
- Purchase order number for the desired item
- supplier information
- Accuracy of Product Descriptions and Pricing
- Authorize signature
Remember that any invoice or final receipt must reflect the original purchase order. The AP should be able to do some cross-checking, so everything counts.
A structured review of purchase orders is also an opportunity to compare your inventory costs with other similar sectors in your industry. Again, use local or national averages to see how you compare to other companies and competitors.
Finally, keep in mind that the sheer volume of transactions can make the process difficult when purchasing is formally evaluating purchase orders. If you’re working manually, double-check by taking a random sample from each supplier’s order list.
View each resource in the list
Selecting suppliers is another primary responsibility of the procurement department. In addition to looking for ways to bulk order across multiple departments, check each contract to see if it meets your business criteria. If anybody you buy doesn’t meet your expectations, set it aside.
Variables that must be considered include:
- Group discounts, rebates, and other ways to save money
- Credit plan
- Delivery practice
- Accuracy and clarity of contract language
- The quality of the services provided
- Supplier’s reputation in the market
Comparisons with other organizations offering similar goods and services
Who do you know? Procurement audits may reveal hidden discounts and savings that project managers may miss.
Review Company Policies
Auditors continue beyond suppliers. It will also define procedures within the organization regarding procurement, such as signing documents or approving contracts. Every step taken by employees must be seen and documented to ensure everything is done according to the purchasing department’s specifications.
Get feedback from your employees too. For example, are new agreements resulting from procurement audits too onerous to enforce? Should they be changed to better fit the company’s overall workflow?
Create final report
Review your findings by preparing a final report and discussing it with project management. If there are any claims that the contract is void, potential fraud, or non-compliance, document it and discuss ways to resolve the issue.
The report should contain actionable insights to encourage corrective action, supported by procurement data collected along the way. For example, better Buy drives the company’s ability to streamline procurement, receive resources more consistently, and review contract performance.
Tools, Software, and Automation
If you find audits difficult, know that the task is much easier to handle when you have an automated system to help you. There are now online services designed to handle the following tasks:
- Central Records Management
- Cloud-based collaboration
- Review workflows to prevent fraud or non-compliance
- A quick comparison of the best suppliers.
- Real-time price analysis to compare quotes
Procurement tools can also speed up end-to-end audits by automatically sending the proper documents to the right people, ensuring every stakeholder is aware of the situation. It also dramatically reduces the possibility of human error in data entry and analysis. It is clear that the future of audit and procurement, in general, will depend on software automation and the efficiency advantages it inevitably provides.
Hire Expert Procurement Internal Auditor In UAE
Hire a dedicated internal auditor in UAE to handle this task – as having a procurement audit could be more effective and present a potential conflict of interest. After all, you want employees to refrain from writing their performance reviews, so leave it to the internal audit team to create comprehensive, accurate, and structured reviews. The team must understand the current policies and needs of the project and the organization as a whole.