The processes you use to order merchandise for your company are vital to control risks, prevent fraud, ensure maximum savings and maintain regulatory requirements. You should develop a checklist to which you can refer when you make periodic audits of your purchasing processes. As markets, shipping times, vendors and sales shift, an audit can help you determine where you should make adjustments to the process to improve efficiencies.
It’s important to develop a chain of command and set of guidelines for approving purchase orders as they’re made and shipments as they’re received. Your checklist should include the list of names that are required for each step of the process. The audit should check signatures and verify dates of each transaction to maintain the integrity of your approval process. Purchases made without the appropriate approval validation should be earmarked for investigation. The audit can reveal fraud or negligent purchases when you review the approval process.
The suitability of your vendors plays an integral role in your company’s profitability. Your audit should contain guidelines to ensure that only approved vendors that meet company directives are used for purchasing. Your purchasing process should include a guide to choosing vendors based on the quality of the merchandise, prices and delivery timing. In addition to checking that only approved vendors are being used, the audit should encompass a review of the vendor selection process to make sure it’s up to date. Methods used to ensure vendors continue to meet company criteria also should be a part of the audit.
You should have a process by which you continuously check the quality of the merchandise once it’s received. During the audit, the checklist should include a review of those processes and compare it to the inventory reports you receive from customer returns, faults discovered during the delivery to your own customers as well as the check-in procedures used when the inventory is first delivered. Patterns of poor or damaged merchandise may lead to review of the vendor’s suitability for your business or to the initial check-in procedures that allow faulty merchandise to pass the first inspection.
Communication between your company and your vendors as well as internal communications must be checked to ensure accuracy and timeliness. For example, a purchasing audit of your communications systems can reveal which vendors have not received notices of a probationary status because of inferior product deliveries. Memos and updates to purchasing agents within your company should reflect current vendor approvals and company policy changes in a timely manner. All departments and employees involved in the procurement process from accounting to warehouse receiving should have clear lines of communication in place, which should be checked during the audit.
CHECKLIST FOR HR AUDIT
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Copyright © Daniel Cullinane CPA.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778