How to audit a purchase department?
Purchasing processes are essential for controlling risks, preventing fraud, guaranteeing savings and complying with regulatory requirements. In fact, they form the basis of a company’s management processes, and yet are the least optimized. In small and medium-sized enterprises (SMEs), they are often relegated to employee versatility, but their proper maintenance is essential. And this is true in all business sectors. That’s why you need to have a list of steps to which you can refer during a periodic audit of your purchasing process. This list is part of a quality approach and should help you determine where to take corrective action to improve the efficiency of your purchasing organization. Discover 5 steps to an effective purchasing audit.
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Checking the various approvals
This is the main step in any purchasing department audit process in your purchasing and logistics departments. It is important to set up an approval circuit that complies with your company’s procedures and guidelines. On the one hand, this streamlines the purchasing process, as it enables purchase orders to beapproved as and when they are issued. On the other hand, it secures your company’s purchasing function and attests to the reliable audit process that traces the purchasing decision back. Your checklist should include the list of names required at the approval stage of the purchasing process.
You should also refer to a procedure in line with a purchasing strategy aligned with sound expense management. The validation circuit must be known by purchasing portfolio, budget, department, amount or even project reference. Verification must be able to check signatures and verify the dates of each transaction. All this helps maintain the integrity of your approval process. Purchases made without the appropriate approval validation should be investigated. The audit may reveal fraud or unauthorized purchases.
Controlling supplier selection methods
The choice of suppliers plays an essential role in your company’s performance. Auditing a purchasing process is also an opportunity to carry out audits on the suppliers you work with. Establishing a certain number of guidelines and checking that they are respected is a quality approach. The aim of these criteria is to ensure that only approved suppliers who meet the company’s guidelines are approached for purchases. Your purchasing process may include a guide or checklist for selecting suppliers. This is the case, for example, for certain companies or startups that have to comply with an ISO standard and verify the impeccable quality of their suppliers or subcontractors.
Criteria and requirements may vary according to the nature of the product, the quality of goods expected, the amounts involved or delivery times. In addition to checking that only approved suppliers are used, the audit must include an examination of the supplier selection process. This is essential to ensure that it is up to date. The methods used to ensure that suppliers continue to meet the company’s criteria should also form part of the audit.
Verification of incoming goods
Receipt is a key stage in the purchasing process, as it validates the proper execution of negotiated or ordered purchase conditions, and provides information to the finance department to initiate supplier payment. This is why you need to have a list of checks to be carried out at the acceptance stage. You can designate a person responsible for receiving deliveries, such as a warehouse clerk, and define a procedure so that it can be verified. The aim is to ensure that a consistent process is followed every time, to reduce errors. On receipt, you need to sign and date the delivery note or acknowledgement of receipt, and above all check the parts received.
Keeping a record of these elements should not be seen as administrative management, but rather as a transparent way of tracing the process and ensuring that the purchase has been carried out in due form, and ultimately reconciling the original purchase order with the invoice. A review of the process may reveal quantity errors on orders, or human error. Corrective action can be taken to train these employees or define a plan of action. They can also be used to optimize the process and reinforce the single-signature policy in the receiving department.
Post-receipt quality assessment control
Continuously checking the quality of goods, products or services received is a strategic issue and completes a company’s purchasing organization. During your purchasing audit, the checklist should include a review of these processes. They should be compared with the following elements:
- Inventory reports from your ERP system,
- Defects discovered during delivery and their follow-up,
- Order management and the status of the initial expression of need.
The systematic presence of poor-quality or damaged goods may prompt you to check whether the supplier is suitable for your business. It may also prompt you to review the registration procedures that allow defective goods to pass first inspection. This complements a supplier audit, and can influence your company’s purchasing policy, for example.
Traceability
Communication between your company and your suppliers, as well as internal communications, must be checked. This helps to ensure that they are accurate and justified. During your purchasing audit, you should pay particular attention to the transmission of information from your internal customers. Audit non-conformities are often caused by e-mail exchanges. Although the information is electronic and traceable, it is not transparent. And retrieving this information is costly, and therefore detrimental to the company.
It also means perfecting risk management, since this exercise may reveal that suppliers have not been officially notified of defective or inferior quality deliveries. They should reflect current supplier assessments and changes in company policy. All departments and employees involved in the purchasing process must have clear lines of communication.
Thanks to all these steps, an audit of a purchasing department canoptimize your purchasing management. They help reveal faulty systems that need to be corrected for your company’s development. Using purchasing management software such as Weproc both optimizes your purchasing process and secures your audits.
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Weproc is a SaaS software specialized in digitizing the procurement process of companies. From purchase requests to supplier invoicing, through the validation process, Weproc is designed to simplify the purchase management of SMEs and mid-sized companies by centralizing all purchase-related activities.