What Is a Procurement Audit?
It’s estimated that billions of dollars each year are lost to fraud during the procurement process alone, according to the Procurement Fraud Handbook. These statistics are shocking, but there is a reason why businesses are literally paying criminals to take their money—they fail to do their procurement audits.
First of all, procurement is the attainment of goods and services for supporting current or future internal business operations in order to incur profits, and it accounts for nearly half of all business expenses and liabilities.
A procurement audit, then, is reviewing the goods receipts, delivery issues, purchasing histories, and supplier contracts to look for fraud and double-check that the supplier is upholding their end of the distribution agreement.
The process starts with the identification of the demand and the subsequent budgeting, supplier selection, and final payment processing. The goal is to find the ideal supplier in terms of quality, reputation, longevity, and price. We’ll get into more about what goods and services procurement encompasses in the passages below. For now, just know that the procurement process organizes and supports the entire purchasing process.
In this article, we will briefly discuss this:
What Does a Procurement Audit Involve?
Procurement processes can vary depending on the company’s preferences and needs, but generally they include these 5 steps:
- Define Expectations – Try to specify what your company’s requirements and expectations are. To get started, it might prove helpful to use a procurement checklist templateto keep track of all your purchases for the audit that comes later down the road.
- Prepare the necessary documents – Before contacting a supplier, prepare documents on relevant data such as material, time, and cost estimates, etc.
- Selecting the right supplier – Depending on your company’s specific needs, pricing, and other requirements, this process can be lengthy but is essential to the success of your business. It’s important to look into the supplier’s past performance and compare their prices to the current market rates before selecting them for use in your own company.
- Contract & Terms – Once a suitable supplier has been found, agree on a contract with all the necessary terms and conditions.
- Documentation – Keep track of all records of the procurement & work processes. A procurement process checklist will help you keep track each step that comes next in the process so that nothing is left forgotten or goes undone.
What Are the Phases of a Procurement in 4 Steps?
1. Determination of Needs
At the beginning of every procurement is the determination of the required goods, materials, or services. For this purpose, an inventory analysis is carried out and then compared with the current orders.
A distinction is made between three common demand groups:
- The primary Demands stands for saleable goods
- The Secondary Requirements include raw materials
- The Tertiary Requirements includes auxiliary and operating materials
There are various options available for accurately determining the optimal order quantity. It can be ordered either by recipe per unit quantity or with the help of the stochastic method based on empirical values. Which method is used depends on the person in charge and the type of procurement.
2. Procurement Request
The procurement request includes the required goods defined in the needs analysis.
3. Substantive Examination
It is essential that the request is checked for correctness. No inferior products should be ordered. Only if the application is flawless should the order be released. Usually different people from various departments check the release.
If the approval was successful, the order can be completed.
A Digital App & Software for E-Procurement
A checklist is a helpful tool to ensure a smooth procurement process that includes all relevant steps. Unexpected problems due to neglected aspects during the process can lead to extensive costs, legal issues, delays, etc.
With the Lumiform app, all responsible persons can access the respective checklists at any time and from any location. If problems or time delays occur and corrective measures become necessary, they can be notified immediately from the app.
Other benefits of a digital solution for the procurement process:
- Generate real-time data about internal processes. This makes quality and safety measurable, and you can use data to constantly optimize processes.
- Using the super intuitive mobile app, you can perform on-site procurement with your teammates using a smartphone or tablet.
- Comprehensive analyses help you to identify inefficient areas in your company more quickly and, thus, continuously improve your auditing and inspection processes.
- Keep track of your procurement process at all times.
- The very simple operation provides no margin for error for on-site staff. The app offers an easier solution to documenting than tedious paper and Excel sheets.