Auditing Procurement and Contract Management

Day 1: Auditing the procurement process

Auditing the procurement strategy

• Framework for purchasing decisions
• Is there clear direction from the top?
• Procurement strategy
• Does it encourage suppliers to be innovative?
• Is the procurement plan developed well in advance through consultations with all parties?
• Is there a long term plan for procuring essential goods and services
• Objectives and targets
• Delegation and authority limits
• Procurement strategy in line with business strategy?
• Does it meet the 3 E’s?
  • Economy
  • Effectiveness
  • Efficiency
• Minimising the cost whilst maintaining acceptable quality
• Carrying out periodic reviews to identify over- complex procedures
• Benchmarking costs etc. with others in the sector
• Local sourcing
• Policy re using new suppliers
• Collaborative procurement
• Exercise 1 – Auditing the procurement strategy

Evaluating the pre- procurement process

• Check that requisitions are complete, in the prescribed form, and signed by authorized officers.
• Ensure corrections, additions and alterations of the requisitions are authenticated by authorised officers.
• Make sure procurement proposals are initiated, processed and approved by authorized officers as per their delegated powers.
• Ensure there are no cases of overstepping of delegated authority in planning and initiation of procurements.
• Ensure users, planners and procurement officers are able to access to procurement system in a controlled manner.
• Check that the requisitioning and planning personnel are aware of technological advances in the field of goods and services being procured.
• Ensure that obsolete technology equipment and stores are not requisitioned and procured.
• Ensure purchases are planned after taking technical expert advice about the appropriateness of the goods and their technical specifications
• Was cost benefit analysis done to establish justification for procurement?
• Ensure procurement of same types of goods are consolidated to take advantage of quantity discountsIf procurements are funded by an external agency, ensure funding agency’s conditions are taken into account in planning the procurements.
• In case of delays in planning for procurement, the auditor should examine its impact on organisational goals and objectives.
• How is excessive purchasing avoided?
• Returns process
• Intellectual property
• Low value purchases ( are procurement cards used)
• Exercise 2 – Auditing the procurement cycle

Assessing the procurement risks

• Inflated unachievable targets
• Unduly favouring certain suppliers with high quantity orders
• Use of allotted budget during the financial year without immediate requirement of goods.
• Procurement not fully linked to inventory management
• Emergency contracts
• Insufficient timeframe for the procurement process (from initiation of requirements by the users to award of contract).
• Officers assigned the job of procurement of sophisticated equipment and systems may not have the necessary skills and experience
• Certain purchases are not made by the Procurement function
• Procurements not properly planned with the finance to ensure availability of funds as per procurement schedule.
• Legal and environmental concerns not fully taken into account
• Exercise 3 –Procurement risks

Preventing procurement fraud

• Price fixing
• Market fixing
• Bid rigging
• Manipulation of specifications
• Manipulation of procurement procedures
• Bribery for awarding a contract
• Bribery for disclosing confidential information
• Conflict of interest
• Cyber fraud – hacking into the procurement system
• Fraud indicators and how to use them
• Exercise 4 – The fraud risks
• Ethical and sustainable purchasing
• Are key suppliers chosen for their ethical and environmental credentials?Are opportunities taken to develop the ethical reputation of the business by choosing sustainable procurement sources?
• Does the business have a responsible purchasing policy/Code of Conduct for suppliers?
• Are ESG criteria included in the selection and monitoring of key suppliers?
• Compliance with health and safety regulations and/or
• Departmental guidelines
• Packaging materials (quantity, biodegradability, recyclability etc.)
• Exercise 5 –Ethical and sustainable procurement

Day 2: Auditing the contract management process

Supplier management

The Tendering and bid process

Auditing the contract management process

Evaluating the key aspects of contract agreements