Internal Audit Plan of a Manufacturing Company for Purchase Department

Purchasing – a high-risk area subject to fraud – where an organization spent a significant amount of its money and can heavily impact the company’s quality, Environmental & safety objectives & targets. It is the first and most basic nature of expenditure, that any manufacturing company is required to incur, which is in direct proportion to their manufacture/production activity. Hence audit of this area for a manufacturing organization if of high importance and care to be taken while auditing this area.

During the preliminary survey, the auditor should gain an understanding of how purchasing occurs within an organization.

  • Audit Objectives/Checking:
    • Requisition Note – An internal company document used in the purchasing process to authorize the requisition of materials prior to initiating a purchase order. Purchase indents are audit documents used to track the movement of materials prior to their receipt by the buyer.
    • Each Purchase made should be supported by a proper Requisition Note, which is properly authorised by the concerned Authorised Person & to check the adequacy, authenticity and completeness of indents w.r.t. cost benefits, desired information, back papers.
    • If there are delays in receiving the intends and raising of P.O., then identify the reason for the same & report.
    • The PO must have required terms & conditions mentioned on it, such as Expected Delivery date, Payment due date, Advance to be given if any. All such terms, mentioned on PO must be strictly adhered to.
    • Item, quantities, or other information relating to the order may be incorrectly recorded on the input document resulting in the requesting department/personnel not getting the material as per requirement.
    • Compare purchase order prices with vendor catalogues after obtaining at least three vendor’s quotation. And in case of purchase from a sole supplier or t higher rates, then obtain adequate justification and authorization.
    • Any advance payment to the vendor should be properly authorized Invoicing is being done as per P.O. Order and Quotations.
    • Identify the various types of purchasing transactions and document the flow of those transactions throughout the organization & Prepare a computer system flowchart and review it with the data processing project leader.
    • Ensure that there are sufficient controls to monitor the receipt, storage and issue of material in the stores department.
    • All receipts of goods must be recorded in two different stages:
    • At Unit/factory Gate (Goods Inward Register with the Gate-keeper)
    • Before entry in the Stores (Goods Receipt Note – GRN)
    • The above books must be properly reconciled and the entries in both the above-mentioned records should be exactly the same, in terms of date, quantity, quality of items received and party names.
    • In case unauthorized goods or services accepted by the company, thus, obligated the company to pay for unwanted items, hence receipt of goods to be verified properly.
    • The Vendor has billed the company as per the quotations / negotiated rates.
    • The payments for these purchases are made as per the authorisation and within due dates.
    • All purchases, receipt & issue of material and payments are accounted for in the books of accounts properly under proper ledger accounts.
    • The controls in the purchasing department must be capable of generating appropriate documents at each process level. Thereby documenting the complete purchase process.
    • The issue of material must be supported by MRN, approved by the respective departmental head.
    • Proper Stock levels must be maintained & Stock must remain insured at all time.

Auditing is a big ocean of ideas and concepts, it is very difficult to draw a complete packaged audit program, so above is an overview for the audit of purchase Department of an organization.



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