Procurement professionals are always juggling many balls in the air. They are chasing budgets, they are chasing deadlines, and they are required to adhere to a complex web of regulations.
Given the above circumstances, it is easy to get lost in the weeds and overlook certain important issues in procurement. In the intricate tapestry of modern supply chains, gaps between policy and practice will inevitably emerge, but there is always a silver lining amidst these challenges.
Due to so many moving parts in procurement, it can be easy for rogue spending to seep through the cracks, leading to fraud and serious compliance infractions.
In most cases, corruption or fraud in supply chain is an intentional misconduct on the part of procurement professionals.
However, there is also an off-chance possibility of unintentional mistakes. In both cases, procurement audits will be in a position to unravel non-conformances.
Procurement audits seek to review the organisation’s procurement process flows with a view to analyse the accuracy, the efficiency and the legitimacy of procurement transactions.
They are conducted with a view to examine the conformity of procurement activities with organisational policies and procedures with a primary responsibility to identify any discrepancies, inefficiencies and opportunities for process improvements.
Audits will also seek to evaluate procurement policies and procedures with a view to identify redundancies, bottlenecks and vulnerabilities that could lead to fraud, waste or abuse of resources.
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Procurement operational redundancies create chokepoints in the supply chain. A comprehensive procurement audit will involve a comprehensive analysis of quantitative variables such as on-time delivery schedules, defect rates, price variations together with qualitative metrics such as vendor responsiveness and collaboration capabilities. This will help to separate high-performing suppliers from underperforming ones.
Conducting procurement audits unlocks a world of benefits.
They will be useful in the identification of obsolete and redundant business practices that slow down the procurement cycle.
This will assist procurement professionals in uncovering and addressing the identified bottlenecks early on, protecting the organisation’s financial stability and safeguarding its valuable assets.
Procurement audits are generally regarded as the guardian of strategic alignment and the engine of efficiency and the flagbearer of excellence. They will ensure that prudence and probity are applied in the spending of public funds, allowing the closing of loops to delays, deviations or non-conformances in procurement.
Procurement audits will entail going through financial reports, operational reports and reviewing procurement systems to achieve accuracy, adherence and efficacy.
They will seek to verify that procurement controls are in order, testing those controls and ensuring that their audit reports provide an accurate and fair view of the company.
Procurement audits will ordinarily scrutinise supply contracts to ensure a certain measure of regulatory compliance, accuracy, and completeness is achieved. They will seek to identify any deviations from agreed upon terms and conditions and identify any potential risks and opportunities for procurement optimisation.
Such audits will ensure that transactions associated with procurement are transparent, accountable and in line with established standards.
A distinguishing feature of a procurement audit is its proactive nature through anticipating potential procurement challenges and shortcomings.
It is a forward looking process that aims to identify inefficiencies, non-compliance and improvement opportunities before they impact the bottom line of the business. They will prompt management to act promptly if grounds for suspicion come to their notice.
Procurement audits will also examine to assess whether there is adherence to laws, rules and regulations which can lead to legal penalties and reputational damage.
Protecting the reputation of the organisation in the face of evolving industry standards and regulatory expectations is critical.
Such audits will ensure that your organisation adheres to applicable rules and regulations, including antitrust, anti-bribery and or data privacy requirements.
Organisations will therefore avoid the risk of legal penalties and fines. Audits will also ensure that organisations abide by tax laws, fiscal policies and other corporate laws.
They will document all the discrepancies, deviations or non-compliance issues. This information will be used for the development of recommendations for improvement.
Effective procurement audits will ensure that there is strict segregation of duties to make sure no single person can initiate, approve, and record a transaction without some level of oversight. Reviewing user rights, roles, permissions and approval workflows ensures there are checks and balances in place.
Procurement fraud and corruption is prevalent in many organisations. Here is the thing; even the biggest and best companies are vulnerable to fraud.
The allure of fraudulent activities often lurks where there are personal financial interests or where there is conflict of interest.
Procurement audits will act as regular reviews of the entire procurement processes to ensure that they are secure, free from fraud and cost-efficient, making them less prone to fraud or errors.
A robust procurement audit will not only identify and eradicate existing fraudulent practices, but it will also allow for the introduction of control systems that will prevent future fraudulent procurement activities.
Procurement audits are generally regarded as an X-ray vision for your procurement process flows, identifying red flags that could potentially be signifiers of fraud. Such audits will take the role of a compass that helps you to navigate your expenditure patterns. They will be regarded as your organisation’s financial health check.
Whether it is through collusion, bribery, or other dishonest practices, organisations can lose substantial resources where there are no checks and balances.
Rogue spending often leads to compliance infractions. Procurement audits will establish procurement boundaries that will limit radical spend and rein in rogue user departments, emphasising the business’ overall systems and its control environment.
When employees get to know that an independent audit will be carried out, they take care to make fewer errors. There is also an element of moral policing when it comes to procurement audits.
Procurement professionals will know their mistakes will be discovered, so they will take the responsibility of being honest and always avoiding irregularities and irresponsibility in their work.
Regular audits will act as a moral check on procurement staff of the organisation, reducing the risk of unintended consequences.
Members of staff are more likely to cross the Ts and dot the Is whenever they carry their procurement duties. They will remember that procurement best practices should be process dependent, not personnel dependent. These audits will therefore reinforce the organisation’s commitment to integrity and transparency, fostering established protocols and guidelines for the supply chain ecosystem.
In procurement, every new supplier arrives with the threat of poor performance. An organisations’ reputation is directly connected to the quality of its products and or services. The quality of your supplier strongly determines the quality of your final product.
A single unreliable supplier can disrupt the reputation of the entire supply chain. Procurement audits can assist in confirming the workmanship of preferred suppliers, validating their credentials, their capacities and capabilities.
Procurement audits will verify supplier performance through scrutiny of their reliability, quality focus and adherence to specifications, reducing the risks associated with unreliable or underperforming suppliers.
They will assist in vetting and blacklisting inefficient or fraudulent vendors. In today’s complex business environment, risks abound.
Whether it is compliance issues, supplier-related risks, or financial vulnerabilities, a procurement audit can act as a shield, protecting the organisation from potential risks by pinpointing potential problem areas that could hurt your wallet.
Investors, creditors and regulators may also highly depend on audited financial statements to make informed business decisions about your company. They normally rely on audited financial statements to assist them in making huge investment decisions.
Audits will give investors the reassurance that the reports presented represent a true and fair view of an organisation’s financial position.
Companies that have regular audits are generally considered to be inherently more trustworthy and stable. Audited financial statements will also reassure shareholders, investors, financial institutions and other stakeholders that the company is following the correct accounting practices.
A clean audit report signifies a healthy financial position which boosts the company’s credit image. It will assist the organisation in getting cheaper lines of credit to fund supply chain activities at affordable interest rates.
Procurement audits can also be regarded as sleeping tablets for shareholders and investors.
They will generally assist shareholders and investors to have peace of mind from knowing that audits will provide a clear, independent overview of the organisation’s financial health, ensuring that financial statements are accurate and compliant with regulations. Shareholders will also be assured that the financial statements are free from material error or malpractice.
They will be assured that the organisation has been operating with regularity and propriety while achieving value for money in the use of their financial and material resources.
Internal audits are a great way to reinforce the much-needed trust and credibility, leading to unmatched financial transparency and clarity.
They will ensure that there is full accountability and stewardship of organisational material resources.
In conclusion, it must be known that despite best efforts and good intentions, procurement audits or general audits do not always achieve their intended objectives. It must be acknowledged that procurement audits are often under-used, under-valued and misunderstood.
Although they are forward looking management control tools, they are generally a goal for many but a reality for a few.
Procurement audits are an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. They are not meant to witch hunt as is often believed.
They protect organisational value by providing risk based and objective assurance, advice and insight.
Taking your eyes off the procurement basics can be done at your supply chain’s peril. Procurement audits can therefore rely on local and national benchmarks to gauge how your supply chain stacks up against other supply chains.
This allows procurement professionals to step back and look at where their money is going.
- Nyika is a supply chain practitioner based in Harare. — [email protected]
