Checklist for Purchase and Procurement under Internal Audit
One of the major and important costs in any manufacturing
company is the material and raw product. This is so because it involves the
vast portion of the total cost of production. And while conducting Internal AuditService in such an organization
the material procurements are checked thoroughly, with an objective to ensure
that right material has been procured by the company that too at right price,
in right quantities and at the correct time. To do the audit of such
procurements and purchases a detailed checklist for purchase and procurement
has been provided by the statutes. The Internal Auditors are required to ensure
that all the points provided in the checklist are properly checked and met.
Checklist for Purchase and Procurement:
The necessary checkpoints in the checklist for purchase and procurement are as under-
1. Documentation: It is a very necessary point in the Checklist for Purchase and Procurement to ensure the all the requisite documents are available. These documents are-
(i) Purchase and service policy in the organisation.
(ii) Satisfaction or quality report that is duly verified.
(iii) Purchase order and the contracts of service.
(iv) Records of gate-entry.
(v) Register of purchases.
(vi) Original copies of the invoices.
(vii) Entry form of the state or city.
(viii) Documents of lorry for payments against freight and applicable TDS.
(ix) Material receipt note that shows the actual quantity of material.
(x) In case of import, clearance from custom and custom duty payment receipts.
2. Legal Compliance: To check the legal compliance in the business the auditor ensures the documentary proof for each and every given compliance areas-
(i) Custom duty payments and clearance from custom department on the material that has been imported.
(ii) Taxes payment on the goods that have been purchased from unregistered dealer.
(iii) The deduction of TDS and payments on the freight on purchases and services.
(iv) Compliance with Section 188 of the Companies Act, 2013, when the purchases are made from a related party.
(v) Compliance with the guidelines and the notifications provided by government related to the purchases that are compulsory from the Micro, Small and Medium Enterprises.
(vi) Documents showing that payment of the cess on state and city entry are done and whether exemptions of any kind are availed on them.
(vii) As per Section 40 A (2) of the Income Tax Act, 1961, if the purchases are made from concerned sister then the price of procurement is reasonable.
3. Authorisation Matrix: It is to be ensured that the service contracts, tenders, financial biddings, quotations, receipt notes, debit notes, credit notes and other relevant documents are authorized properly.
4. Compliance with prescribed Accounting Standards and Standards on Auditing: another important point in the Checklist for Purchase and Procurement is to ensure the following compliances-
Ensuring the following Accounting Standards-
(i) AS 1: Disclosure of Accounting Policies.
(ii) AS 2: Valuation of Inventories
(iii) AS 11: The Effects of Changes in Foreign Exchange Rates
(iv) AS 18: Related Party Disclosures
Ensuring the following Standard on Auditing-
(i) SA 550: Related Parties
Ensuring the following Standard on Internal Audit-
(i) SIA 18: Related Parties
5. Procedures and Controls: As per this point in the Checklist for Purchase and Procurement, the auditor has to ensure and confirm the policies of procurement, service contracts, requisition of internal purchases, internal controls related to the purchases etc.
6. Recording of Transactions: It is the duty of the auditor to ensure that proper entries related to purchases, raw materials and relevant transactions have been entered in the registers and book of accounts.
7. Quality and Good Governance: For good governance in a company purchase budget, cost benefit analysis, actual costs, actual arm’s length price etc. must be known and ensured.
8. Reporting: As per this point of Checklist for Purchase and Procurement, exceptional reports other than the generated report can be really useful. These exceptional reports can be about the pending requisitions that have not been raised over the purchase order, list of vendors selling different type of materials, orders pending on the purchases that have not yet been supplied, etc.Suggestions and Recommendations, if any: Providing suggestions and recommendations for improving the whole method and system of purchase making easier, faster, systematic and transparent is really essential in the checklist for Purchase and Procurement.