Procurement Audit Training - April 2015

Training:
Procurement Audit
April 2015

Course Introduction and Participants’
Expectations for the Training

2© 2015 KPMG Ghana, a partnership incorporated under Ghanaian law and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative,
a Swiss entity.
All rights reserved. Printed in Ghana.
Getting the best out of the Training
 This is your training and the results depend on your contribution
 Participate actively in the discussions
 Be willing to share your experience with other participants
 Keep to the subject matter
 Express your thoughts and ideas to others
 Only one person at a time. Avoid private discussions
 Be patient with other participants
 Switch off your phones here

a Swiss entity.
Course Objectives
After completing this course, you should be able to understand the
following:
 Components of the procurement life cycle
 Emerging procurement risks and trends
 How to audit the procurement life cycle
 Lean audit techniques

a Swiss entity.
Course Outline
Overview of Procurement
Components of the Procurement Cycle
Emerging Procurement Risks & Trends
Performing Procurement Audit
Lean Audit Techniques

a Swiss entity.
- Modern Trends
Procurement Trends
The activities of procurement functions are emerging in line with the
complexities of procurement trends.
Procurement functions are positioned to provide additional value in line with
the following:
i. Shareholder returns
ii. Sustainability
iii. Regulatory compliance
iv. Quality performance
v. Cost reduction
Procurement leaders need to work strategically with suppliers to manage
risks, develop innovative improved product/services and reduce price.

a Swiss entity.
- Modern Trends
Procurement Trends
According to a KPMG report on Strategic Sourcing and Procurement,
sourcing and procurement functions typically manage between 40 to 80
percent of an organisation’s total spend.
By controlling spend, there remains a significant opportunity for
procurement to stretch beyond cost savings to deliver more strategic value
to the organisation.
Despite the critical role the procurement function plays in today’s business,
there are indications that the functions are typically under resourced in most
organisations.
KPMGs 2014 global survey only half (50%) benchmark cost savings is
achieved.

a Swiss entity.
Overview
Procurement functions need to invest in broadening their skills
beyond negotiation.
Skills to enable a more strategic, value enhancing procurement
function.
According to the Transparency International, annual procurement
fraud within the Sub-Saharan economy is between $ 30- 50billion.
People managing contracts may turn a blind eye and give contractors
opportunities to cut corners and save money.
Procurement fraud is not confined to the public sector. Private
businesses can be equally and badly affected.
Thus managing procurement fraud within an organisation and
suppliers can make a significant difference being a winner or a loser.

a Swiss entity.
Overview
- Assessing the value contribution of Procurement (Questions)
• Are the objectives of the function aligned with the organisation’s
goals and objectives?
• Is the function undertaking the appropriate activities to achieve it’s
objectives?
• Are the activities creating sustainable economic value?
• Are the activities effective and efficient?

a Swiss entity.
Overview
- Definition of Procurement?
“the acquisition of goods, services or works at the best possible total cost, in the right
quantity, at the right time, in the right place for the direct benefit or use of
governments, corporations or individuals generally via but not limited to ,a contract.”
Procurement can be defined as:
The acquisition can be either from in-house providers or from third parties.

a Swiss entity.
Overview
- Objectives of Procurement Function
Overall objective of procurement function is to
contribute to the profit maximisation of the
organisation.
Other objectives of any Procurement Unit/Function in
an organisation include the following:
Value for Money: “Optimisation of whole-life costs
and quality needed to meet the user’s requirements,
while taking into consideration potential risk factors and
resources available”.
-Cost related factors
- Non- cost related factors
Compliance with statutory laws and regulations;
- Fines
-Reputational risks
Minimise opportunity for fraud as mush as
possible
-Control environment

a Swiss entity.
Question
Question
What factors have influenced recent procurement trends within your
organisation?

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Question
Question
List some of the key benefits of good procurement function in an
organisation.

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Answer
Answers
o Security of supply
o Lower total cost
o Reduced risk
o Improved quality
o More added value
o Greater efficiency
o New innovations

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The Procurement Life Cycle
The significant processes in procurement life cycle
Planning
Identify goods/services/works
required
Requisition
Define requisition
Approve requisition
Sourcing Strategies
Selection
Negotiation
Purchasing Order
Approval/Processing
Purchase Orders
Receiving
Goods Receipt Process
Payment Processing
Invoice processing
Disbursement
Contract Management
Processes
Vendor Performance
Management/Indicators

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Procurement Planning
Deciding what to buy and from what source
Objective
To schedule procurement activity for the period
Processes
- Coordinating and integrating the needs of various departments timely.
- A good procurement plan typically include the following information:
1. Procurement objectives in line with performance indicators
2. Details of procurement activities in line with selected procurement methods
3. Timelines
4. Budgetary allocations
Practical Challenge
- Coordinating inputs from all departments/business units for the planning
- Forecasting levels of demand for services and products to meet the business needs
Components of Procurement Cycle
- Procurement Planning

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Component of Procurement Cycle
- Requisition
Requisitioning
Internal processes for requesting for a need to be procured
Objectives
This process should be designed to ensure individual with the appropriate level of understanding of the
technical/functional requirements identifies what is needed. The need ought to be authorised by an
individual with appropriate authority.
Processes
- Department identifies a need
- The need is reviewed and approved
- A requisition is generated and submitted to the relevant department timely
Practical Challenges
1. Requisition not authorised by an individual with the appropriate authority
2. Requirements not properly defined

a Swiss entity.
Components of procurement life cycle
- Sourcing
Sourcing
The processes aimed at identifying, evaluating and engaging suppliers/vendors of goods and
services.
Objectives
To find the "best" vendor (reliable, trustworthy, value and etc.)
Processes
Include the following
1. Identify vendor(s) to supply goods/services. (Request for quotation, Request for Proposal and etc. )
2. Review proposals, quotes, offers and etc.
3. Select vendor(s) based on an objective assessment (initial requirements defined)
4. Meet with vendor (s) to agree on terms and conditions

a Swiss entity.
Components of procurement life cycle
- Sourcing
Sourcing
- Identifying the suitable vendor
- Lead times for delivery
- Conflict of interest
- Lack of a robust assessment process

a Swiss entity.
Components of Procurement Life Cycle
-Purchase Order Processing
Purchase Order
A contracting document that is generated to commit the organisation to purchase transaction
Objectives
To formally commit the organisation to the purchase transaction (favorable terms)
Processes
- Require approval by appropriate authority
- Specify the exact need of the organisation
- Communicates the quantities and prices of items
- Segregation of duties
- Complicated legal terms

a Swiss entity.
Components of Procurement Lifecycle
- Receiving of Goods
Goods Receipt
Receiving orders that are placed with suppliers
Objectives
Goods are received in the right condition, right quantities, by the right person and at the right time
Processes
Involves the following :
- Goods/Services inspection report
- Document support which identify the vendor, date, description and quantity of goods delivered
- Update system/records to reflect the goods receipt
• Receipt of sub-standard goods/services
• Lack of appropriate segregation between ordering and receiving function

a Swiss entity.
- Payment Processing
Payment Processing
Processing payments for items purchased/services contracted
Objectives
- To pay for what was ordered
- Take advantage of float
- Not violate contractual obligations
Processes
• Performing three ("3") way matching
-Purchase Orders (PO)
-Goods Receipt Notes (GRN)
-Invoices
• Approval of invoices for payment
• Updating supplier account to reflect payment

a Swiss entity.
- Unauthorised or inappropriate payments may be processed
- Failing to utilise cash discounts for early payments

a Swiss entity.
- Contract Management
• Contract Management
Executing contracts/agreements in line with agreed terms
• Objectives
To monitor the execution of contracts in accordance with contract terms (value, quality, time,
specifications, and etc.)
Processes
- Contract prices
- Formula for calculating variations
- Cost overruns
- Delays in delivery
- Contract disputes

a Swiss entity.
Components of Procurement Cycle – Cont’d
- Vendor Performance Management
Vendor Performance Management
A framework to effectively track and measure supplier performance
Objectives
To manage, measure and analyse vendors in line with key performance indicators
Process
-Identify and agree key performance indicators with vendors
-Evaluate vendors
-Rank vendors
- Lack of well defined performance indicators
- Lack of service level agreements

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Question
Question
Key Performance Indicators /metrics (KPI’s)
- In your groups List about five KPI’s in monitoring the performance of vendors

Emerging Procurement Risks & Trends

a Swiss entity.
Important Question on Emerging Trends
Evaluate the Procurement Function in your organisation by considering the following questions:
1. Is the Procurement function organised to deliver optimal value to the organisation by focusing on
outcomes rather than cost?
2. Are key organisational stakeholders fully engaged in the development of Procurement’s strategy,
and does this reflect the wider organisational strategy?
3. Does the Procurement function lead or get actively involved in demand management initiatives in
your organisation?
4. Is risk management an integrated part of Procurement’s daily? Are relevant stakeholders in your
organisation updated on key procurement risks?
5. Are there streamlined processes to manage vendor selection, vendor performance indicators and
quality of goods/services received from vendors?

a Swiss entity.
Some Identified Procurement Related Risks
QUALITY RISK
COST RISK
INNOVATION
RISK
AVAILABILITY
RISK
Risk of Procurement
costs becoming un-
competitive
Risk of purchased
items/service being
unavailable
Risk of not driving
innovation from
procurement
functions
Risk of purchases not
having required quality
Four identified areas of procurement
related risks.

a Swiss entity.
Drivers of Procurement Risk
Supply Market Risks
Logistics Risks
Regulatory Risks
Natural Disasters and Terrorism
Cost Risk
Purchase price
Transportation
Warehousing
Safety
Tariffs
Innovation Risk
Inadequate/improper supplier
collaboration/integration
Supply Strategy Risks – inappropriate
strategy creates revenue shortfalls
Technology Risks – technology systems
breakdown creates supply interruption
Quality Risk
Inadequate attention to processes
Inadequate/improper supplier measurement
and improvement
Supplier Risks – supplier failure
Ethics
Process Risks – supplier interfacing process
breakdown interrupts supply
Availability Risk

a Swiss entity.
Emerging Procurement Trends and Risks
- Procurement Planning
Procurement Planning
1. Risks:
Inadequate/uncoordinated procurement planning.
Emerging Trends:
• Information Technology to conduct predictive analysis of organisations needs in the planning process
• A culture of continuous improvement to analyse organisational needs.
• Develop a clear and holistic strategy for procurement
2. Risks
-purchasing items not budgeted for
-Opportunity for fraud
Emerging Trends:
• Purchases are aligned with the strategic objectives of the organisation
• Senior management monitor adherence to procurement policies

a Swiss entity.
Emerging Procurement Risks
- Requisitions
Requisitions
1. Risk
Unauthorised/ additional procurement of materials
Emerging Trend:
• Access to purchase requisitions functions in System are appropriately restricted
• Aligned policy and procedures requiring Heads of Department to approve all requisitions
2. Risk
Not coding purchase requisitions may make it difficult to audit purchase transactions.
Emerging Trend:
• Enterprise systems are configured to ensure that purchase requisitions are appropriately coded

a Swiss entity.
- Requisitioning
3. Risk
Requirements definition
Emerging Trend:
• Aligned policy and procedures requiring involvement of user departments when specify need of an
item
• Need requirements are communicated in clear and unambiguous language

a Swiss entity.
-Vendor Sourcing
Vendor Sourcing
1. Risk
Vendor Selection Criteria
Emerging Trend:
• Enterprise systems are used to gather market and supplier intelligence
• Aligned policies and procedures that define criteria for evaluating and selecting suppliers. The criteria
should address key processes including the following:
-Quality and capacity to deliver
-Price, including discount arrangements and payment terms
-Order lead times
-Financial condition
-Management condition
• People involved in procurement are continuously trained to understand and embrace changes
2. Risk
Changes/edit to vendor List
Emerging Trend:
• Enterprise Systems are configured to restrict access to vendor list
• Aligned policies and procedures that require periodic review of vendor list

a Swiss entity.
- Sourcing
Tender preparation :
1. Risk:
Split order/work to circumvent tender requirement
Emerging Trend:
• Aligned policies that require review of reasons for repeated orders/work within a short period
• The policies require approvals from senior management whenever there is a need for repeated order
2. Risk:
Biased specifications/excessive standards/ requirements to favour colluded contractors
Emerging Trend:
• Tender specifications are aligned with functional need.
• Tender specification are not limited to choice of vendor.
Tender Invitation
1. Risk:
Inviting vendors that are not approved

a Swiss entity.
-Sourcing
Emerging Trend:
• Aligned policies that require receipt of tenders only from approved suppliers
• Senior management monitor strict adherence to this process
• Staff involved in procurement are trained in leading practices of procurement
Tender Information
1. Risk
• Leaking of tender information
• Tampering with the tenders submitted
• Accepting late tenders for corrupt motive
Emerging Trend:
1. Regular training sessions to all employees regarding policies and procedures in relation to privacy
and confidentiality of tender information
2. Communicating to suppliers of any implication as a result of release of confidential information
3. Aligned policies that require all tenders to be submitted in a sealed envelope without identification to
prevent leakage of tender information and interception.

a Swiss entity.
- Sourcing
Evaluation
1. Risks
Colluding tenderers/vendors
Emerging Trends:
• Aligned procurement policies that clearly define an evaluation criteria to select vendors.
• Independent tendering committee to evaluate tenders
• Review of tender evaluation report by independent party
Negotiation
1.Risk
Manipulating negotiation with tenderers
Emerging Trend:
• Aligned procurement policies requiring senior management’s authorisation for the negotiation
process
• Other management committee members/owners review/observe the negotiation process as far as
possible

a Swiss entity.
- Sourcing
Price Quotations
Risk
Insufficient segregation of duties(“SoD”) between creation/edit/maintain quotations and release
quotations.
Emerging Trend :
• Enterprise Systems are configured to segregate the responsibilities of creating/editing and release of
quotations
• Enterprise systems track quotes received from suppliers.

a Swiss entity.
- Sourcing
Vendor Master File/Data Management
1. Risk
Deleting active vendors from system may result in an incomplete audit trail
Emerging Trend:
• Enterprise system are configured to prevent deletion of vendors with recent trade activity.
Risk
Inaccurate vendor information may lead to incorrect distribution of funds
Emerging Trend:
• Enterprise systems are configured to restrict modifications to vendor information to appropriate
authority.
• Aligned procurement policies require periodic review of vendor master data

a Swiss entity.
-Purchasing
Purchase Orders ("PO")
1. Risk
Raising POs for items not in budget/excess of approved budget
Emerging Trend:
• Enterprise Systems require all generated POs to be approved by appropriate management authority
• Enterprise systems are configured to link budget function with PO module and thus reject POs for
items not budgeted for/exceed approved budget
• Aligned procurement policies require strict adherence to this
2. Risk
Changes to PO after approval.
Emerging Trend:
• Efficient enterprise systems should have in built controls to prevent this risk
• Enterprise system track all changes made to documents.

a Swiss entity.
- Purchasing
3. Risk
Duplicate purchase may result in excessive inventory
Emerging Trend:
• Generated POs are assigned unique reference numbers
• Enterprise system are configured to prevent duplication PO number.
• Aligned policies and procedures require periodic review and analysis of manual POs to detect no
duplication
• Aligned policies and procedures require strict adherence to this policy

a Swiss entity.
- Receiving Goods
Goods/Service Receipt
1. Risk
Defective/sub standard goods may be received
Emerging Trend:
• Enterprise systems validate, approve and post invoices
• Aligned policies and procedures that require only authorised persons to inspect and receive goods.
• Enterprise systems are configured to link goods receipt, invoices and POs (Three way match)
2. Risk
Goodsreceipts may be recorded multiple times
Emerging Trend:
• Enterprise systems are configured to prevent multiple entries
3. Risk
Goods receipts may not be recorded in the correct accounting period.
Emerging Trend:
• System configuration should only allow goods receipt posting only in correct accounting period.

a Swiss entity.
- Receiving Goods
4. Risk
Discrepancies between quantities of goods ordered and goods received
Emerging Trends:
• Enterprise systems validate, approve and post invoices
• Enterprise system are configured to match POs , Invoices and Goods receipt and thus detect any
such discrepancies
• Enterprise system ensure that an order cannot be closed until the differences between ordered and
received quantities are resolved

a Swiss entity.
Payment Processing
1. Risks
1. False claims/payments for incomplete/ unnecessary work/services
2. Speeding up or delaying payments for corrupt motive
Emerging Trend:
• The responsibilities for certifying and approving the work done/services and thus approval for payments
are segregated.
• Aligned policies and procedures set processing time for certification and payment upon receipt of the
necessary documents
• Enterprise systems are configured to reject payment to invoices that are not due

a Swiss entity.
2. Risk
Not recording payment transactions in the correct period.
Emerging Trend:
• Payments are processed through enterprise systems and thus automatically recorded
• Periodic review of manual transactions posted near period-end cut-off
3. Risk
Unauthorised changes to payment programs may result in inaccurate or inappropriate payments to
vendors.
Emerging Trend:
• Enterprise systems restrict access to process payment in the System.

a Swiss entity.
- Contract Terms and Conditions
Contract Terms and Conditions
Risks
1. Terms and conditions that are not clear(not enforceable).
2. Cost variations due to discretionary items/unforeseeable factors
Emerging Trends:
Aligned procurement policies and procedures require clear definition the following:
• Roles, rights and responsibilities of the parties to the contract, etc.
• Performance requirements and standards with a system of appraisal
• Work commencement and completion dates.
• Extension, penalty and liquidated damages

a Swiss entity.
- Contract Administration
Performance Monitoring
Risks
1. Lack of system and standards for assessing performance of contractors
2. Negligence and conniving at substandard work/services
Emerging Trend:
• A designated team (preferably different from the tendering team) monitor work progress/service
performance.
• A work plan/performance checklist with detailed schedule/ standards according to contract terms and
conditions.
• Performing surprise checks in addition to routine inspection

a Swiss entity.
- Contract Management
Long Term Contracts
1. Risk
Contracts with unapproved vendors
Emerging Trend
• The creation of contract agreements/terms with suppliers are restricted to authorised personnel
2. Risk
Unauthorised changes/modifications to contracts are performed
Emerging Trends
• Aligned policies and procedures require periodic review of changes to contracts
• Only authorised users have the ability to change contract
3. Risk
Rebates are not settled timely impacting vendor relationships.
Emerging Trends
• Enterprise systems are configured with appropriate settings for settlements

a Swiss entity.
Group Exercise
Instructions;
•Pick any industry of your choice
•In groups of say 5-7
•Identify the likely risks to your organisation at any 2 of the stages of the procurement
process
•Suggest some controls to mitigate the risks identified
•Choose a team leader to make a presentation to the rest of the class

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Day 2 - Recap
 Overview of Procurement
 Procurement Life Cycle
Emerging Procurement Risks & Trends

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Performing Procurement Audit
Planning Execution Reporting
Broadly, procurement audit activities can be categorised into the following areas:

a Swiss entity.
Planning
Audit Rationale
As part of the risk-based planning process, Internal Audit (IA) identifies the Procurement process
as a relevant testing area.
The decision to perform this test may include the following reasons:
• Due to the high percentage (approx. 45%) procurement spend
• Value for money is included in the Board agenda
• The previous Procurement audit identified significant audit findings

a Swiss entity.
Procurement Audit Plan
- Key Activities
Among the significant activities an auditor needs to
perform when planning procurement audit include the
following:
1. Pre Fieldwork Activities
• Understand the nature of operations
• Develop budget for the audit (risk, time and available
resources)
• Prepare and send initial data/information on
procurement activities:
 Procurement plan for the period
 List of procurement activities/transactions
 Procurement policies and procedures

a Swiss entity.
Planning Procurement Audit
- Key Activities
Among the significant activities an auditor needs to perform
when planning procurement audit include the following:
2. Kick-off Activities
• Confirm the object and scope of the audit
• Discuss the roles and responsibilities of the audit
 Process owner responsible for providing
information
• Discuss key milestone dates and deadlines
• Confirm the project deliverables
 Draft report for the process owner comments
 Final report with resolution timelines
• Discuss Communication Plan and Methods
 Key client contact

a Swiss entity.
Planning Procurement Audit
- Key Activities
Among the significant activities an auditor needs to perform
when planning procurement audit include the following:
3. Post Kick-off Activities
• Analyse the procurement activities (information
request)
 to identify significant transactions
 to identify unusual transactions
• Develop audit programme based on key risks and
controls
• Execute the audit programme

a Swiss entity.
Procurement Audit Execution
Activities
 Conduct Spend Analysis
 Develop Audit programme
 Execute programme
 Document Evidence

a Swiss entity.
- Spend Analysis
Spend
Analysis
The strategic
importance of
each commodity
group
Product
definition of
each spend
category
Total Spend with
vendors
Supply market
where vendors
operate
The objectives of performing spend analysis in procurement audit is illustrated below

a Swiss entity.
Procurement Audit
- Obtaining Procurement Data
Obtaining Procurement Data
• Obtain system information/data on all items
procured for the audit period.
• Confirm that the data provides you an overall
snapshot in terms of amounts, location, users,
volume of usage, pricing and type of
product/service.
• Perform data cleansing for consistency and
standardisation of data fields, codes and
descriptions.

a Swiss entity.
Procurement Audit
- Sampling Guidance
Frequency of
Control
Minimum Sample Size
Risk of Failure
Low High
Annually 1 1
Quarterly 1+1 1+1
Monthly 2 3
Weekly 5 8
Daily 15 25
Recurring 25 40

a Swiss entity.
- Spend Analysis
• Perform the following analysis on the extracted data:
o Amount spend and number of transactions per item/category
o Number of suppliers per item/category
o Average purchase order value
o Budget for the item/category
o Total payments per supplier
o Transaction distribution by amount (Cedi) range (e.g. less than Ghs 10,000, ghs10,000 –
250,000 etc)
o Spend distribution between main clients
o Spend and number of transactions per procurement officer
o Number of procurement officers involved in the transaction per commodity group, etc
• Reference spend to approved budget for the period
• Compare results of analysis to prior periods
• Use appropriate sampling methods to select samples for testing

a Swiss entity.
- Developing the Audit programme
Developing the Procurement Audit programme
The procurement audit programme sets out the procedures to be undertaken to help assess the
existence and effectiveness of identified controls.
There may be issues with regulatory compliance that also require testing.
Information gained from a number of sources, including the spend analysis, will drive the areas focus in
procurement audit programme.

a Swiss entity.
- Audit Evidence
Audit Evidence
•This is the information to support conclusions in audit report
•Auditors rely on documentary evidence more than other
types of evidence
•Auditors must obtain sufficient and appropriate evidence
which can be in the form of tests of controls or substantive
procedures
ISA 500 states that:
“The auditor should obtain sufficient and appropriate
audit evidence to be able to draw reasonable conclusions
on which to base the audit opinion.”

a Swiss entity.
- Audit Evidence
Sources of Audit Evidence
• The sources and amount of evidence needed to achieve
the required level of assurance are questions for the
auditor to answer to determine his opinion
• The auditor should be influenced by the materiality of the
procurement activity, the relevance, reliability, sufficiency
and appropriateness of evidence available from each
source
Examples of sources
 Contract documents
 Requisitions/Purchase Orders/invoices etc.
 Management/employees
 Third parties
 Physical inspection
 Physical examination and count
 Observation
 Enquiry

a Swiss entity.
- Documenting Audit Evidence
Internal auditors must document relevant information to support the conclusions and
engagement results (IIA 2330 – Engagement Work programme)
• The working paper documents the details of the work performed:
o Why it was tested
o Who provided the information (Name and Title)
o How it was tested
o What was tested
o Who performed the test
o Who performed a secondary review
• The auditor should make conclusions based on the work that was performed
• Documentation should have sufficient information such that the test performed could be replicated by
an independent party and reach similar conclusions from the evidence
• Working papers should be appropriate referenced to support findings in the report

a Swiss entity.
- Audit programme
Audit programme for Procurement Planning
Procurement Planning Process
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives.
To verify the following:
1. A formal process to manage procurement activities
2. The plan is reviewed and approved by appropriate authority
Test Steps
1. Obtain a copy of the year’s procurement plan/budget
2. Verify relevant personnel(eg. User departments, procurement etc.)
were adequately involved in the preparation of the procurement plan
3. Verify the procurement plan was approved by appropriate authority
4. Verify the procurement plan was aligned to budget
5. Verify any changes to the procurement plan was approved by
appropriate authority and communicated timely
6. Verify mechanism for monitoring implementation of plan

a Swiss entity.
- Audit programme
Audit programme for Requisitions
Requisitioning Processes
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives
1. Requisitions are created for budgeted/ approved items
2. Requisitions are created and approved by an authorised
personnel
3. Requisition are recorded accurately by an authorised
personnel
4. Requisitions have valid business purpose

a Swiss entity.
- Audit programme
Audit programmeme for Requisitions
Requisitioning Processes –Test steps- Cont’d
Risk
Register
Ref
Schedule
Ref
Done
By
Test Steps
1. Obtain copies of approved purchased requisitions for the period under
review
2. Verify the following
- Requisitions were created for budgeted or approved items
- Requisitions were authorised by the appropriate authority
- Requisitions had unique reference number
- Requisitions were appropriate recorded
-Requisitions had valid business purpose

a Swiss entity.
- Audit programme
Sourcing Processes
(Vendor Master File Management)
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives
1. Vendor/supplier master file is created and maintained by
appropriate authority
2. Vendor/supplier master file is approved by an authorised
personnel
3. Access to vendor/supplier master file is restricted to an
unauthorised personnel
4. Vendor master data is accurate (No duplication)
5. Vendor master data is complete (Address, Name, Bank
Account and other relevant fields)
Audit programme for Sourcing

a Swiss entity.
- Audit programme
Sourcing Processes
(vendor master file management)
Risk
Register
Ref
Schedule
Ref
Done
By
Test Steps
1. Obtain listing of all approved vendors from the system
2. Select a sample and verify the following procedures:
-vendors creation or modification was done by authorised
personnel
- access to vendor master file or data was restricted to
unauthorised personnel
-vendor master file or data is accurate (no duplications)
-critical fields are completed for vendors (address, name,
bank account, etc.)

a Swiss entity.
- Audit programme
Sourcing Processes
- (Vendor Selection)
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives
1. Quotations are sourced and purchased orders are generated
and authorised in accordance with authorised limits
2. Exceptions to the bidding procedure are justified and
documented
3. Purchases are made a most favourable payment terms(
negotiation)
4. Approved selection criteria ( capacity to deliver, lead times
etc.)

a Swiss entity.
- Audit programme
Sourcing Processes
- (Selecting vendors)
Risk
Register
Ref
Schedule
Ref
Done
By
Test steps
1. Obtain a copy of approved procurement policy
2. Obtain a copy of approved vendor listing
3. Select a sample of approved vendors and test check the
following:
- Competitive bidding
- Evaluation committee to select vendor
- Selection processes aligned to approved criteria
- Selection approved by appropriate authority
- Communication of selection to vendor( signed contract)
4. Note exception to bidding and verify approval by appropriate
authority

a Swiss entity.
- Audit programme
Purchase Orders Processes
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives
1. Vendor payment terms are agreed by relevant parties
2. Purchase orders are only created from approved purchase
requisitions
3. Purchase orders are created and approved by an authorised
personnel
4. Purchase orders are recorded accurately by an authorised
personnel
Audit programme for Purchase Orders

a Swiss entity.
- Audit programme
Purchase Orders Processes
Risk
Register
Ref
Schedule
Ref
Done
By
Test steps
1. Obtain listing of procurement activities
2. Select a sample and verify the following:
- purchase orders were created from an approved
purchase requisition
- purchase orders were appropriately approved by an
authorised personnel
- purchase orders were accurately recorded by an
authorised personnel
- complete records of purchase orders are maintained
- purchase orders had valid business purpose
Audit programme for Purchase Orders

a Swiss entity.
- Audit programme
Goods Receipt Processes
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives
1. Goods are received by an authorised personnel
2. Goods received are supported by adequate and appropriate
documentation
3. Quality and quantity of goods received match the
specifications in the purchase order
4. Goods received are completely recorded by an authorised
personnel
5. Damaged goods are returned in a timely manner
Audit programme for Goods Receipt

a Swiss entity.
- Audit programme
Goods Receipt Processes
Risk
Register
Ref
Schedule
Ref
Done
By
Test steps
Obtain listing of all goods receipt
Sample and verify the following procedures
- Goods were received by an appropriate personnel
- Adequate and appropriate supporting documents
- Inspection for quality & quantity( Appropriate sign off by
authority)
-Damaged goods were segregated from usable goods and
are returned promptly to vendors
Audit programme for Goods Receipt

a Swiss entity.
- Audit programme
Payment Processing
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives:
1. Goods or services received are in accordance with approved
purchase orders.
2. Proper receipt and invoice approval procedures to minimise
inaccurate or double payment for goods and services
received.
3. Disbursements are approved in accordance with appropriate
delegation of authority.
4. Payment documents are effectively invalidated to prevent
duplicate payments.
Audit programme for Payment Processing

a Swiss entity.
- Audit programme
Payment Processing
Risk
Register
Ref
Schedule
Ref
Done
By
Test steps
For sampled procurement transactions, verify the following
procedures:
- Payment was adequately approved in accordance with
appropriate delegation of authority
- Trace and agree payment to supporting documents
(Requisition, PO &GRN)
- Paid invoices/supporting documents are invalidated
- Adherence to payment terms
Audit programme for Payment Processing

a Swiss entity.
- Audit programme
Contract Management
Risk
Register
Ref
Schedule
Ref
Done
By
Objectives:
1. Controls to support validity and competitive pricing for vendor
selection process
2. Process to formally monitor contract execution
Audit programme for Contract Management

a Swiss entity.
- Audit programme
Contract Management
Risk
Register
Ref
Schedule
Ref
Done
By
Test Steps:
1. Select a sample of contracts with suppliers
2. Review the contracts and verify adequacy of approval
process
3. Verify the involvement of user department
4. Verify that contracts include key performance indicators
5. Verify adequacy of monitoring process
Audit programme for Contract Management

a Swiss entity.
Procurement Audit Report
- Communicating findings
Analyse the Audience
• Who should be the most important readers of the report?
• How much do they know about the subject matter?
• How do they plan on using the report?
• How interested are they in the report?
• How are they expected to react to the report?
Findings from procurement audit are formally communicated timely to relevant authorities in a report.

a Swiss entity.
- Communicating findings
Accurate
Objective
Clear
ConciseConstructive
Complete
Timely
Characteristics of a good procurement audit report:

a Swiss entity.
- Stages
Document
Findings in a Draft
Report
Distribute the
Final Report
Follow Up
Recommendations
Initiate Tracking
Validate and Close
Actions Taken
Conduct Audit
Effectiveness
Survey

a Swiss entity.
Significant Components
Significant Components of Procurement Audit Report
Executive Summary
Scope, Critical Objectives & Approach to Audit
Ranking Criteria of Findings
Detailed Findings & Recommendations
Appendices

a Swiss entity.
Procurement Audit Report – Cont’d
Executive Summary
Cover the following:
o Background to the assignment
o Brief approach
o High level summary of significant findings with appropriate ranking
o Recommendations

a Swiss entity.
Scope, Critical Objectives and Approach to Audit
A good procurement audit report should communicate the following details:
1. A good coverage of the scope
1. Critical objectives of work performed and thus verified
- the organisation is achieving value of its spend
- there are adequate controls to mitigate procurement fraud risk
- compliance with applicable regulations
3. Approach to audit communicating the following among others:
- Sources of data used
- Procedures performed, including spend analysis
-Sample sizes tested
- Interviews conducted, etc.

a Swiss entity.
Ranking Criteria for Findings
A good procurement audit should communicate an appropriate criteria for classifying findings. The classification should be based
on perceived severity of the findings on the organisations operations if not corrected.
Sample Ranking Criteria
Categorisation of Findings
Action Priority Rating
Risk Nature of Issue
High Significant issue Immediate. Corrective action to begin within one month.
Moderate Reportable issue Necessary. Corrective action to begin within three months.
Low Observation Recommended. Corrective action to be considered for
implementation within six to twelve months.

a Swiss entity.
Detailed Findings and Recommendations
This section of the audit report communicates the nature and severity of the audit report. It also contains the auditors
recommendations and sometimes, management’s responses to audit findings.
Appendices
This section of the audit report will communicate any additional information that the auditor deems finds appropriate to bring to
the attention of readers.

a Swiss entity.
Overview
-Lean Auditing
Definition
Lean auditing a continuous process where you constantly examine what you are doing and saying, is this
the best that I can do?”
The overall philosophy underpinning lean is to maximise customer value whilst minimising waste.
The Lean Institute states that lean means: “creating more value with fewer resources.”
Objective
To drive added value and efficiency in internal audit process.

a Swiss entity.
Overview
- Foreword
“Lean is a valuable concept, because it forces you to think about the bigger picture. It’s a
way of thinking; it’s a mindset, with related tools and process behind it.
We start with identifying what are the valuable services and products that matter to your
customer. And then thinking about what is necessary for you to deliver those in an
acceptable level of quality and all the rest of it. Everything else is waste.”
- Norman Marks (GRC thought leader)

a Swiss entity.
Benefits of Lean Auditing
Some of the key benefits of lean audit approach to internal audit include:
An audit function that can clearly demonstrate a positive return on its cost.
Precise and insightful audit reports and other forms of communication
An audit plan that is scheduled and delivered with the minimum of delays or difficulties
Audit engagement that are appropriately resourced, and aligned with budget
An audit plan that is more closely aligned with the key value drivers of the organisation on an
ongoing basis
An audit function that is oriented towards engagement with key stakeholders, with a clear value add
mindset.

a Swiss entity.
Key Principles of Lean Techniques
There are five key principles of lean
Specify value
• Have a deep
and ongoing
understandin
g of exact
expectation
and value
Identify the
Value Stream
• Know the
sequence of
processes
and activities
to meet the
need
Identifying
Waste
Identify
challenges that
will hinder
successful flow
of value and
address these
challenges
Pull
Strive to deliver
demand just on
time
Perfection
• Seek ideal
way- deliver
exactly what
is required at
the right price
and with
minimum
wastage

a Swiss entity.
Key Tools & Techniques in Lean Auditing
Understanding the needs by identifying the following attributes
• An expected basic requirement.
• If present, it only gives a neutral feeling
• If not present, it makes the reader dissatisfied/
unhappy.
Basic requirements /
dissatisfiers
• The value perception will vary depending on the extent
to which it is present
Performance factors or
satisfiers
• May not be expected and makes the reader excited
when present
Delighter or exciter
factors

a Swiss entity.
Key Tools & Techniques in Lean Auditing- Cont’d
Identifying the value stream through the following:
• Identifying the sequence of activities and processes
for improvement
Value Stream
• Anything that would impede value creation
Identify Waste
• A clear visible indicators/metrics
Monitor Progress
• Looking deeper into problems to identify causes
Root Cause Analysis

a Swiss entity.
Tools & Techniques in Lean Auditing- Caution
A word of caution about lean tools and techniques:
• The lean tools should be used to facilitate efficient and value adding internal audit work.
• The tools should be rational and situation specific
• The only constant factor is value and continuous improvement

a Swiss entity.
Who are the customers of internal audit
Dilemma
A key challenge an audit functions faces is how to reconcile and prioritise between the different internal
stakeholders that have an interest in the work of internal audit.
“Focusing on who is the customer is an important question for Internal Audit. There may be differences
from organisation to organisation. However, you may be doing great things for the head of accounts
payable, but until the needs of the Board, Audit Committee, or the CEO are addressed, you’re not doing
your job.”
- Norman Marks

a Swiss entity.
Who are the customers of internal audit
From a lean perspective, the true customer is the external customer.
Key points to consider:
Rank the importance of interested stakeholders in the audit
work
Obtain clear understanding of stakeholder expectations
Consider what key external customers (including regulators)
would think of the work the internal audit function is doing
Identify a sponsor for the assignment who is at least one level
more senior than the manager for the area of the assignment

a Swiss entity.
Adding Value to the Audit
To become a valued part of the organisation, it is essential to properly engage with key customers
about what they actually value.
4
Consider what
external
customer would
appreciate
1
Map out what
stakeholders
value and what
they do not;
drive out waste
3
Create a
priority action
plan to manage
dissatisfiers
2
Consider how
things are
done, not just
what is done

a Swiss entity.
The Audit Plan- A Value Approach
Aligns closely with key IIA requirements.
The audit plan considers the following key points to add value to the audit work:
AuditPlan-ValueAddition
Keep track of past work (internal audit’s own work and
others);
Support senior management and board engagement
Ensure there are no important blind spots
Not overly costly in terms of time or effort for the
benefits gained

a Swiss entity.
Allocating Resource to Optimise Value
Points to consider in allocating resource to optimise value:
Impact and
transparency of
resource and
capability
constraints
The scope for
increased
coverage by
management,
compliance or
other functions
Key value
drivers
and risks

a Swiss entity.
Engagement Delivery – Managing What Really Goes on
Lean demands an awareness of, and focus on, all forms of waste and areas where value is not being
added.
Remember:
“Time waste differs from material waste in that there can be no salvage. The easiest of all wastes and
the hardest to correct is the waste of time, because wasted time does not litter the floor like wasted
material.”
- Henry Ford

a Swiss entity.
Executing the Audit
Points for the auditor to consider when executing the audit
Identify potential risk
and issues
Obtain data and
information directly
Establish timelines
Create an audit
liaison role in
relevant departments
manage risk control
matrices
Schedule effective
meetings with
management
Leverage data
analytic tools
Incorporate root
cause analysis
Test on step by step
basis

a Swiss entity.
Adding Value to Audit Communication
Some common dilemmas/challenges in audit communication
Dilemmas
Disagreement with findings
The report wording and
ratings of audit findings
With/Without Audit
Management Software
Closing of audit meetings
The Audit Quality Process
Introduces Delays and
Frustrations

a Swiss entity.
Adding Value to Audit Communication - Cont’d
Points to consider to add value to your audit communication
Agree the criteria for audit ratings with management
Leverage on audit software as an important tool
Be mindful of choice of words in reporting
Consider sensitivity of management in close-out meetings
Consider making an impact with the audit report

a Swiss entity.
Engagement Follow Up
Challenges/Dilemma
Challenges with
Engagement follow up
Audit is expected
to drive the
process for
tracking
remediation
Lack of clarity
about the role and
process of
remediation

a Swiss entity.
Engagement Follow Up
• Consider the following approach to manage follow up of engagements
Lean
Approach
The process for
tracking remediation
should owned by
management
The criteria/evidence
for closing issues is
clear
Exploit software
solutions to streamline
chasing issues
Create a risk and value
based follow up
approach

a Swiss entity.
Food for Thought
“The world is a dangerous place to live;
Not because of people who are evil,
but because of the people who don’t
do anything about it”
-Albert Einstein

a Swiss entity.
Presenters’ Details
KPMG Ghana
13 Yiyiwa Drive
Abelenkpe
Accra, Ghana
Tel: 0302 766304

Procurement Audit Training - April 2015

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Procurement Audit Training - April 2015