L13. Purchasing
Purchase to Payment
edmundchung
L13. Purchasing
WHY? Purchasing involves acquiring goods and services necessary for the organization's operations. This process is crucial as it directly affects the organization's budget, quality of goods, and compliance with procurement policies. Implementing internal controls in the purchasing process is essential to prevent unauthorized purchases, ensure competitive pricing, and maintain accurate records. Effective internal controls enhance accountability, ensure compliance with budgetary constraints, and improve the overall efficiency of the purchasing function.
HOW?
Separation of Duties
- Separate responsibilities for requisitioning, purchasing, and receiving from invoice processing, accounts payable, and general ledger functions.
- Ensure the purchasing function is distinct from requisitioning and receiving.
Procedural Controls
- Use pre-encumbered purchase orders for all costs and expenses.
- Ensure procurement at competitive prices through competitive bidding or price comparisons.
- Match invoices with purchase orders and receiving reports to confirm accuracy.
Authorization Controls
- Require approval for all purchases by authorized personnel.
- Obtain additional approval for purchases exceeding a specified amount.
Documentation and Records
- Use pre-numbered purchase orders and maintain a log.
- Keep detailed records of all purchase transactions, including supporting documents like invoices and receiving reports.
- Physical Controls
- Secure unused purchase order forms.
- Restrict access to purchase order stock to authorized personnel.
Review and Monitoring
- Periodically review the purchasing process for compliance with procedures.
- Conduct surprise audits of purchasing records and processes.
Q&A
- Q1: Why is separating duties in the purchasing process important?
- Q2: How can an organization ensure competitive pricing?
- Q3: What are the key documents involved in the purchasing process?
- Q4: What is the role of independent reviews in purchasing?
Purchasing
- Purchasing involves acquiring goods and services necessary for the organization's operations.
- Separation of Duties — Separate responsibilities for requisitioning, purchasing, and receiving from invoice processing, accounts payable, and general ledger functions.
- Procedural Controls — Use pre-encumbered purchase orders for all costs and expenses.
- Authorization Controls — Require approval for all purchases by authorized personnel.
- Documentation and Records — Use pre-numbered purchase orders and maintain a log.