Internal Audit

Check list - Procurement

1 Requisition and Indenting -

a To verify authority to make request for material procurements
b how requistions for diff. products are passed on to concerned persons/depts. for necessary actions.
c whether there is any system in place to judge the genuineness of any request
d who is authorised to approve the request received.
e whether any unauthorised request found
f cases where request is not approved by the approving authority.
g reasons given for such non approval.
h whether open requisitions are allowed, note such cases
i whether amendments to original requisitions are allowed, note such cases & reasons
j Is there any bar on maximum no. of requisitions that can be made within a time period
k what is the procedure followed in case of urgent requirements
l note down such cases, where formalised procedure is allowed to be avoided

2 Sourcing of Materials -
Process of Procurement
a how requests made by various depts. are fulfilled.
b what is the normal procedure adopted by the company
Contact existing dealers first under new PO
Contact existing dealers first under existing open PO
Contact new local dealers - via advt., or telephonic conversation or tenders
Contact new dealers - via advt., or telephonic conversation or tenders
c whether existing dealers are always communicated first.
d geographical area covered ie whether local or global declaration
e who is authorised to float tenders
f how many new vendors company has approached during the audit period.

A Receiving Quotations
a how quotations are received eg. Sealed envelope, post, hand delivery etc
b is there a time limit fixed for submiting quotations
c minimum no. of quotations reqd.
d who is authorised to receive quotations.
e what is the method adopted for quotations received after stipulated time, note down such cases
f whether any enquiries are entertained before opening of quotations from prospective vendors
g whether any preferential treatment is given to the bids submitted by existing vendors
h whether a date is fixed for opening sealed quotations and
is such date is communicated in advance to all vendors.
i who is authorised to open quotations.
j is there any other method followed other than written bids.
k verify the procedure followed by the company for recent quotations and note down
cases where formal procedure is not followed.

B Selection of Best Quotation

a Whether the company has the system to call for quotations from the vendors
b how diff quotations received are compared
c is there any yard sticks prescribed with regard to rate,quality, qty, discounts etc for diff products
d how the economic and technical viability of quotations is measured
e verify recent quotations which are compared on diff. grounds
f what method is followed for quotations which are beyond the accepted levels as specified in terms
and conditios.
g note down cases where company has not receivd any valid quotation
h note down cases where company has not received any quotation
i what is the procedure followed when quotation is received from single vendor
j note down such cases.
k has company rejected any valid quotation, verify the reasons
l what recourse is available in such cases with vender.
m who are those persons who are involved in comparison and selection of suitable vendors
n whether shortlisted vendors are asked to reqote their prices or specifications.
o how the shortlisted vendors are informed about their selection
p who is authorised to make final selection.

C Vendor Identification & Registration

a procedure followed by the compnay for identifying new vendors
b whether any eligibility criteria is defined for vendors.
c whether the following data is collected from all vendors -
PAN, Address, Status, Proprietor/Partner/Director Name, Contact No., Factory Add. Etc
d Before registering any vendor whether the following points are considered -
financial strength, business continuity (no of years in business), working capability etc.
e whether company is dealing with any non registered vendor
f whether the genuineness of vendors is verified before registering any vendor.
g identify the cases of dummy vendors
h how is it checked whether new vendor will meet the quality standards as specified by company
i whether vendor premises are visited by company officials for confirming the same
j is it checked that vendor is having enough facility to fulfuill the bulk qty. demands of the company
with in delivery schedule.
k how is it verified that vendor will meet the delivery schedules
l whether any samples or prototypes are demanded from vendors
m if such samples or prototypes does not meet the quality standards of the company then what
action is initiated
n identify such instances and note down the action taken
o identify such cases where company has given orders to the vendors even if they do not meet
the standards of quality or qty.
p note down the reasons.
q authorities entrusted this job
r has company suffered on account of in competency of vendors to fulfill the standards.
s is there any system in place for registration of all vendors before any dealing is made with them

D Placing Purchase Order

a whether PO are prenumbered
b who are authorised to issue PO
c whose signatures are must on PO
d What is the time gap between selection of vendor and placing PO
e In case of new vendors whether PO is placed for whole qty or sample qty.
f How many copies of PO are printed and how they are circulated to diff dept
g whether company has practice of open PO
h how control is maintained in case of open PO
i whether PO are circularised to these depts.
dept making requistion, Stores, Receipt, QC, Accounts, Production
j What is the time gap between selection of vendor and placing PO
k whether any PO contains any term which is adverse for the company w r t place of delivery,
quality, rate, payment etc
l are there any cases of cancellation of PO, note such cases
m whether master file of all POs issued during the period are maintained properly.
n compare PO with Purchase Bills received from the vendors, note down the cases
where discrepancies are found.
o compare PO with Quotations finalised, and note cases where discrepanices are found.
p are there any limits w r t time period of PO, qty etc.

E Rate Finalisation
a whether company has practice to verify the rates quoted by vendors.
b in how many cases company has asked the vendors to requote their rates
c whether any written communication is made with respect to this.
d whether any negotiations are carried out between selected vendor and company.
e system in place for verification of rates quoted by vendors.
f sources from which company decides rate.
g cases where company has not carried out any negotiations w r t rate finalisation
h whether company has policy of asking for discounts in cases of bulk orders

F Negotiations on PO terms
a what kind of negotiations are carried out by company,
 Place of delivery
Freight
Insurance
Timing of delivery
Qty.
b who is carrying out these negotiations
c note down cases where company has accepted the terms of vendors without
negotiations
d are there any terms noticed which are adverse for the company
e whether negotations are carried out in cases of urgent requirements
f what action is taken if vendor does not agrees with proposed terms
g note down the cases of failed negotiations.

G Scheduling and timing of delivery

a who decides about delivery schedule
b is there any schedule of requirement received alonwith with requisition form.
c whether such delivery schedule is incorporated in PO
d vouch for such delivery schedule
e compare the delivery schedule as given by dept and as incorporated in PO
f what is the system for delivery schedule in case of open PO
g check whether actual delivery from the vendor is as per the decided schedule
h wherever there is discrepancy, note down the reasons
i what penal action is taken by the company in such cases
j what system is followed in cases of items which are heavily required
k identify the cases when company's production has suffered due to improper delivery schedule
of supplier
l whether company has stopped taking supplies from these suppliers
m take copies of delivery schedules as decided by various depts.
n note time gap between placing of PO and actual delivery.
o whether changes in POs are made by the puchase dept once it has been sent to the vendor
p note the reasons for changes
q whether such changes are on account of - qty, delivery schedule, quality, place of delivery etc
r how such changes are notified and who are authorised to do them. collect copies of such changes

H Transportation
a who are the current transporters of the company for stock inwards
b who is bearing the transportation cost
c whether transportation clause is included in all PO
d note down the cases where PO contains adverse transportation clause
e whether company is facing any bottlenecks in transportation like
non availability of vehicle, higher rates charged by the transporter,
 improper handling, late delivery etc.
f what action is taken by company to reduce losses on this account
g whether company is exploiting other sources for transporters

I Revision in Pricing
a note down the cases where vendors has asked for price revision/increase
b take the copies of letters received from vendors in this regard
c note the reasons given for such price revision
d what action company has taken in cases of request for price revision
e whether company has checked the genuiness of vendors claims befor allowing
any price revision
f what are the sources from which company gathers data.
g whether any negotiations are carried out with vendors before allowing price revision
i who are authorised to allow claims of price revision
j note down the cases where company has allowed price revision without checking
their genuiness.
k note down the reasons given.
l note down the names of vendors who are frequently resorting to price revision
m what action the company has taken in such cases.
n whether company has exploited other souces for these materials
o whether vendors are resorting to mal practices like non supply in cases of non
allowance of price revision
p whether company's production has suffered due to this.
q compare the original price with revised price and calculate additional cost.
r whether there any possibilites that company could have saved on this additional cost.
s calculate such possible savings
t in cases where company has agreed to price increase, has company asked for any
concessions like relaxation in credit period, higher discouts, better delivery, higher
quality, better packaging etc.
u if not, ask for the reasons
v in cases where company has agreed to price increase, is it seen that vendor is still
not complying with terms specified by PO

J Material Inward & Stocking

a Note down the system followed starting from entry of materials within factory gate
till its issue for various depts at factory shop
b what is method followed for checking whether materials as ordered is received or not.
c whether material received is checked with PO wrt qty, quality, rate etc.
d whether material received is checked with delivery challan of transporter
e what action is taken in cases of discrepancies like short receipts
f whether material received is checked with delivery challan of vendor
g what action is taken in cases of discrepancy
h note down the cases where Gate Entry is after entry in DRR (Daily receipt report)
i identify the reasons
j what action is taken where materials reqd is damaged in transit
k how the requirement of various dept is fulfilled in cases where short qty is received or QC dept
has approved short qty or qty reqd is damaged in transit.

K Quality Control
a what is the composition of Quality Control dept.
b who decides the level of quality of materials to be purchased.
c whether quality clause is incorporated in PO
d identify POs which does not include such clause
e whether quality of materials as supplied by vendors is checked
f how the quality is checked
g whether company has facility to check the quality in house or is it
checked at vendor premises
h whether QC approval is necessary before registration of any new vendor.
i whether QC checks are frequently carried out in case of existing vendors.
j what action is taken if any vendor does not qualify the QC test.
k note down the cases where vendor is continuing after non approval of QC
l whether vendor registration is cancelled/terminated after frequent
failures in QC test.
m how QC gives their report and to whom this report is submitted.
n collect copies of QC test carried out - successful and failed, both
o note down the cases where Material receipt inward report (MRIR) is not supported by
Quality control report
p what action is taken where Quality control has not approved the total qty received in stores

L Passing of Purchase Bills

a authorities which are allowed to pass the bills
b whether bills are cross checked with PO
c what action is initiated in cases where Bills & PO does not match
d how the differences are reconciled
e which documents are attached with purchase voucher
f verify purchase vouchers
g how is it verified that goods are actually received before passing the bill
h what action is taken where it is not proved that goods are actually received
i identify bills which are not authorised but still processed for payment
j identify cases where material is received in short as compared to purchase bill
k note the treatment given in such cases.
l identify cases where material is not wholly approved by Quality control dept.
m note the treatment given in such cases.
n what accounting entry is passed.
ment

ed persons/depts. for necessary actions.

ss of any request

ote such cases & reasons

made within a time period

ed to be avoided

ation or tenders

he audit period.

d delivery etc

pulated time, note down such cases

otations from prospective vendors
mitted by existing vendors
 otations and note down

from the vendors

y, qty, discounts etc for diff products

he accepted levels as specified in terms

from single vendor

selection of suitable vendors

or specifications.

Contact No., Factory Add. Etc

are considered -
ess), working capability etc.

ering any vendor.

standards as specified by company

or confirming the same
the bulk qty. demands of the company

ndards of the company then what

vendors even if they do not meet

ors to fulfill the standards.

efore any dealing is made with them

or sample qty.
lated to diff dept

company w r t place of delivery,

maintained properly.
note down the cases

e discrepanices are found.

ote their rates

vendor and company.

w r t rate finalisation
s of bulk orders
vendors without

h requisition form.

rporated in PO

decided schedule

due to improper delivery schedule

it has been sent to the vendor

dule, quality, place of delivery etc

o them. collect copies of such changes
sion/increase

ims befor allowing

re allowing price revision

sion without checking

ng to price revision

ply in cases of non

additional cost.
ed on this additional cost.

mpany asked for any

better delivery, higher

en that vendor is still

rials within factory gate

ordered is received or not.

ity, rate etc.
of transporter
 (Daily receipt report)

ere short qty is received or QC dept

y new vendor.
ting vendors.

pproval of QC

MRIR) is not supported by

d the total qty received in stores

ssing the bill

ctually received
r payment
ed to purchase bill

ality control dept.