Purchasing/ Payable Cycle - Audit Program
Contributed 8/22/00 by Van Thy Ngo ngov@squared.com


A. Supplier selection and retention
Practices
1. Purchasing responsibilities segregated from procurement
2. Supplier selection responsibility segregated from disbursement and accounting activities
3. Approved supplier selection process (defining the involvement of purchasing, design and manufacturing engineering, quality assurance, finance, and marketing)
4. Purchasing agents or buyers periodically rotated among purchasing responsibilities to ensure independence
5. Criteria used in the supplier selection process documented :
- observations from visiting supplier facilities
- price competitiveness
- technological competence
- service
- quality program
- on time delivery
- labor capacity
- cost structure
- acceptance of engineering assistance
- location of facilities
- history of supplier in dealing with other similar customer
- financial stability
6. For new products, supplier's ability to reduce total cost over the product life cycle verified
7. Competitive bids obtained for all purchases over a predetermined amount and any exception justified
8. List of approved suppliers maintained regularly
9. Purchases from suppliers other than those approved and qualified by management documented as exceptions and properly approved
10. Decision made to use sole / single source of supply justified
11. Business interruption plan established for sources where disruption of supply may have significant negative impact
12. Performances of suppliers regularly monitored to check if they meet expectations
13. Purchase productivity program enforced
14. Long term contracts approved by the appropriate level (consultation with the legal Department)
15. Evaluation of buyers made consistently with the objectives of reduced inventories, improved quality, lower costs, and frequent reliable deliveries

Procurement
Practices
1. Segregated from purchasing, disbursement and accounting activities
2. Purchase orders required or other documentation when not appropriate
3. Procurement requests initiated by the requesting department
4. Purchase orders / transactions identified and traced and periodically accounted for
5. Purchase orders numerically controlled
6. Purchase orders or information system safeguarded
7. Pertinent information included in purchase orders / transactions
8. Purchase orders / transactions instructing suppliers to forward their billings directly to the Accounts Payable Department
9. Purchase orders available at the receiving department for verification of incoming receipts
10. Purchase orders available at the Accounts Payable Department for comparison with supplier billings
11. Purchase order revisions for price or quantity increase in excess of the buyer's authorized approval level approved
12. Open purchase order files review performed regularly
13. Accounts Payable notified of changes or cancellation of orders
14. Approval for any financial obligation obtained
15. Evaluation made consistently with the objectives of reduced inventories, improved quality, lower costs, and frequent reliable deliveries

Accounts payable
Practices
1. Segregated from purchasing and receiving activities, and from general ledger recording activitieS
2. Purchase order revisions for price or quantity increase in excess of the buyer's authorized approval level approved 
3. Supplier's invoice matched and compared to an approved purchase order and appropriate receiving information 
4. Invoices for which a purchase order or receiving report does not exist are approved by Management
5. Freight bills above an established limit are compared to the supporting shipping or receiving documentation before payment
6. Supplier invoices reviewed for clerical accuracy
7. Adequate supporting documentation attached or matched to all invoices processed for payment
8. System based controls operated to prevent duplicated payments
9. Original invoices used as a basis for payment
10. Aged, unmatched purchase orders, receiving transactions, and invoices periodically reviewed, investigated and resolved
11. Trial balance of accounts payable must be accumulated on a monthly basis and reconciled to the general ledger
12. Debit balance accounts reviewed regularly and remittance on debit amounts outstanding for over X days requested
13. Debit and credit memos documented and approved
14. Debit and credit memos uniquely identified and traced
15. Verification of inclusion of suppliers in the approved supplier list / database
16. Petty cash transactions limited to amounts of low value

Disbursements
Practices
1. Segregation of duties between check preparation and check signing and mailing
2. All payments traceable, uniquely identifiable, and accounted for on a periodic basis
3. Preparation of payments supported by purchase order, receiving transactions, original invoices
4. Payments made within the agreed upon terms
5. Supplier discounts taken in accordance with Treasury
6. All disbursements been properly and accurately recorded on a timely basis
7. Blank checks and facsimile signatures plates safeguarded
8. Limits of signing authority established
9. Dual signatures required above a specified limit
10. Supporting documents for payment canceled after payment to prevent accidental or intentional reuse
11. Signed checks / promissory notes delivered for mailing to persons independent of invoice processing and maintenance of accounts payable records
12. Copy of payments documents filed and safeguarded