Audit scenarios for procurement and materials management

1. AUDIT
scenarios for
procurement
and materials
management
01
Murilo Rosa
Fabio Riato

2. 02
Procurement (+ MM) audit GOALS
▪ Measure the vulnerability of AS-IS processes and perform a diagnostic in order to obtain a Governance
Plan in Procurement and Materials Management.
▪ Identify possible process gaps to be addressed as compliance requirements
▪ Scenario validation for purchases of materials and services, extending the analysis to materials
management activities.
▪ Create a baseline for continuous improvements in Procurement and Materials Management policies,
procedures, management and systems.

3. TIMETABLE and MILESTONES proposed
Preform data
gathering and build
each audit
scenario
Results
presentation with
found issues and
recommendations
Elaborate action plans
for each issue and start
the implementation
phase
~2 months Meeting ~1 month
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4. 04
FRAMEWORK of the extended end-to-end process (Procure-to-Pay – P2P)
Operations planning
and demand
generation
Execution of
acquisition activities
Perform material
receiving or follow the
execution of service
until payment
Inventory
management
A B C D
All activities related to the
planning process that
generates the explicit
necessities until
formalizations in ERP.
Compilation of purchases
tasks performed since the
requisition until the PO
approval, with all the
relevant documentation.
Steps between the
goods receipt / service
realization, the invoice
and then the supplier
payment.
Extended activities from
the P2P process, with the
operations related to
inventory from receiving to
delivering.
P2P
approach

5. 05
SCENARIOS: Operations planning and demand generationA
▪ Operation’s consumption planning accuracy
▪ POs created with volumes that exceed the MRP’s policies
▪ Plannable items bought as urgent
▪ Recurrent buyings without established contract
▪ Current contracts with 3 or more years. Cost risks.
▪ Duplicity in materials or service data master. In loco analysis.
▪ Unstructured data for purchase or inventory.
▪ Unauthorized changes in MRP parameters (Internal control issue).
▪ Addressable items bought outside Procurement department.
▪ Financial feasibility study for strategic purchases.
▪ “Maverick spend” control.
▪ "Saving" methodology validation, focused on net value.
▪ Urgent purchases in investment projects (CapEx).
▪ Saved POs that influence the procurement’s KPIs.

6. 06
SCENARIOS: Execution of acquisition activities
▪ Urgent POs from non-urgent purchase requisitions.
▪ Urgent POs from the same supplier, user or business unit.
▪ Urgent POs to feed inventory (without explicit cost center).
▪ Price comparison between same SKU: normal PO versus urgent PO.
▪ Exclusivity solicitation (single sourcing): longitudinal analysis (consistency)
▪ Creation of a PO without using an existing contract.
▪ Recurrent “tail spend”.
▪ High amount RFP with only one round of negotiation.
▪ Contract additive after awarded bid.
▪ Supply agreement without a proper bid process.
▪ PO release without due approval workflow.
▪ PO approval by unauthorized user (Internal control issue).
▪ PO modification after workflow approval.
▪ PO modification by unauthorized user (Internal control issue).
▪ PO approval rate (qualitative performance indicator).
▪ VAT calculation to perform a proper commercial equalization.
▪ Addition of new items on a contract without restarting the approval workflow.
▪ Advance payment to suppliers.
▪ PO with volume open for more than 360 days.
B

7. SCENARIOS: Perform mat. receiving or follow the exec. of serv. until paymentC
▪ Posting a goods receipt without a proper PO.
▪ Invoice date inferior to PO date.
▪ Invoice date inferior to Service Sheet date.
▪ Price or weight tolerance on material receiving process.
▪ Complement of the PO after the material receiving process.
▪ “Blind method” test on material receiving process.
▪ Time comparison between volumes posting and invoice posting.
▪ Payment term analysis between planned and actual.
▪ “Large POs” with partial receivings.
▪ Management of accessory obligations with service suppliers.
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8. SCENARIOS: Inventory managementD
▪ Inventory position higher than storage capacity.
▪ Individual Protection Equipment (IPE) consumption per SKU and user.
▪ Exchanging volume between different materials (SKUs).
▪ Stock delivery against old materials reservation.
▪ Reversal movement of delivered materials.
▪ Manual stock takeout frequency (except for backflush logic).
▪ Material transfer between business units with goods issue but without
corresponding goods receipt.
▪ Returning materials to inventory account.
▪ Provision for inventory losses or obsolete materials.
▪ “Days on hand” analysis / Inventory turnover.
▪ Inconsistency on inventory address.
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