Establishing a Formalized Procurement Function

It’s no surprise that senior business managers are interested in preserving margins and retaining cost-cutting measures. But at the same time, that mentality may adversely affect their views of procurement within their organization. While procurement – activities required to obtain goods and services from suppliers – may be viewed as an added expense, a formal procurement function can actually mitigate financial, operational and fraud risks and increase profitability and efficiency.

Designing a procurement function 

Companies vary in risks, resources, staffing, and more, meaning they also vary in needed controls and procurement function design. However, all procurement policies and features should share a common focus: ensuring the company is getting the best value, maximizing the use of high-level personnel, and establishing internal controls to lessen fraud risks and financial reporting errors.

First and foremost, the procurement function’s top priority should be to develop detailed policies and procedures relating to the following activities: 

• Vendor evaluation, selection and monitoring
• Bid solicitation, evaluation and selection 
• Purchasing authority levels and purchase order requirements 
• Verifying and reconciling completed purchases 
• Reviewing the vendor master file records for fictitious, duplicate or dormant vendors 

In the end, this will help companies mitigate risks, reduce costs, promote efficiency and sustain growth. 

For more information on developing a formal procurement function for your organization, including policies and procedures, read the TSCPA’s Today’s CPA (March – April 2015) article Designing a Procurement Function*, by Mike Stein, Weaver senior manager in risk advisory services.

 

*Reprint with the permission of Today’s CPA, a publication of the Texas Society of Certified Public Accountants. This article represents the opinions of the author(s) and are not necessarily those of the Texas Society of Certified Public Accountants.