Auditing Purchasing and Contracts

About the Author

                                                                                DAVID MCNAMEE, CIA, CISA, CFE, CGFM

 

David McNamee has thirty years experience in audit and data systems, including previous experience as a Director of Internal Audit at a multi-billion dollar corporation.  He is President of his own consulting firm, Management Control Concepts, to offer his expertise in internal audit and risk management to others for the past dozen years.

David McNamee has been a frequent invited speaker at international and regional internal auditing conferences on the topics of ethics, risk assessment, and internal audit management, as well as local chapter meetings and seminars for the IIA, AGA, ISACA and others.  He is the author of many articles in professional internal auditing journals, including an award-winning research paper on resolving ethical problems.  In addition, he coauthored two audit guides and several books published by the IIA on risk assessment, procurement and operational auditing.  He has been active in the Institute of Internal Auditors at the local and international levels.

David McNamee is a Certified Internal Auditor, a Certified Information Systems Auditor, a Certified Fraud Examiner, and a Certified Government Financial Manager.  In addition to auditing in a service industry and a heavily regulated capital-intensive industry, he has had special experience in dealing with contracts, purchasing and related fraud.

David McNamee holds a Master of Science in Telecommunications Management, a Master of Business Administration, and a Certificate in Purchasing Management.  He has taught Financial Accounting at the Santa Clara University Graduate School of Business and is an invited lecturer in Auditing at San Francisco State University and at universities in New Zealand and Australia.

In this electronic publication he shares with us the vast amount of knowledge he has gained in his 30 years experience about Purchasing and Contracts through the use of over 450 pages of workbooks and 30 PowerPoint slides.

His publications include “Auditing Fraud”, “Control Self Assessment” and “Risk Management and Risk Assessment” electronic publications available on CD at http://www.pleier.com/pubs.htm and http://www.theiia.org and http://www.isaca.org.

Additional references and information are available at http://www.mc2consulting.com/.

Auditing the Purchasing Department

 "Auditing the Purchasing Department"

This 160-page workbook is a complete course for you to better understand the role of purchasing in the organization, the major activities that go on within purchasing, the risks and exposures within each activity, and the key controls used by the most effective purchasing departments.

This workbook also provides you with a set of preliminary survey questions to use in your audit, a framework to develop your own audit guides, an appreciation of the possible computer assisted audit techniques available, an audit program for any and all parts of the purchasing function, and a set of references for further study.

This workbook publication presents practical information including:

            The Role and Importance of Purchasing to the Organization                              

            Establishing Qualified Suppliers

Requisitions

RFI/RFP/RFQ                                                                                                           

            The Bidding Process                                                                                               

            Awarding the Business                                                                                           

            Negotiated Award without Competitive Bid                                                          

            Terms and Conditions                                                                                               

            Purchase Orders, Work Orders and Contracts                                                    

            Special Topics:  EDI and Barcoding                                                                     

            Special Topics:  Value Analysis                                                                             

            Monitoring Performance of Suppliers                                                                    

            Fraud by Vendors                                                                                                    

            Fraud by Employees      

            Resources for Further Study      

Purchasing and Contract Frauds

"Purchasing and Contract Fraud"

This 98-page workbook contains hard-hitting discussions of the many aspects of fraud with exercises that will help the reader think seriously about this major issue that affects us all.

This workbook publication presents practical information with study questions and case studies specifically covering:

The Nature of Fraud

Working with Auditors and Investigators

Vendor Frauds:  Case Studies

Detecting and Deterring Vendor Frauds

Employee Frauds:  Case Studies

Detecting and Deterring Employee Frauds

Types of Contract Fraud

Contract Fraud and Defenses

Bibliography

Suggested Answers, Study Questions and Case Studies

 "Suggested Answers to Study Questions and Case Studies"

This 39-page workbook consists of 16 Case Studies designed in a question and answer format to raise your awareness of the many aspects of the purchasing function.

These Case Studies specifically address:

The Role of Purchasing in the Organization

Establishing Qualified Suppliers

Requisitions

RFI/RFP/RFQ

The Bidding Process

Awarding the Business

Negotiated Award Without Competitive Bid

Terms and Conditions

Purchase Orders

EDI & Barcoding

Value Analysis

Monitoring Performance by Suppliers

Fraud by Vendors

Fraud by Employees

The Nature of Fraud

Working with Auditors and Investigators

Vendor Frauds:  Case Studies

Employee frauds:  Case Studies

Detecting and Deterring Employee Frauds

Types of Contract Fraud

Contract Fraud and Defenses        

Key Audit Planning Steps

 "Key Audit Planning Steps”

The 22-page workbook contains detailed Audit Planning Steps and an actual Preliminary Survey Questionnaire to facilitate a thorough audit of the purchasing function.

Included are specific audit steps and approximately 230 questions addressing areas including:

The Role of Purchasing in the Organization

Establishing Qualified Suppliers

Requisitions

RFI/RFP/RFQ

The Bidding Process

Awarding the Business

Negotiated Award without Competitive Bid

Terms and Conditions

Purchase Orders

EDI & Barcoding

Value Analysis

Monitoring Performance by Suppliers

Fraud by Vendors

Fraud by Employees

Fraud Risk Management

"Fraud Risk Management"

The 18-slide PowerPoint offers a number of practical suggestions about Finding Fraud: Increasing Awareness and Detection through Risk Management & Internal Auditing

 Suggestions include the following:

Embezzlement of Fees

Theft of Inventory:  Dining Out

A Prescription for Finding Fraud

Contrasting Views on Fraud – Risk Manager and Internal Auditors

Finding Fraud

The Old Triangle of Fraud

The New Triangle of Fraud

Dealing with Fraud Risk

Fraud Risk Management

Fraud Auditing Practice

Internal Audit Strategy

Measuring Purchasing Performance and Benchmarking

"Measuring Purchasing Performance and Benchmarking”

The 15-slide PowerPoint offers a number of practical suggestions as to how to measure Purchasing performance
and benchmarking.

Suggestions include the following:

Developing Performance Objectives

5 Elements to Measure Performance

What Measures are Best

Other Measures (Trends)

Criteria for a Good Measure

How to Use Measurements

Key Performance Indicators

The Total Cost of Ownership

Performance and Quality

The Four Myths or Four Truths?

Measuring the Quality of Purchasing Services

Turning the Tables on Purchasing

Benchmarking and Reengineering Procurement

"Benchmarking and Reengineering Procurement”

Benchmarking is the process of measuring your operations against similar operations for the purpose of improving your business processes.  The purpose of benchmarking is to improve products and processes to better meet customer needs.  The linkage of the business process to customer needs is critical to effective benchmarking.  This linkage can be strategic or tactical; although benchmarking studies are generally classified as a strategic competitive analysis tool:

For the purchasing professional, benchmarking contracting and procurement means improving the purchasing process and purchasing products (procurements, reports, etc.) to meet the needs of internal customers (primarily other departments and senior management or the Board of Directors as a whole).  The purchasing professional who wants to practice benchmarking must have a thorough understanding of:

· The critical business processes (and sub-processes, activities)

· The critical success factors for fulfilling customer needs, and

· The best measurements that will provide this information.

The 158-page workbook contains information and exercises to an organization benchmark and reengineer the Procurement process including the following areas:

            Benchmarking Contracting and Procurement

Benchmarking for Continuous Improvement

Preparing for a Benchmarking Study

Planning the Benchmarking Study

Searching for a Benchmark Partner

Observing the Process

Analyzing the Process

Adapting the Knowledge Learned

Improving Our Processes

Benchmarking Case Study

Benchmarking Study Checklist:  Contracting and Procurement

Reengineering Purchasing and Warehousing

Process Flow Charts and Other Process Mapping Tools

Information Technology:  EDI, Bar Codes and Beyond

Supply Chain Optimization

Reducing Cycle Time

Case Study:  Reengineering the Procurement Process

Warehouse Reengineering

Warehouse Redesign:  Focusing on Costs and Customers

Benchmarking Resources

Reengineering Bibliography

The Potential of Purchasing Cards

"The Potential of Purchasing Cards”   

There is enormous potential for purchasing cards to improve purchasing efficiency and effectiveness for high frequency, low value purchases such as MRO commodities, as well as training, books, dues, subscriptions, and emergency repairs.  Purchasing cards can be used to reduce purchasing and payment-processing costs by bypassing the purchase order/check request process and consolidating payments on many small items with one payment.  For the purchasing professional, the adoption of purchasing cards empowers the user community to purchase the numerous low value items they require for themselves, leaving the purchasing professionals time to concentrate their efforts on projects where more value can be added.

Implementing purchasing cards is a major project in reengineering.  Various internal processes must be changed, systems reviewed for changes, and employees and supplier both have behavioral changes to make.  Both project management and change management skills are important for success. 

This 10-page document offers help to the purchasing director in the form of describing:

The 7 Steps to Assess the Need for Purchasing Cards

The 20 Key Questions to Use in Interviewing the Provider

The 10-Step Implementation Plan for Purchasing Cards.

These tools, together with a thorough understanding of the organization's needs and wants, should be sufficient to get the project off the ground.  Purchasing cards have yet to reach their full potential throughout the economy, but the future is bright as organizations use the purchasing card as a means of empowering the workforce and harnessing the special skills of the purchasing professional.

Other Resources

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