Internal Audit Checklist of Purchase Dept.

PURCHASES

Check whether an Approved Vendor list of suppliers / authorized dealers has been prepared and is
updated on a regular basis. The Approved Vendor list should carry all the items of purchases - Raw
Material / Engineering / Consumables / Packing material etc. The approved vendor list can be Vendor
- item / Item -Vendor wise.

Check whether a Purchase Manual has been prepared and approved. The Purchase Manual should
include policies / procedures / and all the matters relating to purchase methodology.

Find out the Rate Variations over a period of time in respect of every item of purchases. The purchase
register whether prepared Manually / Computerized would indicate the item Code / Name of the item
and purchases made of the item over a period of time at varying / same rates with reference to the
Purchase Order Number.

Reasons for purchases made at varying rates should be obtained. Rate Variations without a proper
justification should be reported.

A scrutiny of Purchase Orders should be carried out to ensure that comparative statement of
quotations are prepared and the order is placed on the lowest bidder after considering factors like
quality / delivery / payment terms / profile & competence of the vendor.

Check whether the comparative statements of quotations are duly approved by an appropriate
authority and dated.

The comparative statements should be prepared on a landed cost criteria. All the costs such as the
basic price / taxes / duties/ insurance / P&F / freight & cartage / interest etc should be indicated in
the comparison and the final cost of comparison should be the landed cost of the item.

Ensure that a proper justification (Technical / Commercial) is given in writing on the comparative
statement wherever the purchases are made from a source not being the lowest bidder.

Ensure that a sufficient number (3 or 4) of quotations / offers are called from the suppliers at the time
of making a comparative statement.

In case of single offer / quotation cases obtain reason s for placing the order on specific parties.

Ensure that in case of Repeat orders - fresh offers / quotations are called from the competitive
suppliers and a fresh comparative statement prepared. Further a Repeat order should not be placed
beyond 6 months from the date of the original purchase order. A fresh order should be raised on the
suppliers after 6 months have elapsed from the date of the original PO.

Ensure that a justification note is put in writing on every comparative statement giving reasons for
awarding the PO to a supplier.

Carry out a scrutiny of Indents / Purchase requisitions to ensure that the purchase orders are placed
as per the requirements given in the Indents.

Ensure that the quantity discounts / rebates offered by the suppliers as per
the PO have been availed by the company.

Obtain a list of Indents pending for conversion into PO and comment upon the old pending indents.

Obtain a list of POs pending for delivery of material and comment upon the old pending PO where
the due date of delivery of material has expired.

Ensure that the Purchase Orders have been signed / authorized by authorities as per the
financial limits given in the Purchase Manual / Policy. Deviations should be reported.

In case of amendments to the PO ensure that the amendments are duly approved by an appropriate
authority and reasons for the amendment (Rate / Quantity ) are given by way of a Note.

Comment upon the possibilities of entering into 6 monthly / annual rate contracts with the suppliers
where the consumption trend or level is high.

Examine whether there is a system of standard costing or Budgetory Control in vogue in the Purchase
Department. Also, check the Monthly Purchase variance Report wherein all items above + 10% in
value should be highlighted and reasons thereof.

the terms given in