Advantages and Disadvantages of Procurement Audit and Risk Management

procurement Audit and risk management

Advantages and Disadvantages of Procurement Audit and Risk Management

Procurement Audit offers several advantages to the procurement entity, owners and other stakeholders.

Advantages of Procurement Audit to the procurement entity (organization) and Management

  • Procurement Audit ensures the accuracy or correctness of the procurement records.
  • Procurement Audit ensures the authenticity and reliability of the procurement records.
  • Procurement Audit helps in the detection and prevention of procurement frauds.
  • Procurement Audit helps the enterprise and management to ascertain whether the procurement legal requirements are complied with.
  • Procurement Audit point out the weakness of the existing system of internal check and internal control.
  • Procurement Audit examination makes the procurement staffs in charge of preparing procurement records vigilant, regular and up- to –date in their work.
  • Loans and credit facilities can be easily obtained by a concern on the basis of procurement audited accounts.
  • Procurement entity can enjoy better reputation, if its procurement records are audited by an independent professional auditor.
  • Procurement Audited records are more reliable as evidence in courts of law.
  • Facilitates calculation of purchase consideration.
  • The insurance claim can be easily determined on the basis of audited accounts.

Advantages of procurement audit to the owners of the business:

  • In the case of a sole trader, procurement auditing assures him that all procurement transactions have been duly accounted for and there are no errors or It also helps him to know the true facts about the business.
  • In the case of partnership firm, procurement audit records serve as an evidence of proper management of the affairs of the business.
  • In the case of a joint stock company, procurement audit assures the shareholders that the affairs of their company are smoothly and their investment is safe. The shareholders of a company can value their shares on the basis of audited accounts.
  • In the case of a cooperative society or a trust, procurement audit assures the members or the beneficiaries that the affairs of the society or trust are conducted properly and their investment are looked after properly.

Advantages of Auditing to other procurement stakeholders:

  • Lenders can depend on procurement audited records while taking a decision to grant credit to the business concern.
  • Tax authorities can depend on audited procurement transactions and records in assessing sales tax, income tax and wealth tax of the business.
  • The purchaser of a business can easily calculate the amount of purchase consideration on the basis of procurement audited records.
  • Procurement Audit creates confidence in the minds of investors in a joint stock company.

Disadvantages of Audit

  • The payment of audit fees: Audit fees are normally high since auditors are highly qualified professionals hence small firms such as sole proprietorships may not afford their procurement records to be audited.
  • Business interruption-The audit exercise interrupts the clients’ operations because client staff has to spend time in availing the required information to the auditors.
  • Exposure of company secrets to competitors-Company secrets may leak to competitors since all company information is accessible to the auditors.
  • Non-detection of errors or frauds – Auditor may not be able to detect certain frauds which are committed by the clients.
  • Conflict with others – Auditor may have differences of opinion with the accountants, management, engineers etc. In such a case personal judgement plays an important role. It differs from person to person.
  • Effect of inflation – procurement records may not disclose true picture even after audit due to inflationary trends.
  • Dependence on explanation by others: – Auditor has to depend on the explanation and information given by the responsible officers of the company. Audit report is affected adversely if the explanation and information prove to be false.