Procurement audit

Definition

A procurement audit examines whether buying activities follow policy, deliver value for money and meet legal and contractual obligations. It typically tests sample transactions, supplier selection, segregation of duties and contract compliance, then reports findings and improvement actions to management.

Example

An internal audit finds that 15% of orders bypassed competitive sourcing, prompting tighter approval thresholds.

Why this is a business risk

Procurement that lacks regular audit oversight accumulates policy exceptions, undocumented supplier arrangements and undetected fraud over time. When an external audit eventually does review these activities, the findings can be material, leading to restatements, regulatory sanctions or reputational damage. The absence of traceable records is typically what turns an issue into a crisis.

How to manage it

• Document every sourcing decision and approval so audit trails are available without reconstruction.
• Segregate duties between the requester, approver, purchase-order issuer and payment authoriser.
• Run internal spot checks on a sample of transactions each quarter, not only at formal audit time.
• Maintain an up-to-date contract register so auditors can quickly confirm what is contracted versus what is spent.
• Implement findings promptly and track closure so the same issue does not recur in the next audit cycle.