# Procurement audit

Source: https://contracko.com/glossary/procurement-audit

# Procurement audit

An independent review of procurement processes, contracts and spend to test compliance, value and control.

## 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.

### How Contracko helps

Contracko provides a searchable, date-stamped repository of all contracts with version history and extracted metadata, giving auditors instant access to what was agreed and when. Reporting and export functionality lets teams produce contract obligation summaries on demand rather than hunting for documents across shared drives.

## Relevant for

[Government & Public Sector](https://contracko.com/industries/government)[Healthcare](https://contracko.com/industries/healthcare)[Manufacturing](https://contracko.com/industries/manufacturing)[Higher Education](https://contracko.com/industries/higher-education)

## Related clauses

- [Audit Rights Clause](https://contracko.com/clause-library/audit)
- [Compliance Clause](https://contracko.com/clause-library/compliance)

## Related terms

- [Three-way matching](https://contracko.com/glossary/three-way-matching)
- [Procurement policy](https://contracko.com/glossary/procurement-policy)
- [Maverick buying](https://contracko.com/glossary/maverick-buying)
- [Market conformity](https://contracko.com/glossary/market-conformity)

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## Frequently asked questions

Common questions about this term.

- **Q:** What is the difference between an internal and external procurement audit?
  **A:** An internal audit is conducted by the organisation's own audit function and focuses on control improvement; an external audit is performed by an independent third party and its findings carry greater formal weight.

- **Q:** What does a procurement auditor typically test?
  **A:** Supplier selection and tendering compliance, approval authority adherence, segregation of duties, three-way matching, contract existence and terms versus actual spend, and conflict-of-interest declarations.

- **Q:** How far back can a procurement audit look?
  **A:** It depends on record retention policies and applicable limitation periods, but auditors commonly review two to five years of transactions. Public bodies may be subject to longer statutory retention requirements.

- **Q:** What triggers a procurement audit?
  **A:** Scheduled annual or biennial reviews, a fraud allegation, unusual spend patterns identified in spend analysis, a regulatory inspection, or preparation for an M&A transaction can all trigger one.

- **Q:** What records should procurement teams keep to survive an audit?
  **A:** Approved contracts with version history, supplier selection rationale and evaluation scores, purchase orders and approval evidence, goods or service receipts, and matched invoices.

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