The procurement cycle in selected Maltese companies : an internal audit approach

Abstract

PURPOSE: The main objective of this study was to identify the functions that the Internal Auditor could cover when auditing the procurement process to provide a support activity within the supply value chain. The study was designed to understand the extent of procurement practices adopted together with procurement risk mitigation procedures applied by selected Maltese manufacturing companies. The study has also explored the use of performance measurement systems by Procurement Departments and the extent to which such systems are applied in the audit of procurement practices by Internal Auditors. DESIGN: A qualitative approach was followed to collect the required information. This consisted in the development of two different interview schedules directed at the procurement officers and Internal Auditors respectively. These interviews were targeted at a selected number of manufacturing companies which had a Procurement Department. FINDINGS: The main weaknesses in procurement practices were found to be in the procurement risk identification, strategy creation, formal and regular supplier identification, use of competitive procurement, and multi-sourcing. Performance measurement was adopted by the majority of participants but their use is quite limited in the audit of procurement. The fact that some procurement processes were found to be absent in procurement policies contributed to the reason why Internal Auditors may be omitting particular checks. Procurement risks were also disregarded by most Internal Auditors. Internal Auditors seem to be inclined towards traditional practices rather than functions which could add more value to the procurement process and its risk mitigation. CONCLUSIONS: For Internal Auditors to provide a holistic internal audit and be part of the support activities of the supply value chain, the audit scope has to be widened. The internal audit coverage should be extended to the key organizational strategies, objectives, plans and requisitions, supplier evaluations, validation and communication, and procurement contract management. Performance measurement should also be included as part of the audit, including benchmarking exercises. VALUE: This study may guide Internal Auditors in fulfilling a value-added internal audit of procurement. It may also be an influencing factor towards achieving an effective procurement process which in turn aids the Internal Auditor to provide a holistic internal audit approach.