Checklist for Internal Audit of Purchases and Inventory Management

Purchase and inventory department is very sensetive department of any organization. Approval, Vendor validation, Quality assessment , communication are important part of Purchase process 

 Inventory audit is based on inventory information and policies, inventory levels, and inventory monitoring.

	Purchase & Inventory Management
	Particulars	Concerned Person	Checked By	Remarks
A	Material Control
	Check proper records for-
1	Availability of materials
2	Control over the investment in material
3	Reasonable Prices
4	Wastage Control
5	Control over the spoilage and obsolescence
B	Purchase
1	There should be at least two personnel for the purchase department with rights and duties as per the Purchase Policy
2	All the purchases are properly authorised as per the policy
	Upto Rs 5000/- Purchase Manager
	Revenue purchase > Rs 5000/- Unit Head
	Capital purchase > Rs 25000/- BOD
C	Requirements
1	Requirement of the Stores Department is in accordance with the production schedule and on the basis of need of the particular item whether it is capital or revenue item is forwarded through Purchase Indent in 2 copies
D	Vendor Registration
1	The Purchase department registers the potential suppliers according to the required items in the prescribed format.
2	Check proper maintenance by Purchase manager of master list of the suppliers
E	Selection / Assessment of the suppliers
1	Check for following aspects while selection of suppliers-
•	Quality
•	Price
•	Terms / Conditions (availability etc.)
•	Transportation Cost
•	Discount
•	Credit Facilities
2	Final selection is vetted by a Team consisting of Purchase Manager, respective departmental head, finance / accounts person and if required the technical person of the company.
3	Tender is raised in the specified format for specific purchases along with terms & conditions of the company
	If any other method is followed, mention it-
4	Proper analysis of the quotations invited in the prescribed format
5	Proper explanatory note is prepared to state the reason for selection of particular supplier by the selection committee
6	Documentation of the analysis summary sheet with the PO
F	Execution of Emergency Purchase
1	Check for following points-
•	Reasons / Conditions
•	Time Basis
•	Price
•	Dealers
•	Others – Credit Terms, Transportation, Taxation etc.
2	Finalised by a Committee comprising of-
•	Purchase Officer
•	Finance / Accounts Officer
•	Respective Department Head
G	Purchase Order
1	PO is prepared in 2 copies in the prescribed manner and is duly authorised
2	Regular follow up of PO for timely receipt of materials
H	Master List for Purchase
	Check proper maintenance by Purchase manager of following master list of the suppliers
I	Receiving and Inspection of the Material :
1	All supplies at receiving department.
2	Check against Purchase Orders.
3	Inspection of material
4	Proper delivery of goods to the concerned department / store.
5	Proper authorization by the receiving authority.
6	All returns, shortage, rejection must be informed to the purchase as well as to the accounts department so that the payment to / debit notes on the suppliers should be made / raised accordingly.
7	Goods Receipts Notes (GRN) should be endorsed to accounts and sent to purchase department.
8	Purchase orders file should be maintained properly.
9	Receiving, unloading and unpacking the material delivered by the suppliers under delivery challans/ Invoices.
10	Checking quality of the material received by the Quality control department.
J	Stores/Inventory Management
1	Proper counting of the material received and recording and classification of the same.
2	After receiving of the required material the invoice should be supported with the Material Inspection Report and sent to the accounts department.
3	Proper authorization and verification of the MIR by the purchase manager as well as the higher authority.
4	Control measures i.e. stock taking & supervision of the material received should be done on periodic basis (Monthly / fortnightly / weekly).
5	Separate authority for purchase and stock taking.
6	Continuous stock verification.
7	Shortage/excess of the material is reported to the purchase as well as the production department.
8	Any discrepancies / damages must be recorded and reported to the concerned authority.
9	There should be a proper control over the Scrap / Wastages / Damages/ Defectives etc.
K	Classification & Coding of Material
1	Proper classification as construction material, consumable stores, spare parts, tools etc.
2	Authentic code no. is allotted for proper distinction / description
L	Material Control System :
	Analysis of Material / inventory according to their value, movement, quantity i.e.
	·        ABC ( High : Medium : Low value )
	·        FSN ( Fast : Slow : Non moving )
M	Inventory Records:
1	Daily Updation of Stores Ledger
2	Check Stores Ledger for proper stock keeping, recording material receipts, issues and balances
3	Issue of material from stores in proper format
4	In case of material transfer from one job to another job, the material transfer note will be prepared in 2 copies
5	Scrap / wastage should be recorded and reported in a proper format