Controls for Purchase Orders (#5)

In this episode, we discuss the controls associated with purchase orders. Purchase orders are an excellent control over purchases, though they are time-consuming to produce, and so are usually confined to more-expensive purchases. Key points in the podcast are:

  • Purchase order authorizations are one of the strongest controls over purchases

  • Procurement cards should be used for less-expensive purchases, to streamline the buying process

  • Master purchase orders can be used to streamline ongoing purchases of the same items

  • The managers who will be charged with purchases should approve those purchases in advance

  • Deliveries to the company should be rejected if there is no accompanying purchase order

  • Match supplier invoices to authorizing purchase orders to ensure that the quantities and prices billed are correct

  • Charge an internal fee to any employee who goes around the authorized purchasing process to make a purchase, to enforce use of the system

  • Prenumber and lock up blank purchase orders, since they can be used to authorize purchases

  • Use password control over the purchase order software, to eliminate unauthorized access

  • Review all open purchase orders for residual unshipped items, to see if they should be cancelled

  • Have the internal audit department periodically review the purchasing process for irregularities

  • Review a selection of all automatically-generated purchase orders (probably for cost of goods sold purchases) to ensure that they are correct

Related Courses

Accounting Controls Guidebook
Accounting Information Systems
Purchasing Guidebook