Why Procurement Can Benefit from Working with Internal Audit

Spend Matters welcomes a guest post from Santosh Reddy of GEP.

Internal audit is a team of versatile members who assist an organization’s management to ensure controls are appropriately exercised, processes are followed, reporting is effective, and risks are mitigated. Their role makes them akin to a policing force within the organization. And the typical human behavior around cops extends to the office environment as well, and employees are wary of even talking freely when a person from internal audit is around.

The fact though is that cops have many other duties apart from chasing the baddies. Their top priority is to maintain a health, safe, and secure environment for all the residents of the area and help them out wherever they can. And when someone needs help, they are the first to respond. Internal audit is not far from the cops in this role. So if internal audit still makes you feel uncomfortable, start calling them the Internal Assurance team.

Sourcing and procurement teams can benefit greatly working with Internal Assurance teams:

Seat at the table: Internal Assurance can ensure that all teams adhere to processes and philosophies defined at a company level. If one such rule can be created about the involvement of sourcing and procurement team members in the management of categories, then they can help ensure business stakeholders reserve a seat at the table for procurement members and work with them.

Catalyst for change: One of the responsibilities of Internal Assurance is to ensure the effectiveness of processes or initiatives. If something can be improved, it is their job to make sure the improvement is implemented. Procurement should align their objectives with internal assurance – be it on cost reductions, faster process turn-around times, better supplier management, etc. In return, internal assurance provides the necessary visibility to initiatives and gets the help they need.

Process control: It does not matter how small or large your company is, but it matters how nimble and agile your processes are. However, the reality is far from it even for the oldest and largest companies. Business functions have a tendency to develop their own processes that over a period of time gain their category or function specific flavor making each department’s process “special and unique.” Change management in such cases not only becomes difficult, sometimes it can even border impossible. Internal assurance can then be the cops, the ones that break down stubborn barriers.

Governance that drives accountability: Being the eyes and ears of the management, internal assurance has a strong responsibility of capturing an accurate and comprehensive report of all activities. They will be driving all business functions, including procurement, for good quality, up-to-date, and accurate reports. For procurement, this can be a boon. The chance that this report is looked at by management will ensure respective functions are basing their purchases on contracts and maverick spend is under control. This improves the visibility into spend data and savings realization from procurement initiatives.

For more interesting thinking on procurement, visit the GEP Knowledge Bank.

Comments

  • Pierre Mitchell:

    Santosh, thank you for publishing this. It’s a key strategy and I’m glad you called it out. It also offers the benefit of using the controls to drive compliance activities that procurement itself might not be able to institute. If you do it right, you can drive some ROI out of those control, and Finance/audit should like that right? It’s a no brainer for pushing supplier risk mitigation and ensuring that no suppliers get added to the supplier master without procurement sign-off when those suppliers meet certain conditions (and for some firms, that condition is that they want to get added!) around spend or criticality. I have one ex-client that established an audit control procurement involvement about a certain threshold because procurement was able to demonstrate the lost savings and lost shareholder value when procurement was not involved. So, bypassing procurement became an adverse event and a ‘finding’ against a key business control – how’s THAT for influence! It’s good to have friends with big sticks to go along with your big sugar cubes.

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