Reference no: EM132110485

Case study

OFS are a long established Financial Services Organisation, selling a wide range of products, including insurances, mortgages and wealth advice. Their headquarters are in Newcastle. The organisation works in classic silos, the largest being IT, Facilities Management, Marketing, Prints & Stationary an HQ Services. Purchasing has, traditionally, held a reactive, transactional role and various attempts have been made to make it strategic and a policy-based function. A surprise visits by the Financial Services Authority, during which they discussed ‘risk’ with the OFS Chief Executive, has led to the unhealthy conclusion that there are no purchasing procedures in place. Each ‘silo’ works to practices they have found acceptable to them.

The CEO called a meeting with the nominal buying manager of OFS and the head of internal audit. The latter stated that there has never been a formal audit of purchasing procedures and practices. The buying manager stated that all attempts to introduce companywide practices were always rebuffed by the respective ‘heads’ of the silos. The CEO asked the buying manager if he had any evidence of ‘bad practice’ that warranted a detailed scrutiny. The buying manager recognised this as a major opportunity to obtain the authority to put purchasing on the maps at OFS. Co- incidentally, he had been tracking certain events over the past month and used six examples to highlight current practices to the CEO and head of internal audit.

1 – A major piece of IT equipment had been returned to the original supplier for testing, upgrading and reinstallation. No paperwork was in place for the equipment’s removal from site and no purchase order had been raised. The insurance position was not clear.

2 – In Facilities Management, purchase orders were raised after invoices had been received to enable invoices to be cleared.

3 – Marketing did place purchase orders but regularly exceeded their transaction expenditure limit of £ 10,000. They also filed suppliers’ acknowledgments unread and unchallenged.

4 – Invoices for services on site and charged by the hour were paid without timesheet evidence.

5 – In Print & Stationary, requisitions were sometimes accepted without any authorising signature.

6 – There were isolated examples where invoices for purchases authorised by the head of security had been paid twice.

You have been asked, in your role as buying manager, to attend the next board meeting. You have been given 10 minutes to talk on the subject of ‘Control of Purchases though effective procedures’

TASKS

1 – How would you explain the corporate benefits of effective purchasing procedures?

2 – How will introducing such procedures would eliminate risks?

3 - Would you recommend internal audit conduct a complete review of purchasing and if so, why?