Purchasing and Inventory Management Preliminary Controls Assessment Questionnaire

This is an example of a preliminary assessment questionnaire that can be presented to managers or process owners before conducting an audit. It is intended to help the internal audit department understand existing business processes and management's view of the internal control environment. The questionnaire is a sample and may not be applicable to all businesses without modification.

Questionnaire Instructions: The following questionnaire has been prepared by the Internal Audit department to assist us in helping you determine whether the controls you have established are operating effectively. Please respond to these questions as accurately as possible, and feel free to insert comments and further explanations as you deem necessary. Purchasing and Inventory Management Process Background Information: The process of purchasing materials and supplies comprises procedures and activities to acquire goods in the correct quantity and in a timely manner. The process should include how purchases are started (e.g., inventory levels), who is involved, and how it is made. In addition, the process should cover the communication of purchases to all required areas of the company (e.g., accounting). Inventory management is the process from the time purchases (of inventory) are received through the time the inventory is sold to the customer. This process should include discussion of receiving, tracking, counting, and accounting. Please document the who, what, when, where, and how of each activity in the process. General: Who is the manager responsible for Purchasing and Receiving? How many FTEs are in the Purchasing and Receiving process What percentage of suppliers transmit invoices electronically? How many active suppliers are there in the supplier master file? How many inactive suppliers are there in the supplier master file? Purchase Orders: Is there a formal process for purchasing Inventory? Is a purchase order (PO) process established? If so, who enters POs into G/L? Is there an approval process when requesting a PO? How are POs distributed to Approvers & then distributed to Accounting? How many POs are issued each month? What percentage of POs are transmitted electronically? If there is no PO process, how are items ordered and approved? Who can order materials? Who approves the order?

System: Are there any access controls in the PO Module of the system? Does the inventory system directly interface with the General Ledger (G/L)? Inventory: What method to you use (FIFO, LIFO, etc.)? Who tracks inventory availability? Who manages inventory, and how do they manage inventory surplus? What happens to damaged and stolen inventory? What is the process for alerting the purchasing agent that more inventory should be ordered? Is there a feature within the inventory system that alerts the user if inventory levels are below or above certain levels? Who has access to inventory after hours, and who locks up inventory? What kind of security is maintained for the stores? Suppliers: Who has access to set up suppliers? Who chooses and approves new suppliers? What is the process for suppliers that are no longer used? Is there an approved supplier list? Receiving: Does somebody match the invoice to the purchase order to the shipping document? If so, who? If there is a discrepancy between amount received and amount ordered, what is the process for reconciling? What are the security controls at the warehouse where the goods are received? Is the receiving area separate from the shipping area? Who enters received amounts into the system? Is it the same person who receives the inventory? Is an approved purchase order required in order to accept shipment?

Reconciliation: Does anybody reconcile the open Purchase Orders at the end of a month? Do you perform analytics on inventory balances between periods? If so, what variation analytics are performed and who performs this? How often do you have inventory counts? Is your inventory system perpetual? Who has access to the inventory system? Who reconciles inventory per the G/L to the inventory system at the end of a period? How often does this reconciliation occur? Bookkeeping/Accounting: Who receives the invoices for purchased inventory? Are they sent to bookkeeping/accounting? If so, who sends them? Who matches invoices from supplier, to purchase order from inventory manager, and to receiving report from shipping? Who approves the payments before payment is processed?

Internal Control Assessment How would you evaluate the effectiveness of the current process in achieving the following control objectives. Use a scale of 1 to 5, with 1=Not effective and 5=Highly effective. Evaluation 2 3 4 5

Control Objective Purchase orders are properly authorized All purchase order transactions are completely prepared and recorded on a timely basis All purchase order transactions are reliably processed and reported Receipts of materials and supplies are properly authorized Receipts of material and supplies are recorded accurately and completely on a timely basis All material and supply receipt transactions are reliably processed and reported Employees and management are provided the information they need to control the process of obtaining material and supplies. Orders are placed on a timely basis

How would you rate the overall quality of this process? Use a scale of 1 to 5, with 1=Poor and 5=Best Practice or Best in Class. 1 2 3 4 5

Are there internal control concerns related to this process that require immediate attention? If so, please describe.

Are there adequate resources to effectively and efficiently perform this process? If not, please describe.

Are there any other general concerns related to this process which should be brought the attention of the Internal Audit team as part of their review? If so, please describe.