Audits of the purchasing function are periodically conducted for public companies. This may be done internally by an employee from the organization’s accounting function or it may be done by outside auditors. Someone from a selected public accounting firm will always take part in the audit for a large public company even if an internal audit has been done. Auditors usually check to make sure that multiple bids are obtained. They check to see if suppliers with the lowest price have been used, and if not, why not. An adequate reason for selection of a supplier with a higher price would be where the total cost is lower even though the supplier did not have the lowest price.

Public accountants check to see if each transaction has proper documentation. They check to see if an authorized person approved the purchase.

There is no reason to be overly concerned when someone appears who is taking an audit. Don’t be defensive; this is likely to arouse suspicion that there may be a reason for your behavior. It is best to welcome the person and give them unrestricted access to your records.

You can prevent poor reports by documenting transactions in writing, making notes about offers and counteroffers, and making sure that requisitions and approval for purchases are signed by an authorized employee.

Private companies are subject to closer scrutiny now, but public companies are even more closely looked at since the Sarbanes-Oxley law. Purchasing managers and buyers should pay much more attention to their ethical conduct. The manager must report unusual transactions and those that involve employees that have a financial interest with a supplier. Employee relatives of a supplier raise a red flag. Employees who may have a substantial stock investment with a supplier company may create suspicion.