Handbook on Procurement to Pay Audit.pdf

It vontains details about ITGC, ITAC, SOC , Itdm, it sox. Also, having brief description about the governance and the other objective being performed as a part of the interview and ither ckurnt engagement.

1. Procurement to Pay Audit
A guide to initiate
Sandarv Jain

2. Index
Serial No. Content Page Number
1 Introduction 3
2 Disclaimer 4
3 Understanding the Concept 5
4 Planning, Execution and Reporting 6
5 Identifying Needs 7
6 Purchase Requisition 8-9
7 Vendor Selection, RFQ and CQS 10-11
8 Purchase Order 12-16
9 Goods receipt note 17-18
10 Quality Check 19-20
11 Invoice Booking 21-22
12 Payment 23
13 Vendor evaluation 24
14 Related party transactions (RPT) 25
Sandarv Jain

3. Introduction
GreetingstofellowreadersandesteemedmembersoftheInternalAudit(IA)fraternity,
WelcometoourguidetailoredforyoungprofessionalsintheIAcommunity,focusingontheintricaterealm
ofProcurementToPayaudits.Thishandbookisyourtrustedcompanion,designedtoilluminatethepath
towardseffectiveauditpracticesinthisexpansivedomain.
Recognizingthevastnessofthissubjectmatter,weprovidefoundationalinsightsandsuggestionsintended
toserveasaspringboardforfurtherexplorationandadaptation.Assuch,weencouragetheincorporation
ofsupplementarychecksandcontrolsasnecessitatedbythedistinctcharacteristicsofeachaudit
engagement,beitdictatedbyindustrynuances,organizationalsize,orspecificoperationalintricacies.
WithanunwaveringcommitmenttoexcellenceinIApractices,thisguideservesasyourstartingpointon
thejourneytowardsauditproficiency,offeringvaluableinsightstoaidinyourpursuitofexcellence.
Feel free to DM on LinkedIn with any suggestions for additions or modifications to the language or concept;
your input is always welcome and greatly valued.
WarmRegards,
SandarvJain

4. Disclaimer
ThisProcurement-to-Pay(P2P)Audithandbookisintendedtoprovideinitialgeneralguidanceandbest
practicesforconductingauditswithintheprocure-to-payprocess.Whileeveryefforthasbeenmadeto
ensuretheaccuracyandcompletenessoftheinformationprovidedherein,thehandbookisnot
exhaustive,andspecificcircumstancesmaywarrantadditionalconsiderationsormodificationstothe
proceduresoutlined.
Thecontentsofthishandbookareforinformationalpurposesonlyandshouldnotbeconstruedas
professionaladviceorasubstituteforindependentjudgment.Auditteamsshouldexerciseduediligence
andconsultwithrelevantstakeholders,legalcounsel,orsubjectmatterexpertsasneededtotailoraudit
procedurestotheuniquerequirementsandrisksoftheirorganization.
Usersofthishandbookareresponsibleforverifyingtheaccuracyandsuitabilityoftheinformationfortheir
specificauditobjectivesandcontexts.
Byaccessingorusingthishandbook,usersacknowledgeandagreetothetermsofthisdisclaimer.
Sandarv Jain

5. Understanding the Concept
Identifying needs
Indent / Purchase
Requisition (PR)
Vendor Selection
Request for quotation
(RFQ)
Comparative quote
Statement (CQS)
Purchase order (PO)
Gate Receipt Note
(GRN)
Quality Check (QC)
Invoice processing Payment Vendor Evaluation
TheProcurementtoPay(P2P)processreferstoaseriesofstepsthatorganizationsfollowtomanagethe
acquisitionofgoodsandservicesfromexternalsuppliers.TheP2Pprocessinvolvesvariousstages,from
identifyinganeedforgoodsorservicesandconcludingwiththepaymenttothesuppliers.Itisan
essentialbusinessprocessthathelpsstreamlineprocurementactivities,controlcosts,andensureefficient
suppliermanagement.
Sandarv Jain

6. Planning, Execution and Reporting
Steps Activity
Initiation •Identify the need for a Procurement To Pay audit.
•Obtain necessary approvals and resources.
Planning •Define audit objectives, scope, and criteria.
•Develop an audit plan outlining procedures and timelines.
•Assign roles and responsibilities to audit team members.
Preliminary Review •Gather background information on the procurement process.
•Understand relevant policies, procedures, and controls.
•Identify potential risks and control weaknesses.
Risk Assessment •Evaluate the inherent and residual risks associated with procurement activities.
•Prioritize areas for audit focus based on risk exposure.
Fieldwork •Conduct detailed testing of controls and transactions.
•Review procurement documents, contracts, and purchase orders.
•Assess compliance with policies, regulations, and contractual agreements.
•Test the effectiveness of internal controls over procurement and payment processes.
Data Analysis •Analyze procurement data for anomalies, trends, and exceptions.
•Use data analytics tools to identify irregularities or fraud indicators
Reporting •Document audit findings, including risk, implications, and recommendations.
•Present findings to management and stakeholders.
•Discuss corrective actions and improvement opportunities.
Follow Up •Monitor implementation of audit recommendations.
•Verify effectiveness of corrective actions.
•Provide ongoing support and guidance to improve procurement processes.
Closure •Finalize audit documentation and reports.
•Obtain management sign-off on audit findings and recommendations.
•Archive audit files for future reference.
ThebelowstepsandactivityprovidesanoverviewoftheProcurementToPayauditprocess,illustratingthe
sequentialstepsinvolvedinconductingathoroughauditofprocurementandpaymentactivitieswithinan
organization.
Sandarv Jain

7. Identifying needs
Background:
Stage1:SalesForecastPreparedbySalesandMarketingTeam
ThisstageinvolvestheSalesandMarketingteamanalyzingmarkettrends,historicaldata,andotherfactors
topredictfuturesalesvolumesfortheorganization'sproductsorservices.
Stage2:DemandCommunicationtoProductionTeam
Oncethesalesforecastisprepared,theSalesandMarketingteamcommunicatestheanticipateddemand
totheProductionteam.ThiscommunicationinformstheProductionteamabouttheexpectedquantitiesof
productsorservicesthatneedtobemanufacturedordeliveredtomeetcustomerdemand.
KeyChecks:
•Reviewthebasisofderivingthesalesforecast.WhetherittakesintoconsiderationOpenSalesOrder,Last
yeardemandgraph,seasonalfluctuations,marketseasonality,andanyotherfactorsinfluencingdemand
patterns.
•Verifytheaccuracyofthesalesforecastbycomparinghistoricalsalesdatawithprojectedfigures.
•Reviewtheproductionplantoensurethatitcanmeettheforecasteddemandwithintheorganization's
productioncapacity.
•CheckifCompanyhasafixedtemplateforsalesforecastcalculation&productionplanning.
•CheckwhethertheplanisapprovedbyProductionmanager&ChiefOperatingOfficer.
•AscertainwhetheritwaspresentedinthemonthlyMIStothemanagement.
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8. Purchase Requisition (1/2)
Background:
•Apurchaserequisition(PR)isaformalinternaldocumentorrequestmadebyanemployeeor
departmentwithinanorganizationtoitsprocurementorpurchasingdepartmentwhenneedarisesfor
certaingoodsorservicestosupporttheiroperations.
•Thisneedcouldariseduetovariousfactorssuchasinventorydepletion,equipmentmaintenance
requirements,orprojectdemands.
•Itservesasanauthorizationfortheprocurementdepartmenttoacquiregoodsorservicesonbehalfof
therequestingentity.
•Apurchaserequisitioncontainsessentialinformationtofacilitatetheprocurementprocess.This
informationmayincludeDescriptionoftheitemsorservicesrequired,Quantitiesneeded,Specifications
orqualityrequirements,Deliverytimelinesorurgency,Budgetcodesorcostcentersforaccounting
purposesandanyotherrelevantdetailsnecessaryforprocurement.
•Beforeapurchaserequisitioncanproceedfurtherintheprocurementprocess,ittypicallyrequires
authorizationandapproval.
•Onceapproved,itsissenttoStoreswhereinstorescheckstheavailabilityofstocks,ifavailablewouldbe
issuedfromstock.Incaseofshortageofmaterial,Itemisprocuredfromexternalvendors.
Sandarv Jain

9. Purchase Requisition (2/2)
KeyChecks:
•Adequacyofinformationprovidedinpurchaserequisitions.
•Authorizationandapprovalproceduresasperdefinedworkflow/DelegationofAuthority.
•AscertainwhetherPRgoingforre-approvalifeditedafteronceapproved.
•ExaminetheaudittrailforPRtotrackchanges,approvals,andrejections.Thisensurestransparencyand
accountabilityintheprocurementprocess.
•ReviewIntegrationofpurchaserequisitionswithsubsequentprocurementactivitiessuchaspurchase
order(PO)generation.
•ReviewtheprocessoftrackingOpenPRandactionuponit.
•CheckifanyoldPRopenandnewPRcreatedwhichmayleadtoduplicateordersbeingplacedwith
vendor.
•Duringsystemwalkthrough,checkifMaterialdescriptionautoflowsfromMaterialmasteri.e.itshouldbe
un-editablewhilemakingPR.
•AscertainwhetherPRbeingun-editableaftercreationofPO,ifnotwouldcreatepotentialconfusionor
errorscausedbyinconsistentdata.
Sandarv Jain

10. Vendor Selection, RFQ and CQS (1/2)
Background:
•Itistheprocessofidentifying,evaluating,andchoosingsuppliersorvendorsfromwhoman
organizationwillprocuregoodsorservicestomeetitsoperationalneeds.
•VendorisselectedfromApprovedvendorlist.Ifnoexistingvendorfortherequiredmaterialor
services,thenMarketresearchismade,andnewvendorison-boardedafterrequisitevendoraudit
beingconducted.
Processofnewvendorselectioninvolves:-
Sandarv Jain
Identificationofrequirement:
BasedonPRreceived,Stockin
Hand&OpenPO,procurement
teamdeterminesthequantity,
quality,specifications,delivery
schedule,and anyother
relevantfactorsnecessaryto
meetoperationalobjectives.
MarketResearch:Researching
existingvendor databases,
industrydirectories,trade
publications,attendingtrade
shows,orleveragingprofessional
networks.
RequestforInformation:Insome
cases,organizationsmayissue
RFIstogatherinformationfrom
potentialvendorsabouttheir
capabilities, experience,
capacity,pricing,andother
relevantdetails.TheRFIhelpsin
shortlistingvendorsforfurther
evaluation.
RequestforQuotation(RFQ):
OrganizationsissueRFQsto
vendors,detailingrequirements
and seekingproposalsor
quotations.Thesedocuments
includespecifications,delivery
terms,evaluationcriteria,pricing,
contracts,andinstructions.
VendorEvaluationandSelection:
Procurement teams assess
vendorproposalsbypreparing
ComparativequoteStatement
basedoncriterialikeprice,
quality,reliability,technical
capabilities,financialstability,
pastperformance,compliance,
andoverallvalue.
Negotiation:Afterevaluating
proposals, organizations
negotiatewithselectedvendors
tofinalizeterms,including
pricing,payment, delivery,
warranties,servicelevels,and
othercontractterms.

11. KeyChecks:
•CheckwhetherApprovedvendorlist(AVL)exists.
•Whetherminimum3quoteswereobtainedtopreparecomparativequoteanalysis.
•WhetherprocurementmadefromL1/T1vendorincaseofsmallquantitytobeprocured.
(L1–Vendorsubmittinglowestbid&T1–Vendorhavinghightechnicalrating)
•Incaseofbulkpurchasewhichareprocuredfrequently,whetherShareofBusiness(SOB)hasbeen
appliedandproportionatebusinessgiventotoprankedvendorsasperCQS.
•WhetherOriginalEquipmentManufacturer(OEM)givenpreferenceovertraders.
•WhetheranylistexistsforSinglesourcepurchase.Whetherprocurementteamhasdefinedplanto
eliminateorreducetheSinglesourcepurchasestominimum.
(SinglesourcepurchasemeansfloatingtheRFQtosinglevendorandconsequentlygivingthebusinesstoit.If
QuotationisprocuredfrommultiplevendorsandeachtimesamevendorquotesfavorablywouldnotresulttoSingle
sourcepurchase.However,inthiscase,Procurementteamshoulddomarketresearchtodiscovermorevendors.)
•Whethertheprocurementteamemployanymechanismstomonitorthepricesofunderlyingraw
materialsaidinginnegotiationswithvendors.
(E.g.,Thepriceofanequipmentprimarilymadeofcopperasitsrawmaterialwouldtendtofluctuateinparallelwith
thepriceofcopperitself.)
Sandarv Jain
Vendor Selection, RFQ and CQS (2/2)

12. Purchase Order (1/5)
Background:
•Apurchaseorder(PO)isacommercialbuyer'sdocumentoutliningagreed-upontermsforpurchasing
goodsorservicesfromaseller.Itincludesitemdetails,quantities,prices,deliverydates,shipping,and
paymentterms.Onceacceptedbytheseller,itbecomesalegallybindingcontract,streamlining
procurementandensuringbothpartiesagreebeforethetransaction.
KeyChecks:-
A.Authorization&Approvals
1)EnsurethatallPOsareproperlyauthorizedandapprovedaccordingtotheorganization'sdelegation
ofauthoritypolicies(DOA).
2)Didpurchaseordersbypasscertainauthorizationlevelsbybeingsplit,thuscircumventingthe
delegationofauthority(DOA).
B.AccuracyofInformation
1)ChecktheaccuracyofinformationoneachPO,includingitemdescriptions,quantities,delivery
dates,andvendordetails.
2)Whetherratehasbeencorrectlycapturedfromfinalizedquotation.
C.Ratebenchmarking
1)Encourageregularmonitoringofprocurementratesagainstbenchmarksforcompetitiveness.Ifnot
done,usedataanalyticsandmarketresearchtocutprocurementcosts.
Sandarv Jain

13. Purchase Order (2/5)
KeyChecks(Continued…):-
D.SystemWalkthrough&Negativetesting
1)Isitpossibletocreateapurchaseorder(PO)independently,withoutbeinglinkedtoapurchase
requisition(PR).
2)ArethedetailsonthePOautomaticallypopulatedfromthePR,andaretheylockedfromfurther
editing.
3)DoesanymodificationtothePO,whetherbasedonvalueornon-valuefactors,requirere-approval.
4)Doesthetolerancelimit,sourcedfromthematerialmaster,remainunmodifiable.
5)DoesthesystemissueanotificationifthepriceexceedstheLastTradedPrice(LTP)bysay10%andis
thereanyspecificapprovalrequiredinsuchcases.
6)Arepaymenttermsderivedfromthevendormasterandisunalterable.IfeditableandeditedinPO
asperrecentquote,whetherseparateapprovalsoughtfromtheFinance&Accountsdepartment
foralternativeterms.
7)IsitpermissibletoamendaPOafteraGoodsReceiptNote(GRN)hasbeenissued.
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14. Purchase Order (3/5)
KeyChecks(Continued…):-
E.ContractualCompliance
1)ValidatethatPOsareissuedincompliancewithexistingcontracts,agreements,andpricing
schedules.
2)Ensurethatpricing,discounts,andtermsnegotiatedwithvendorsareaccuratelyreflectedinPOs,
andthatanydeviationsfromcontracttermsareproperlydocumentedandapproved.
F.SegregationofDuties
1)IstheindividualresponsibleforinitiatingPOsseparatefromthoseauthorizedtoapprovethem.
2)Istheindividualmanaginggoodsreceiptnotes(GRNs)orhandlinginvoicebookingsdistinctfromthe
personresponsibleforcreatingpurchaseorders(POs).
3)WhethercreatorofPOauthorizedtodeletethem.
G.VendorManagement
1)Ensurewhethervendormasterdatamaintainedisaccurateandup-to-date.
2)VerifythatPOsareissuedtoauthorizedvendorsandthatvendorinformationisconsistentwith
contractualagreements.
Sandarv Jain

15. Purchase Order (4/5)
KeyChecks(Continued…):-
H.POTrackingandManagement
1)VerifythatPOsareproperlyrecorded,tracked,andmonitoredtoensuretimelydeliveryofgoodsor
servicesandfacilitateaccurateaccountingandreporting.
2)VerifywhetherPOclassificationintoOpex&Capexcategoryforaccurateaccountinglater.
3)Duringdataanalytics,checkifmultiplePoswerecreatedonsamedateatdifferentratetosameor
differentvendor.Ifitismadetodifferentvendors,itshouldbeasperSOBapprovedinCQS.
4)ArePOlinkedtobudgetorifbudgetismonitoredmanually,whetheranyreviewprocessexiststo
checkbudgetedandactualexpenditure.
5)WhetherOpenPOarereviewedonperiodicbasisandshortclosedafterrequisiteapprovals.
6)Hasspecificapprovalbeenobtainedifanolderpurchaseorder(PO)remainsopenatalowerrate
whileanewPOiscreatedatahigherrate
Sandarv Jain

16. Purchase Order (5/5)
KeyChecks(Continued…):-
I.ReconciliationandMatching(Three-waymatch)
1)CheckwhetheranycontrolexiststoperformreconciliationandmatchingofPOquantity&ratewith
InvoicesandGoodsreceiptnote.
J.ContractManagement
1)Doesthecompanyhaveestablishedcontractstomitigatetheimpactofpricefluctuationsfor
materialsthatarefrequentlypurchasedandsubjecttovaryingprices.
2)Areratesautomaticallysourcedfromthecontract(ifautomated)ormanuallycapturedfromthe
contract(ifmanual)forprocurementpurposes.
3)Ifacontractisinplaceandthevendorisunabletosupplythecontracteditem,resultinginthe
purchasefromanothervendoratthespotrate,doesthecontractincludeaclausefortherecovery
ofanyratedifferencesincurred.
K.ExceptionHandlingandResolution
1)EnsurewhetherexceptionsordiscrepanciesrelatingtoPOcreationandusagesuchasunapproved
POs,latedeliveries,pricevariations,orincompletedocumentationarepromptlyinvestigated,
documented,andresolvedinaccordancewithestablishedprocedures.
Sandarv Jain

17. Goods Receipt Note (1/2)
Background:
•GRNstandsforGoodsReceiptNote.It'sadocumentusedtoconfirmthereceiptofgoodsbya
warehouseorreceivingdepartment.Whengoodsaredelivered,therecipientinspectsthemtoensure
theymatchthequantity,quality,andspecificationsspecifiedinthepurchaseorder(PO).Ifeverything
isinorder,therecipientacknowledgesreceiptbysigningorstampingtheGRN.
KeyChecks:-
1)Verifyifit'spossibletopostbackdatedGRNs,ifso,shouldberestricted.
2)DeterminewhetherthesystemallowsfuturedatingofmanufacturingdatesduringGRNentry,
potentiallycausingdiscrepanciesbetweenactualandsystem-recordedexpirydates.
3)Isthereasysteminplacetomaintainmaterial-vendorspecificshelflife,whichautomaticallycaptures
shelf-lifeinformationafterthemanufacturingdateisentered,ensuringconsistencyintheshelflifeof
materialsacrossvendors.
4)EnsurethatthequantityinaGRNcannotexceedthePOquantity,includinganytolerancelimits.
DetermineifindividualsauthorizedtoperformGRNshavetheaccesstomodifytolerancelimitsand
acceptexcessgoodsreceipts,potentiallyleadingtostorageissuesandbudgetconstraints.
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18. Goods Receipt Note (2/2)
KeyChecks(Continued…):-
5)IsthereanyvalidationinplacetoensurethattheremainingshelflifeofitemsreceivedduringGRNis
atleast70%.
6)Assessthetimelinessofgoodsreceiptandidentifyanydelaysinthereceivingprocessandsuggest
improvementonthesame.
7)WhetherweighmentslipisattachedandreferredduringGRN.
8)Isthereachecklistinplacetoverifytheintegrityofreceiveditems,includingphysicalinspection
ensuringthatcontainersandtankervehiclesareproperlysealed,andthatvalvesandopeningsare
securelylockedpriortoGRN.
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19. Quality Control (1/2)
Background:
•Thequalitycontrol(QC)processinvolvesverifyingthatpurchasedgoodsorservicesmeetspecified
qualitystandardsandrequirements.
KeyChecks:-
1)EnsurethatallitemsreceivedafteraGoodsReceiptNote(GRN)undergoqualitychecks,whichmay
includephysicalinspection,droptests,pressuretestorlaboratorytests,basedontheitem
specificationsanddetails.
2)Confirmifamaker-checkermechanismisinplaceinQC,whereinanexecutiveconductsthetest,
andahigher-rankedQCofficerprovidestheusagedecision(UD).
3)Understandhowitisdealtwithincaseofanydeviationintestresults:
❑Ifthedeviationisdeemedacceptableanddoesnotcompromiseproductsafetyorperformance
whetheritisapprovedforacceptanceunderdeviation(AUD).Thisapprovalshouldtypicallyinvolve
validationbytheQCofficerandproductionhead.
❑Ifthedeviationissignificantorrecurring,itmayleadtoeitherreturningthegoodstothevendoror
initiatinganotificationtothevendorforcorrectiveactionorfurtherinvestigationtopreventfuture
occurrences.
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20. Quality Check (2/2)
KeyChecks(Continued...):-
4)Whetherdetailsofthedeviation,includingthereasonfordeviation,approvalprocess,andany
associatedrisksormitigatingmeasures,aredocumented forrecord-keepingandtraceability
purposes.
5)Iftheusagedecisionissystem-based,isitpossibleforparametersdefinedinthesystemtobeedited
tomanipulatethediscrepancyintestresults.
6)CheckwhetherQCregisterhasanyfixedtemplate.
7)VerifywhethermaterialsintheQCstagearestoredseparatelyfromotherunrestrictedstocks,
maintainingpropersegregation.
8)WhetherQCsamplesretainedforspecifiedtimelimitasperapplicablelaws
❑Suchasincaseofpharmaceuticals,foodandbeverages,andcosmetics,regulatoryagencieslikethe
FDA(FoodandDrugAdministration)maymandatespecificrequirementsforretainingQCsamples.
❑GMPregulationstypicallyrequiremanufacturerstoretainsamplesoffinishedproducts,rawmaterials,
andintermediateproductsforaspecifiedperiod.
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21. Invoice Booking (1/2)
Background:
•Invoicebookingreferstotheprocessofverifyingandvalidatinginvoicesreceivedfromsuppliers
beforetheyareapprovedforpayment.
KeyChecks:-
1)Accuracy&Completeness:Vouchonsamplebasisthatinvoicedetailsmatchcorresponding
purchaseorders(POs)andgoodsreceiptnotes(GRNs),suchasitemdescriptions,quantities,prices,
andpaymentterms.InvoicevaluetonotexceedPOvalueplustolerance.
2)AuthorizationandApproval:Verifywhethertheinvoicesareproperlyauthorizedandapproved
accordingtoestablisheddelegationofauthority(DOA)policies.
3)Compliancewithpolicies,procedures&Legalrequirement:Checkwhetherinvoicebookingadheres
toorganizationalpolicies,procedures,andregulatoryrequirements.Thisincludesverifying
compliancewithtaxregulations,invoiceprocessingtimelines,andinvoiceapprovalworkflows.
4)Duplicateinvoicedetection:Ensurewhetherthereisadequatecontroltorestrictdoublebillbooking
whichwouldpreventoverpaymentandensureaccuratefinancialreporting.
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22. Invoice Booking (2/2)
KeyChecks(Continued...):-
5)Accuratevendorinformation:Reviewonsamplebasistheaccuracyofvendorinformationon
invoices,suchasvendorname,address,andbankingdetailswiththevendormastertoensure
paymentsaredirectedtothecorrectrecipient.
6)TimelinessandEfficiency:Reviewtheprocessdefinedtoensurepromptnessandefficiencyof
invoiceprocessing,ensuringadherencetopaymenttermsandoverallprocessingtimes.
7)InvoiceBookingPre-QC:EnsuresystempreventsInvoicebookingbeforeQualityControltoavoid
paymentforitemsnotyettestedorclearedforusageorconsumption.
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23. Payment
Background:
•Thisstageinvolvestheactualdisbursementoffundstosuppliersinexchangeforgoodsorservices
receivedasperagreedpaymentterms.
KeyChecks:-
1)EnsurepaymentsaremadeasperpaymenttermsdefinedinPOandapprovedasperdefinedDOA.
Incaseofearlypayments,specificapprovalshouldbeobtainedfromFinanceheadandCFO
dependingonvalue.
2)EnsurepaymentarelinkedtoPOtoavoidexcesspayment.Duringpaymentsystemshouldtriggerif
anyadvancehasalreadybeenpaidtothevendoragainstthatPO.
3)Ensuresystemhascontroltoknockoffentrieswhilepaymentorinvoicebookingwhicheverislater.
4)Ensurepaymentsaremadeincompliancewithrulesandregulationsuchas:
❑Section15oftheMSMEDAct2006pertainstotheobligationofbuyerstomakepaymenttoMSME
vendorswithinthestipulatedtimeframeorelsewouldattractcompoundinginterestaspersection16.
❑Secondprovisotosection16(2)ofCGSTAct,2017,ifarecipientfailstopaythesupplierwithin180
daysoftheinvoicedate,therecipientmustreverseanamountequaltotheInputTaxCredit(ITC)
claimed,alongwithapplicableinterestaspersection50.
❑AsperSection40(A)3ofITAct1961,assesseemakingoneormorepaymentsexceedingRs.10,000
toapersoninasingledayviaanymodeexceptaccountpayeecheque,bankdraftorelectronic
clearingsystemwouldgetdisallowedfrombeingusedtoclaimtaxdeductions.
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24. Vendor evaluation
Background:
•Vendorevaluationinvolvesassessingsuppliersbasedonvariouscriteriasuchasproductquality,
reliability,pricing,deliveryperformance,customerservice,financialstability,andcompliancewith
contractualterms.
•Vendorevaluationincludesreviewingdocumentedevaluationcriteria,assessingthefrequencyof
vendorassessments,examiningrecordsofvendorperformance,verifyingtheuseofevaluationresults
indecision-making,andensuringalignmentwithprocurementpoliciesandobjectives.
KeyChecks:-
1)CheckwhetheranydefinedSOPinplaceforwholeprocurementprocessincludingperiodicvendor
evaluation.
2)Ensurewhetheranymechanismisinplacetoevaluatevendorperformancebasedonproductor
servicequality,pricing,deliveryperformance,aftersalesserviceandcompliancewithcontractual
terms.
3)Checkwhetheranyvendorhasbeenblacklistedbasedonadverseperformanceevaluatedand
suchvendorcodeshavebeenblockedinsystemforfurtherGRN,POcreationandpayment.
Sandarv Jain

25. Related Party Transaction (RPT)
Background:
•Financialreportingforrelatedpartypurchasesinvolvesdisclosingtransactionsbetweenacompany
anditsrelatedpartiesinitsfinancialstatements.
KeyChecks:-
1)IdentificationofRelatedParty:Ensurecompanyhasidentifiedrelatedparties,whichcaninclude
subsidiaries,affiliates,jointventures,keymanagement personnel,andentitiesundercommoncontrol.
2)Recordingtransactions:RPTtransactionsshouldberecordedinthecompany'saccountingrecords
likeanyotherpurchase.
3)Priorapproval:AscertainwhetherRelatedpartypurchasewerepriorapprovedbyBoardofDirectors
andMembers(insomecases)asperSection188ofCompaniesAct2013.
4)DisclosureinFinancialStatements:Companiesmustdiscloserelatedpartytransactionsinfootnotes
offinancialstatementsasperAS18orINDAS24,detailingtherelationship,transactionvolume,
outstandingbalances,andanydifferingtermsfromunrelatedparties.
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26. Sandarv Jain