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Case Study: Auditing the P2P Process of Easy Case Organization AG
I. Background
Purchases handled in the Easy Case Organization AG are classified into the following: raw and
packaging materials, freight and logistics, marketing materials and services, IT equipment, and
facilities-related materials and services. There is no central purchasing group at the site hence
purchasing functions are handled by the respective departments which need the materials and
services. As such, there are people in the following functions which have purchasing
responsibilities: production, logistics, marketing, sales, IT, HR, and facilities. There are no current
plans of consolidating the Procure to Pay (P2P) and purchases processes to the central purchasing
organization in Germany, because most purchases are made from local suppliers. Due to language
barriers and time differences with the local suppliers, management believes that outsourcing the
purchasing functions to Germany will be neither efficient nor beneficial.
The new Finance Manager believes that purchasing is an activity prone to fraud and is keen on
overseeing the purchasing activities at the site. He had agreed this with the General Manager and
got the support he needed to require training for all those involved in purchasing activities. A
purchasing policy has been put in place to guide sourcing and procurement activities and has been
used at the site for the past two months. This was also the material used for the training for
personnel performing purchasing activities.
II. Process Overview
a. Purchasing request creation and approval
1. Purchases equal to or below $1,000.00 – There is no need to perform sourcing for
these purchases. Orders can be placed immediately with the supplier indicated in the
preferred supplier list. If there is no existing preferred supplier for the material/service
to be purchased, then verbal approval has to be obtained from the department head
(or for marketing purchases, the appropriate assistant brand manager or brand
manager) before placing the order with the supplier – via email or over the phone.
2. Purchases above $1,000.00 - For each business need for a purchase determined by
a department, a purchase request form (PR) has to be filled out by the originator. This
form includes the details on the description of the material/service needed, the reason
for the purchase and the total estimated cost. This form is sent to the department
head (or for marketing purchases, the appropriate assistant brand manager or brand
manager) for approval – via signature on the form or email approval. Once approved,
sourcing is performed. If there is a preferred supplier for the material or service
requested, there is no need to undergo sourcing. If there is no preferred supplier, then
the originator obtains quotations from 2 – 3 suppliers, either via phone, fax, or email.
Details of verbal quotations need to be noted on the PR; fax or email quotations need
to be attached. The originator evaluates all quotations and renegotiates with the
suppliers, if needed. No revised quotations are requested from the supplier in case
there are changes from the original sent (e.g. price, goods specifications). Once a
supplier has been selected, the name and final price agreed for each of the materials
orders is noted in the PR.
Notes:
Approval limits - Department heads (function managers – equivalent Band 3) have been
given authorization by the Finance Manager to approve all purchases related to their
department’s needs for up to $100,000. Purchases above this amount need to be
approved by the General Manager. However, in the marketing department, due to busy
schedules, the Marketing Director has authorized assistant brand managers and brand
managers to approve summary is then attached to the PR form and then sent back to the
originator for filing. Once the originator receives the PR package with the PO number, the
order can be placed with the purchasing requests up to $20,000 for their respective
brands, without need for further approval.
Preferred supplier list – As part of the new purchasing policy set in place at the site, the
Finance Manager requested each department to list down their common purchases and
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Case Study: Auditing the P2P Process of Easy Case Organization AG
indicate the corresponding preferred supplier. The preferred suppliers are typically those
whom the organization have been working with for a long time and considered trusted
suppliers. There are no contracts in place with these suppliers, as there are no existing
standing orders. If there is an existing preferred supplier for a material or service
requested, then there is no need to get quotations from other suppliers and orders can be
placed directly via phone or email.
b. Purchase order creation – To keep a record of all purchase orders (PO) created by different
originators, the Finance Manager asked IT to create an intranet-based solution which will be
used to generate unique PO numbers and keep details of these POs in a database (not part of
the ERP system used at the site). There is only one person with access to this system – the
accounting department assistant - aside from the administrator. PO numbers are needed
because no invoice above $1,000.00 will be paid by the cashier without a PO number.
For each purchase above $1,000.00, the PR and any supporting quotations have to be
submitted to the accounting department assistant for recording the purchase request and
generating the unique purchase order number. The assistant enters information regarding the
supplier, items ordered (name/description/code of the item or service, quantity, and price), and
PR date. The PO number is placed in the PR form to prevent creation of multiple PO numbers
for the same PR. A printout of the PO should be given to the supplier. However, for preferred
suppliers, this is usually done over the telephone. Official POs are usually only sent when
ordering from suppliers for the first time. No confirmation is needed from the suppliers to finalize
the order.
c. Purchase order monitoring – Purchase order originators keep all the PR forms that they are
responsible for in their respective file folders. Since they are the ones responsible for ensuring
the orders arrive on time, originators follow-up on orders or service requests made a day or two
before the expected delivery date to confirm on the status of the order. Further follow-ups are
made when goods or services are not received on the agreed date of delivery.
d. Goods receiving and invoice posting - Deliveries of all materials and goods are received in the
warehouse onsite. Originators need to inform the warehouse of expected deliveries and this
information in kept in a record book in the warehouse department. Before any delivery is
received, warehouse personnel need to check the record book of expected deliveries. If it is in
included in the record book, the delivery is allowed to be received and item is crossed off from
the book. However, if it is not in the record book, the warehouse calls the department most likely
to have ordered the goods and checks if the order was made and the delivery is to be received.
After verbal confirmation is received from the originator, the goods are received in the
warehouse, and placed in a separate area from the production materials and finished goods.
The originator or a representative from the department which ordered the goods gets the
materials from the warehouse once notice has been given that the goods are already in the
warehouse.
Once the goods or service has been received, the originator waits for the vendor to send the
receipt. Upon receipt of the invoice, the originator puts the date on the invoice to acknowledge
receipt, then asks the PR approver to sign on the invoice for approval. Once approved, the
invoice, PO printout and PR form are sent to the accounts payable department for recording
and payment processing. For purchases below $1,000.00, the invoice is approved through
signature by the appropriate approver and then sent to the accounts payable clerk.
The accounts payable clerk checks the invoice and the supporting documents for proper
approvals and if the PO price matches the invoice price. If the discrepancy between the PO and
invoice price is less that 5%, the invoice is processed for payment. If the invoice price is greater
than the PO price by more than 5% of the total amount, the invoice is sent back to the originator
for an additional approval by the PR approver. When the invoice has been cleared by the
accounts payable clerk for payment processing, it is logged in the payment approval list for
signing by the Finance Manager.
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Case Study: Auditing the P2P Process of Easy Case Organization AG
e. Invoice payment
All invoices are paid 30 days after the invoice receipt date indicated by the originator. All
invoices received by the cashier for payment are filed in a folder. Every day, the cashier goes
through the file to see if the there are invoices which need to be paid the next day. For suppliers
which have bank accounts indicated in the invoice, the cashier fills out a bank transfer request
form for payment of the funds to the supplier’s bank account. For suppliers which have no bank
account information indicated in the invoice, the cashier check the supplier record in the system
to see if there is a bank account indicated there. If there is one indicated, then the cashier also
fills out the bank request transfer form. If there is no bank account information in either the
invoice or the supplier record in the system, then a check drawn in the name of the supplier.
The Finance Manager has to approve all payments – both bank transfers and checks; if there is
an individual invoice amount more than $100,000.00, additional approval is needed from the
General Manager. Bank transfer requests are sent to the bank at the end of each day. Checks
are available for pick-up by the supplier on the due date for payment. Bank reconciliation is also
performed by the cashier.
III. Interview Transcripts
Audrina Tautie The suppliers that we indicated in the preferred list have been people we
Marketing Director have been working with for years. They understand our need for quality
and speed. It is very hard to build trust with suppliers – so we do not like
to change suppliers for each project and item that we buy. This list was
approved by the General Manager and Finance Manager. I don’t believe
that we need to have to write down the reason that we chose those
suppliers – everyone around here knows that they are the best and that
they have been our partners for a long time. Anyway, sometimes for
large order amounts, we sometimes get quotations from other vendors
just to check if our preferred supplier is giving us the best price. If not,
then we usually ask them to reduce it, but only if the quality of the goods
is comparable with other suppliers. If we know that our preferred supplier
still provides the best quality, then we don’t mind that they charge higher
than other suppliers – we don’t want to sacrifice quality for some savings
because we don’t want to dismay our customers and consumers. That is
simply bad for business.
Natalie Prokopenko For purchase requests that I need for my brand that I approve (less than
Asst. Brand Manager $20,000.00) and find suppliers for, I don’t really see a problem with that.
Anyway, we have monthly meetings with the entire marketing
department and Marketing Director where we review budgets assigned
to us. If there are any spending excesses, we have to show all the
purchases we made for the month. Also my brand manager sometimes
reviews my budget tracking, because we have many initiatives this year
for the market expansion that we’re doing, but not a lot of increase in the
budget – so we have to shuffle the budget around quite a bit.
Amalia Karotaoli Honestly, sometimes I have arguments with the suppliers. Because
Facilities Manager sometimes, they forget the date that I tell them that the goods or service
is needed. Also there were a few times that we had some dispute on the
price! Sometimes, they forget that we agreed on a lower price than the
one they placed on the original quotation – and they put the higher price
on the invoice. Well it’s okay since they don’t want to lose us as
customers, so they usually in the end agree with us. We order a lot from
these suppliers, we are very important to them. Yes, maybe sending
them the purchase order forms would be helpful so they don’t forget the
delivery date and price we agreed on, but honestly it is very time-
consuming process. I don’t have an administrative assistant here and so
my deputy facilities manager and I take care of everything! Besides, we
normally use the quotations they send us as proof of the price they have
offered to us.
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Case Study: Auditing the P2P Process of Easy Case Organization AG
Paolo Cerutti Sometimes, people who orders goods forget to tell us that they are
Warehouse Manager expecting deliveries. So when the delivery truck arrives, it can be time-
consuming trying to find the person who ordered the goods so we can
confirm if we should receive the delivery or not! There have been a
couple of times that delivery trucks had to wait for half a day outside the
docks! They got really mad, but what could we have done? We can’t
accept deliveries that are note confirmed! If it turns out to be an
unauthorized delivery, then I might have to pay for it myself!
Gregori Polipatunis You are right, there have been a few payments that we made after the
Cashier due date. That does not happen often! In fact if you check, it all
happened all the same time. It was only because I got sick for a few
days and no one else has access to my records and the check books.
We need to keep those safe – because the vault also has cash
remittances from sales people who were not able to remit their day’s
cash collections to the bank. The suppliers did not get mad anyway –
those were all preferred suppliers, so they know we will pay them for
sure!
IV. Other Information
Key Contact Additional information shared when asked
Nomila Rodrigo Context:
General Manager Delegation Of Authority (DOA) policy deployment at the site
Additional Information:
▪ DOA policy has not been deployed at the site. They still follow their own delegation
of authority policies. They do have approval limits for purchases and invoice
approval which are documented in an SOP deployed and made available to
everyone in the organization.
Christos Fikanito Context:
Finance Manager Preferred supplier list
Additional Information:
▪ When I first came in, one of the areas which I found to be weak when it comes to
controls is purchasing. I was concerned that each department and person was
doing his own purchasing, and the only sort of control in place was the approval of
the person’s line manager for the purchase made. They were not even keeping
documents like quotations – only final invoices for payment. There were no
guidelines for people to follow on how to do proper sourcing of suppliers.
▪ After talking to all the department heads, we decided to put a purchasing policy in
place. One of the things that was most important was for each department to
determine their preferred suppliers for each common kind of purchase. The rational
for this was that if they have been working with these suppliers for a long time, then
some relationship would have already been built and it is easier to negotiate for
discounts or special rates, or if there were any problems with quality, then the
suppliers can be easily talked to.
▪ There was no documented analysis of why they chose those preferred suppliers. Of
course, for each department the list of preferred suppliers had to be approved by
the department head to make sure that these were really suppliers that the
company has established ties with.
Igorino Bonrakina Context:
System System record of purchase orders
administrator
Additional Information:
▪ POs created in the intranet-based solution have no link to the ERP system. Once a
PO has been created, the information is just stored in this stand-alone solution.
Information about deliveries and invoice recording are in the ERP system. So for
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Case Study: Auditing the P2P Process of Easy Case Organization AG
example, you won’t be able to know if a PO has been closed – meaning delivery
and invoice have been received. It’s really just a way for us to generate unique PO
numbers for all purchases above $1,000.00. So net, this solution is able to keep a
record of all POs made, but just no way of knowing the status for each.
V. Attachments (see attached word documents)
a. Purchase request form sample
b. Preferred Suppliers List
