By Bob Swetz
Controller Consultant | Tier One Services, LLC

From my experience as an auditor, I have found that purchase orders and their purpose are misunderstood by many organizations.

There are 2 common reasons organizations might want to use purchase orders

1. To obtain proper authorization for purchases

2. To control and track inventory in the organization’s accounting system

If your organization is using purchase orders for the first reason, for authorization, then I recommend a careful review of the purchasing process to ensure that their use is meeting your organization’s objectives. In short, purchase orders should be prepared by the requesting employee and reviewed and signed by at least 1 member of upper management, generally a department supervisor, before the purchase is made. Once a properly authorized purchase order is obtained it can be delivered to the vendor to initiate the actual purchase.

If purchase orders intended to meet the authorization objective are processed after-the-fact, then the objective has not been met.

If your organization is using purchase orders for the second reason, to control and track inventory only, then perhaps the authorization steps are not necessary. If that is the case you should keep a couple things in mind. First, there must be other authorization procedures in place in relation to the purchasing and cash disbursements function. Second, purchase orders should still be completed prior to making the actual purchase. When goods are physically received the items should be marked received in your accounting system and matched with the invoice.

If purchase orders intended to meet the inventory control objective are processed after-the-fact, then the objective has not been met.

The bottom line is that purchase orders can be an effective part of your organization’s purchasing and cash disbursements function when used properly and when prepared in advance of the actual purchase. Make sure to determine your objectives first and the rest should follow suit.

If you have questions or want to dig deeper, feel free to schedule a 15-minute troubleshooting session with me at http://bit.ly/Scheduling_Troubleshooting or connect with me on Facebook at https://www.facebook.com/bobswetzonline.

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