Internal Control Practices | Purchasing

UC Davis department buyers spend approximately $550 million per year on goods and services.

Follow these internal control practices and learn the importance of separating duties, obtaining appropriate authorizations and approvals, securing assets, and verifying charges.

If you purchase, receive, or process payments for goods and services, learn these best practices.

Separation of duties
To ensure proper separation of duties, assign related buying functions to different people. With proper segregation, no single person has complete control over all buying activities.

Best practice is to have different people:
> Approve purchases
> Receive ordered materials
> Approve invoices for payment
> Review and reconcile financial records
> Perform inventory counts

Potential consequences if duties are not separated:

> Unauthorized or unnecessary purchases made
> Improper charges made to department budgets
> Excessive costs incurred
> Goods purchased for personal use
Accountability, authorization, and approval
You maintain accountability when you authorize, review, and approve purchases based on signed agreements, contract terms, and purchase orders.

Best practices:
> Comply with ethical buying practices and policy.
> Review and update signature authorizations/delegations periodically.
> Obtain pre-approval of consultant agreements by Purchasing.
> Verify receipt of goods and services against contract/ purchase order and invoice information.
> Reconcile ledgers for accuracy of recorded transactions.
> Monitor to ensure that invoices are paid in a timely manner.

Potential consequences if accountability does not exist:

> Unauthorized, unnecessary, or fraudulent purchases.
> Unauthorized work performed by suppliers.
> Lost supplier discounts due to late payments.
> Improper charges to incorrect account/ funds resulting in a misappropriation of funds.
> Conflict of interest when paying UC Davis employee for unauthorized outside work.
Security of assets
Once you have received your purchased goods, secure the materials in a safe location. To ensure that your resources are accounted for, periodically count your inventory and compare the results with amounts shown on control records.

Best practices:
> Secure goods received in a restricted area.
> Restrict inventory access to appropriate staff.
> Lock goods and materials, and provide key or combination to as few people as possible.
> Keep inventory records and periodically calculate beginning and ending inventory amounts.

Potential consequences if your assets have not been secured:

> Theft of goods
> Inventory shortages
> Additional costs incurred for replacement of goods
Review and reconciliation
Practice timely review of supplier’s invoice, packing slips, and purchase orders. Check accuracy of the information for prior payment, correct quantity ordered, and price charged. Monthly ledger reconciliation enables you to find improper charges and validate appropriate financial transactions.

Best practices:
> Review supplier invoices for accuracy by comparing charges to purchase orders.
> Verify that the goods and services purchased have been received.
> Perform monthly reconciliations of operating ledgers to ensure accuracy and timeliness of expenses.

Potential consequences if review and reconciliation is not performed:

> Improper charges to your department budgets
> Disallowances resulting from costs charged to incorrect accounts/funds
> Payments made for items or services not provided

Resources

Policies

Questions?

For questions on purchasing, contact Procurement & Contracting Services.
For questions on internal control practices, contact Controls & Accountability.