Types of risks in Procurement Audit

1. Strategic risks
These are risks associated with external factors. They may lead to delay in supply of goods and services, and occur in the following stages:

  • Planning for procurement: Failure to secure on-going supply which is critical on the organization may lead to high cost of procurement and failure to adhere to organizational results.
  • Insufficient lead time: May lead to inadequate supplier response and higher prices.
  • Selection of procurement strategy: Inappropriate strategy leads to inadequate results thereby not achieving best VFM. In this stage, delayed requisition may create false emergencies which lead to higher cost of acquisition.

2. Operational risks
Here is where most risks lie. There are risks that may arise as result of operations of the procuring entity in course of the procurement process.

  • Requirement: Biased or restrictive specifications could result in inadequate supplier responses.
  • Preparation and issuance of solicitation documents: Use of inappropriate evaluation criteria, perceived favouritism in providing information may lead to inappropriate results and not achieving VFM.
  • Sourcing: Wrong approach, misinterpretation of facts by suppliers and out-dated information on potential suppliers are possible risks. This may lead to selection of inappropriate procurement method, high prices and inadequate supplier responses.
  • Receipt and opening of received offers: Actual/perceived breach of confidentiality leading to supplier complaints, political intervention and mistrust of suppliers.
  • Evaluation process: Failure to observe effective evaluation procedures leads to selection of inappropriate suppliers and non-responsive bidders or no response from known high quality suppliers. This delays procurement processes and schedules which may result in poor value for money due to limited competition.

3. Project risks
These are risks associated with contract, initiation to completion affecting delivery of desired results and failure to achieve value for money. These risks stem from contract management processes and they include:

  • Unwillingness of supplier to accept the contract.
  • Failure by either party to fulfil conditions of the contract.
  • Delays in delivery.
  • Contract disputes.
  • Inability to work on the project.

4. Compliance risk
It is the exposure to legal penalties, financial forfeiture and material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies or prescribed best practices.

5. Financial risks
Sources of risks in procurement
1. External factors e.g. political, natural
2. Project complexity
3. Project planning
4. Procurement process
5. Fraud/Unprofessional conduct in procurement

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