Procure-to-Pay Process: What it is, Benefits, and Steps Involved

Some common procurement challenges are inadequate documentation, ambiguous contracts, insufficient internal controls, risk management, and non-compliance with industry standards.

There are only two ways to identify such issues: wait for repercussions to disrupt the supply chain or conduct a procurement audit.

This post will cover how to conduct a comprehensive procurement audit with a step-by-step process and checklist.

What is a Procurement Audit? 

A procurement audit is a systematic review of the procurement process to ensure compliance, efficiency, and effectiveness.

The auditing team carefully reviews documents like contracts and purchasing records in a procurement audit. It examines each phase of the procurement process, from bid assessments to contract management, to identify discrepancies and optimize efficiency. The main goal is ensuring adherence to regulations, minimizing risks, and refining procurement practices for optimal organizational outcomes.

How To Prepare for a Procurement Audit 

For an effective procurement audit, consolidate all the documents with proper access for relevant stakeholders. Employ procurement software to create a single source of truth and avoid unnecessary friction.

Implement access controls to restrict permissions to view-only access for sensitive procurement data. This step ensures that only authorized individuals, such as the audit team, can access critical information, minimizing the risk of unauthorized alterations or data breaches.

Here is an exhaustive list of documents you will need for the procurement audit:

1. Procurement policies and procedures, including the updates or revisions to these documents
2. Contracts and agreements with vendors — amendments, renewals, or modifications to existing contracts
3. Purchase orders issued during the audit period and supporting documentation for each purchase order
4. Invoices related to procurement and payment records, including dates and amounts paid
5. Goods received notes and delivery records, including dates, quantities, and item condition
6. Vendor profiles, including contact information and details of vendor qualifications and any evaluation or performance assessment reports of vendors
7. Bid and proposal documents, the evaluation criteria, and scoring records for vendor selection
8. Records of communication that are related to procurement decisions and processes — correspondence with vendors, internal departments, and other stakeholders
   
9. Documentation outlining internal controls within the procurement process — evidence of segregation of duties and authorization processes
10. Previous internal and external audit reports and any actions taken or improvements made based on earlier audit recommendations
11. Procurement budgets and any adjustments or variances with the original budget

Five Steps for Conducting a Procurement Audit

With all the documents ready, begin the procurement audit process. Here is an end-to-end five-step audit process with checklists for a successful audit:

1. Gather Stakeholder Input 

Conduct interviews with key stakeholders to gather insights. This adds a layer of understanding regarding the human aspects of the procurement process, helping identify challenges and opportunities for improvement.

Additionally, collaborate with relevant stakeholders, such as department heads and key project managers, to decide the scope and create an audit plan. This inclusive approach ensures an understanding of organizational needs and contributes to developing an effective and targeted audit strategy. 

2. Assign Roles

Create a clear roadmap for team members. First, designate a lead auditor to oversee the entire process. This person ensures coordination and consistency. 

Then, distribute specific responsibilities among team members, such as document analysis, interviews, and data assessment. This division of labor maximizes efficiency, expertise, and accountability, contributing to a well-executed procurement audit.

Here are the top four best practices when assigning roles to an audit team:

• Clearly define team tasks to prevent confusion and streamline workflow
• Implement segregation of duties for an unbiased audit process
• Rotate roles periodically to encourage collaboration and shared expertise
• Foster collaboration among diverse team members for a comprehensive assessment

3. Identify Problem Areas 

Examine the procurement process to identify weaknesses and assess the overall efficiency of the procurement process. Here are the top four steps to keep in mind:

Assess Purchase Orders, Purchase Requests, and Invoices

Examine the purchase orders, requests, and invoices for accuracy, completeness, and adherence to established protocols. Ensure that the documentation is easily accessible. Any discrepancies or missing information indicates inefficiencies or errors in the procurement process. 

Potential Loopholes: 

• Misplaced signatures, unclear specifications, or missing supporting details
  
• Discrepancies in recorded quantities, prices, or delivery dates
• Mismatched product codes, incorrect quantities, or inaccurate pricing

Healthy Practices:

• Implement a standardized checklist for purchase orders and requests, ensuring all necessary information is included
• Conduct regular training for procurement staff on accurate and comprehensive documentation practices
• Employ procure-to-pay software for storing and retrieving documents, enhancing accessibility and reducing errors

Review Vendor Relations

Evaluate the strength and effectiveness of relationships with vendors. Examine vendor agreements and contracts to ensure they are clear, comprehensive, and aligned with organizational needs. Also, verify the effectiveness of vendor vetting processes.

Potential Loopholes: 

• Contracts lacking specificity in payment schedules, service levels, or delivery terms
• Failure to verify vendor credentials, financial stability, or past performances

Healthy Practices:

• Conduct periodic vendor performance reviews to ensure ongoing reliability
• Develop transparent and standardized contract templates specifying payment schedules, service levels, and delivery terms
• Diversify vendor partnerships to diminish dependency and enhance resilience

Analyze Procurement Practices

Assess the entire procurement process to check if it adheres to industry standards and complies with organizational policies and legal requirements. This involves comprehensively examining sourcing, contracting, and purchasing practices to identify deviations or shortcomings.

Potential Loopholes: 

• Failure to adhere to industry standards or legal requirements, showcasing a disregard for regulatory protocols
• Continued reliance on outdated or non-competitive suppliers, hindering cost-effectiveness
• Lack of systematic identification and mitigation of potential risks, exposing the organization to unforeseen challenges

Healthy Practices:

• Provide training sessions on industry standards and legal requirements to ensure ongoing compliance
• Organize quarterly workshops focusing on proactive risk identification and mitigation strategies, fostering an aggressive risk-aware culture

Examine Internal Controls

Evaluate the segregation of duties, authorization procedures, and overall internal controls. Make sure that checks and balances are in place, preventing fraud, errors, or unauthorized activities that compromise the integrity of the procurement process.

Potential Loopholes: 

• Allocation of responsibilities for both approval and execution to a single individual increases the risk of errors or fraudulent activities 
• Insufficient checks and balances in the approval process, allowing unauthorized transactions
• Absence of mechanisms to detect irregularities, fostering an environment conducive to fraudulent activities

Healthy Practices:

• Provide employee training on fraud prevention and promote a culture of ethical behavior
• Implement proper approval workflows to enhance control mechanisms

4. Spot Out-Of-Process Spending

Investigate expenditures to ensure they align with approved procedures. Any out-of-process spending indicates a lack of adherence to procurement guidelines, necessitating corrective measures. 

Potential Loopholes: 

• Missing or inaccurately recorded receipts, making it challenging to validate and track expenses
• Insufficient supervision that enables unsanctioned spending to go undetected

Healthy Practices:

• Implement strict spending approval processes with explicit guidelines
• Conduct periodic spending reviews to identify and rectify discrepancies
• Use spend management software for real-time monitoring to detect and address unauthorized spending promptly 

Here is a list of elements to assess for the internal procurement audit: 

Procurement Audit Checklist

Check the following items to get a comprehensive overview of your procurement process. 

• Standard operating procedures (SOPs)
• Clear audit trail for procurement transactions, documenting each step in the process
• Delegation of authority matrix 
• Roles and responsibilities as per the matrix
• Training manuals to help users
• Logical access rights to respective users
• Segregation of duty (SOD) rules in the software
• The purchase order dump — pick samples to check

• If each purchase is supported by at least three vendors
• Cost-benefit sample for vendors
• Terms for purchase orders

• Agreements of major purchases
• Terms of sample agreements
• Annual procurement budget aligned with annual operations planning 
• Goods received notes (GRN) report
• Open purchase requests and purchase orders
• Exceptions to the process being approved
• The aging of material available in the warehouse
• If the same material was purchased by multiple vendors
• Vendors approval process
• Duplicate vendors in the system (identified via PAN)
• Dummy vendors
• Minimum order quantity (if created)
• If the company maintains any risk register related to the procurement function
• Sample vendor payouts (as per purchase order terms)
• Internal control over financial reporting related to procurement
• Measures to secure procurement data and ensure confidentiality
• Ethical vendor selection practices, ensuring fairness, transparency, and avoiding conflicts of interest

5. Prepare Audit Report

Compile all audit findings related to internal procurement processes. Then, based on the following inspection, create an audit report:

• Ensure procurement aligns with policies, standards, and legal requirements, identifying non-compliance and assessing organizational risk and reputation impact
• Analyze the workflow, pinpointing bottlenecks and assessing control effectiveness for optimal procurement efficiency
• Evaluate resource utilization in personnel, technology, and budget to optimize productivity without compromising quality
• Assess risk identification, assessment, and mitigation in procurement, recommending improvements for enhanced resilience and threat minimization

Once the assessment is complete, document recommendations to address identified issues and improve procurement processes. Also, highlight aspects of the procurement process that align with best practices. 

Compile all findings, analyses, and suggestions into an audit report. Present the identified strengths and weaknesses, seeking input and additional context to enrich the audit findings. Finally, establish a monitoring mechanism to track the outcomes of the implemented changes. Regularly revisit and update procurement practices based on changing organizational needs, industry standards, and regulatory requirements.

Regular Audits for Efficient Internal Processes 

Routine procurement audits aren't just crisis management tools; they are proactive investments. By dedicating time and resources to periodic evaluations, you prevent issues before they arise. The long-term gains in efficient processes, improved vendor relations, and heightened compliance far outweigh the initial investment.

Automation adds a transformative layer to your procurement process, speeding up audits and providing real-time insights. We have covered in-depth how procurement automation can reinforce your internal processes without impacting your supply chain. Read how you can automate procurement without unnecessary complications. 

In today's fast-paced business world, managing expenses can be a daunting task for IT and procurement teams.

To help you out, we compiled a list of features and functionalities that you should consider when picking your spend management platform.

Spoiler alert, Pluto has them all.

PCI DSS Level 1 Provider

One of the essential features that should be given high importance is the product's PCI DSS Level 1 compliance.

The Payment Card Industry Data Security Standard (PCI DSS) is a set of guidelines and security requirements designed to safeguard payment card data. 

The standard was developed by major credit card companies, including Visa, Mastercard, American Express, Discover, and JCB, to ensure that all companies that handle payment card data maintain a secure environment. PCI DSS compliance helps to prevent fraud and data breaches, protecting both the company and its customers.

PCI DSS Level 1 is the highest level of certification a company can achieve for PCI compliance. 

It requires companies to undergo a rigorous independent audit to ensure compliance with all 12 of the PCI DSS requirements, including network security, access control, and vulnerability management. 

Achieving PCI DSS Level 1 certification demonstrates that a company has a comprehensive and effective security program in place to protect payment card data.

When evaluating corporate spend management products, IT and procurement teams should look for products that have achieved PCI DSS Level 1 compliance to ensure that the product meets the highest security standards. 

This will help to ensure that the company's payment card data is adequately protected and that the company is meeting its compliance obligations. By prioritizing PCI DSS Level 1 compliance, IT and procurement teams can help to safeguard their company's reputation and financial well-being.

Being PCI DSS Level 1 compliant is essential for any organization that handles corporate card information, as it provides a high level of security and assurance that the organization is taking all necessary measures to protect its customers’ data.

Pluto Card is proud to be PCI DSS Level 1 compliant. This means that our customers can trust that we have taken all necessary measures to secure their data and protect it from unauthorized access. 

We also partner with vendors who are held to the highest security standards, such as PCI or SOC2 compliance.

Passwordless Login

Passwordless login is a secure and convenient way for users to access their accounts without the need for a password. It is an effective way to protect against unwanted access to your account, as passwords can be easily compromised or stolen. By tying your Pluto access with a company email account provided by your organization ensures that when your employees lose access to their company email address they also lose access to Pluto. 

At Pluto Card, we understand the importance of passwordless login, and we offer this feature to our customers. With our passwordless login feature, our customers can access their accounts quickly and securely, without the need for a password.

Activity Log And Audit Trails

Activity logs and audit trails are crucial for ensuring strict auditing everywhere. An activity log records all user activity within an application or system, while an audit trail provides a record of all changes made to data within the system.

Pluto Card offers a 7-year audit log, which means that our customers can track critical changes made to their data over a seven-year period.

Data Access

Employees that are using our platform have only as much access as they need, and we have infrastructure redundancy built into Pluto, which means that all compute and data is  run in multiple geographies. 

Business continuity is paramount at Pluto - to this end, we ensure data redundancy with redundant backups in multiple geographies as well.

In addition, at Pluto, your application data is always encrypted in transit, and at rest. 

Continuous Security Scans

Pluto also provides a continuous security scan, which tackles multiple dimensions, including code or dependency  vulnerabilities, infrastructure, and public endpoint scans. 

Our customers can be assured that we take security very seriously and are always on the lookout for any potential security threats. 

In the event of a security incident, we have an immediate incident response plan in place and will notify impacted customers without undue delay of any unauthorized disclosure of customer data.

24x7 Customer Support and Dedicated Account Manager

In addition to these security features, Pluto Card also provides 24x7 customer support.

We understand that our customers need support around the clock, and we are always available to help with any questions or issues that may arise.

Data Infrastructure, Redundancy and E2E Encryption

We also provide infrastructure and data redundancy, which means that our customers’ data is highly available and secure, even in the event of a system failure or outage. 

Data is always encrypted in transit, which means that it is always protected during transmission between servers or devices.

Finally, another crucial feature that IT and procurement teams should consider when evaluating corporate spend management products is data residency and retention policies. 

Pluto Card offers an audit trail for changes to customer data, so we can track who did what. 

Additionally, we have a data residency promise of 7 years, which means that we retain customer data for that period of time. 

This can be important for compliance with regulatory requirements, such as tax or financial reporting.

Conclusion

In conclusion, when evaluating corporate spend management products for your enterprise, it’s essential to consider the security features that the product offers. 

PCI DSS Level 1 Compliance, passwordless login, activity logs and audit trails, and data residency and retention policies are all critical features that can help ensure the security and integrity of your organization’s financial data. 

Pluto Card offers all of these features, along with 24x7 customer support and infrastructure and data redundancy, making it an excellent choice for organizations looking for a secure and reliable corporate spend management solution.

For more information  visit Pluto and book a demo.

Picture handling hundreds of weekly purchase requests from different departments, each demanding new vendor searches. When you finally make purchases after going through the cycle of approvals and negotiations, you end up facing goods and invoice discrepancies. 

That’s a chaotic situation you certainly want to avoid. 

While procurement may seem like a simple purchase on paper, the process requires planning and structure for larger organizations. 

One way to avoid this chaos is through procurement management, which helps businesses streamline the acquisition and record-keeping process. This reduces overhead costs and helps you remain profitable.  

In this post, we will explore what is procurement management, outline the steps involved, and give tips to optimize your procurement cycle for an effective procurement management system. 

What is Procurement Management? 

Procurement management refers to the strategic acquisition of goods and services to meet the needs of an organization. It covers the entire goods procurement process from raising purchase requests to settling payments with vendors. This involves the procurement team’s planning, sourcing, negotiating, validating, and clearing payments to ensure a proper supply chain. 

Steps Involved in the Procurement Management System

A standard procurement management process is intricate and involves several stakeholders. Here are the key steps:

1. Needs Assessment: Identify internal requirements through meticulous forecasting.
2. Vendor Selection and Database Establishment: Thoroughly vet vendors, creating a robust database for strategic partnerships.
3. Negotiation of Terms: Engage in negotiations on pricing and delivery schedules to optimize resource utilization.
4. Purchase Order Generation: Transform approved purchase requests into precise orders to minimize potential errors.
5. Goods Receipt and Matching: Validate received goods against purchase orders (GRN matching) to ensure order accuracy and quality control.
6. Invoice Approval and Payment Processing: Ensure accuracy before approving invoices and proceeding with payments.
7. Record Maintenance for Auditing: Systematically document all transactions for transparent auditing, ensuring compliance and accountability.

Although the process looks simple, it has several loopholes. There are numerous steps involved, and the entire process becomes tricky to execute. These steps are scattered across multiple platforms, complicating reconciliation during the audit season.

Furthermore, it requires approvals at certain stages, making it unfavorable for larger teams with complex hierarchies. 

How to Optimize the Procurement Management System

You can overcome these challenges by automating your systems. 

Automation makes this lengthy and complex process a simple and efficient procurement cycle. The employees get a dedicated platform to raise requests. Furthermore, stakeholders can efficiently review and approve requests with automated notifications. 

Automation also simplifies GRN matching through the data stored in the software. Accounting and payment integrations help clear approved invoices within seconds. 

Throughout this process, you gain real-time visibility and control over expenses. Moreover, having all your information on a unified platform simplifies reconciliation and ensures a proper audit trail.

Here are five ways automating the procurement process helps your business:

1. Internal Control Over Financial Reporting (ICFR)

Automation ensures compliance with ICFR standards and upholds quality controls throughout the procurement process. It does this by using trigger-based approval workflows that follow predefined financial controls. It implements validation checks to ensure that procurement transactions meet quality control standards. This makes two-way and three-way matching seamless. 

By deploying a single software solution, you detect and prevent potential errors or discrepancies in financial reporting.

2. Documentation

Automation brings together purchase requests, purchase orders, receipts, and all the relevant conversations on a unified platform. This makes storing and retrieving information easier, especially during the audit season. Also, optical character recognition (OCR) technology simplifies extracting key information, eliminating the need for manual data entry. 

As a result, you improve document accuracy and prevent errors such as late or incorrect returns due to missing receipts, invoices, payables, and supporting documentation.

3. Integration

Automation software integrates with your accounting software, payment gateways, and ERPs bringing together the scattered pieces of procurement. 

It allows you to request, manage, match goods receipts, and pay vendors from a single place. The best part is that your data remains consistent across all your software making the lives of financial controllers easier.

4. Measure

Automation offers you real-time visibility through a custom dashboard. It gives you a holistic view of the procure-to-pay process with a centralized data repository. 

This makes it easier to extract insights and optimize the process to improve margins, such as average payables due, top vendors, department-wise expenses, etc.

5. Standardize Workflows

Automation helps you create standardized workflows to ensure consistency and efficiency. As a result, each stakeholder gets notified to complete their part. So, be it approving expenses or GRN matching, these set workflows eliminate the need to chase employees averting potential delays. 

Challenges of Automating the Procurement Cycle 

While automation does offer several benefits, choosing the right tool is crucial. One wrong decision and you might end up in one of the following situations:

• You invest in a basic software that lacks functionality and doesn’t solve your procurement issues.
• You choose a complex product that is difficult to understand and operate. 
• You get a tool that doesn’t integrate with your existing accounting and payment software, increasing the manual task of syncing data across these systems. 
• You get multiple products for different steps that lack integration, hindering efficient and streamlined procurement management. 

Automation becomes a nightmare with the wrong software. All these scenarios lead to resource wastage. Moreover, weeks and months spent on implementation disrupt the supply chain.

What a Good Automation Procurement Management System Looks Like

Here’s how a comprehensive automation platform makes your procurement process easy, functional, flexible, and scalable. 

1. Standardize Process

You have a centralized platform to consolidate the scattered procurement process. Whether purchase requests, approval workflows, or recurring SaaS payments, it allows you to automate as many procurement elements as you want. 

It lets you digitize the entire process without compromising your current workflows. This boosts transparency and provides better control over your expenses. 

2. Streamline Approvals

You get a no-code trigger-based approval workflow engine that helps you set exact approval hierarchies to get approvals without disruptions.

For example, you can add if-then rules and set a precise and intricate workflow. Thus, when an employee raises a purchase request, instead of chasing stakeholders, this system notifies them to review and approve the requests. 

Additionally, all queries or clarifications unfold within the procurement software, ensuring comprehensive documentation and visibility. This eliminates maverick spending and fosters an accountable procurement process. 

3. Vendor Management 

You can sync all your vendors to your accounting software and ERPs. This creates vendor consistency across platforms, accelerating the purchase order creation. You also get the ability to add the list of items and simplify the purchase order and GRN matching process.

4. Receipt Management 

You get a dedicated dashboard to manage all your receipts. The software captures invoices from emails and WhatsApp and uses OCR technology to extract key information. This streamlines GRN matching as all vendor, purchase order, and invoice details are in one place. 

Pluto's procure-to-pay module is an excellent example of this centralization. It accelerates reconciliation with GL codes and tax codes, enhancing finance teams' visibility and control over purchase order spending.

5. Centralize Documentation

You have a unified information source as the software integrates with your accounting and payment software and your ERP. Hence, it becomes easy to store and maintain data while maintaining consistency across. 

For instance, Pluto offers you a wide range of integrations, such as NetSuite, Xero, QuickBooks, Zoho, etc., so that you focus on procuring goods and get complete documentation with accuracy. 

6. Detailed Reports 

You get comprehensive reports, making it easier to extract insights and make data-driven decisions. Also, as all the information is stored within the software, there are no gaps or loss of context. You get an accurate picture of your procurement process. This allows for strategic planning and forecasting. 

For instance, with Pluto, you get insights, such as average time for approvals, average payables due, top vendors, department-wise spending, location-wise spending, etc. 

7. Audit Trails

Since there’s a unified platform to maintain thousands of receipts, you get complete visibility into each order from purchase requests to stakeholders involved and order status. This audit trail becomes a blessing during the audit season when you need less than 30 seconds to retrieve a specific receipt or document.  

There’s More to Procurement Management than Automation

Procurement management is not just about automation. While it does enhance the three core components of procurement—people, process, and paperwork, procurement management requires more than the adoption of software. 

Pluto aims not just to automate your processes but also to support your existing workflows. Then, be it purchase requests, accounts payable, or accounting, it strives to improve your processes by removing all the bottlenecks that cause chaos.  

Know more about how we can help your business. Book a demo and we’ll see you across to maximize the efficiency of your procurement process.