Successfully Managing Purchasing System Audits
Jeffery A. White, C.P.M.
Jeffery A. White, C.P.M., President, J.A. White & Associates, www.jawhite.com, Columbia, SC 29212, 803/407-1399, email@example.com
84th Annual International Conference Proceedings - 1999
Abstract. Whether they are customer, corporate, ISO9000, or Contractor Purchasing System Review (CPSR) audits, purchasers often view audits as non-value added in nature. However, if we use proactive audit management techniques, we can begin to see audits as opportunities to benchmark our processes against our customers' expectations. Additionally, in today's Federal Government procurement environment, companies that successfully pass CPSR's and have in-house self-auditing processes have a competitive advantage over those who do not. This session will provide purchasers with strategies, tools, and techniques that can be use to turn the audit process into a catalysts for re-engineering and process improvement.
The Opportunity. The word "audit" needlessly strikes fear in the hearts of even the most seasoned purchasing and subcontracting professional. Audits must be viewed as opportunities for purchasing departments to clearly identify customer expectations, and demonstrate adherence to those expectations. Before we can embrace this concept, we must first develop an effective audit management process.
This discussion will focus on the lessons learned from a number of recent CPSR's experienced by the presenter. Participants will experience the tools, strategies and techniques used by the presenter to get out of the "reactive audit preparation mode" and into a proactive, audit management role.
There are many opportunities that prime contractor purchasing department have when faced with a CPSR. They involve partnering with auditors to jointly develop the audit plan, proactively resolve audit findings before they become recommendations, and the opportunity and challenge of launching a credible self-audit process. But these opportunities do not instantly appear. Purchasing departments must establish a effective compliance function to spearhead this process.
These and other opportunities are available to contractors because of the fact that CPSR Team captains are advised to invite contractors to increase their participation in the actual CPSR review. This can be accomplished either as full team members, or to some lesser degree, as seen fit by contractor management (e.g., share internal audit reports, conduct joint and coordinated audits, etc.). CPSR teams are also advised not to duplicate the efforts of its contractor team members. Furthermore, the degree of contractor participation should not be a factor in the Administrative Contracting Officer's decision to grant purchasing system approval.
Objectives. The objective of this presentation is to inform the audience about the fundamental steps involved in pro-actively managing the audit process. Workshop participates will be exposed to effective tools, strategies and techniques developed by the presenter to successfully pass over 20 internal, CPSR's, and customer audits. The discussion will include methods as to how to pro-actively managing audits through partnerships with auditors. The positive results of such partnerships are to increase one's chances of successfully passing an audit and to use audits as catalysts for benchmarking and re-engineering.
Additionally, participates will be exposed to ways in which an organization can develop and market its own internal audit function. Internal audit functions can reduce or even eliminate external audits, if implemented correctly.
Finally, participates will learn how to establish effective measures to ensure that the program facilitates continuous improvement.
The Background. FAR 44.3 states that a CPSR is concerned with the way in which a contractor spends Government funds. A CPSR is normally conducted on contractors whose sales to the Government, using other than sealed bid procedures (and commercial acquisitions), are expected to exceed the FAR threshold (currently $25 million). The objective of a CPSR is to evaluate the efficiency and effectiveness with which the contractor spends Government funds and complies with government policy when subcontracting.
The Process. Once a contractor is notified that a CPSR has been scheduled for their organization, the Government's audit team reviews a large amount of pre-audit data. Included in that review is an evaluation of the contractor's pro-active self assessment and internal auditing efforts of their purchasing activity. The Government's position on this issue is that a contractor who has an effective and aggressive self-assessment and/or internal auditing program will lessen the risk to the Government because the contractor is policing its own activities.
The internal audit staff becomes the key player in the establishment of a purchasing compliance program. The staff must begin by developing an audit plan. Many contractors choose to use the actual CPSR audit plan as their guidance in this process. The CPSR audit plan, in general, involves the audit of policies and procedures, terms and conditions, FAR flow-downs, and purchase order/subcontract file documentation. One can easily review the CPSR audit guide and develop a master audit checklist that addresses similar issues. For ease of use, administration, and reporting, the audit program can be converted to an database or spreadsheet application.
After an audit has been conducted and the audit recommendations shared with purchasing management, the internal audit staff should immediately present the findings to the ACO and the CPSR team. If the findings are positive, it will provide a level of confidence to the Government that the contractor's risk is minimal. If major findings result in necessary corrective actions, it will present an opportunity for the contractor to show how effectively it can resolve it's own system defects.
Other details and insights to be shared with attendees include: (1) measuring the audit process, (2) partnering with auditors, and (3) marketing the program.
Defense Logistic Agency. Contractor Purchasing System Review Training Manual, Washington: U.S. Government, 1998