In many organizations, procurement is the specific responsibility of a buying department or purchasing department. Organizing this activity in a centralized department should help to ensure that spending is managed and controlled.
The main risks with procurement are as follows:
- The entity may buy items that it does not really need or cannot afford.
- It may pay prices that are higher than necessary. Items might be available at a lower price.
- Some payments to suppliers may be fraudulent; for example, some suppliers may receive payments for items they have not supplied.
- The entity might pay suppliers the wrong amount.
- The entity may take too long to pay (longer than the time agreed in the terms of credit with the supplier).
- This could have an adverse effect on the business reputation of the entity.