Purchasing Cycle Risks - (1) Purchase Request

Identifying Risks in the Purchasing and Payment Activity Cycle

The procurement and payment activity cycle consists of obtaining the requested goods and services from suppliers and making payments, as well as returns and discounts. Purchasing and payment transactions are carried out because of the cooperation of various departments of the company.

Risk Elements in Making a Purchase Request

Purchase demand can come from every unit of the business. Purchasing need in businesses; when stocks fall below a certain level, requests from production due to customer requests, demands from departments such as R&D, marketing, management or tangible fixed assets. It can be resulted with investment plans.

Some of the risk factors that may arise in the conversion of the desired product or service into a purchase demand in terms of its availability, compliance with business policies and procedures, location, time, price, quantity, quality and function are listed below:

• There may be demand for unneeded, unnecessary goods or services.
• There may be requests that may result in double purchases.
• Requested goods or services may not comply with the company's stock policy.
• There may be communication problems between warehouse attendants and the marketing department.
• There may be problems in the provision, marketing and customer relations of the relevant goods or services.
• There may be problems in the level of repurchase demand and demand of the stocks to be located in the business warehouse. For this, methods such as economic order quantity, loop technique, ABC method and new order point analysis can be used.
• Re-demand levels (replenishment) for stocks should be kept up to date. Failure to update in a timely manner can cause problems.
• Differences in converting the demand initiated within the business into an order form of the desired quality and quantity by the purchasing unit also involve risks.
• Received stocks may cause duplicate purchase requests if they are not placed in their respective places.

Purchase requests must be accepted by authorized persons or units designated within the company. Authorizations should be made within the scope of business functions and it should be ensured that the authorized person or unit issues the “Purchase Request Form” and sent to the purchasing unit.