Revisiting the Internal Controls Around Procurement in Pandemic Times

Forensic & Litigation Consulting

April 22, 2020

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Some of the most important internal controls at any company are the ones around procurement, the process by which a business obtains the goods and services to carry out its mission. In the current climate of disruption due to the COVID-19 pandemic, companies should examine and fortify their internal controls around procurement to ensure proper function, even when employees are working remotely and possibly distracted by health and domestic care issues.

The procurement function warrants scrutiny in times of crisis because it presents significant opportunity for abuse and misappropriation of a company’s assets. Both domestic and, more importantly, global organizations should consider centralizing and streamlining the procurement function, as much as practical, to avoid this increased opportunity for fraud, waste, and abuse. As the procurement function may need to be run and supported by a reduced number of company personnel, consideration should be given to whether proper segregation of duties is maintained. Simply put, strong, well-communicated, and transparent internal policies and procedures around procurement are necessary to promote ethical employee behaviors.

Since procurement processes impact certain financial statement balances (e.g., cash, accounts payable, fixed assets) and footnote disclosures (e.g., contractual commitments), a public company’s annual, Sarbanes-Oxley 404 walkthrough and testing procedures will likely cover certain key internal controls around the procurement as they relate to financial reporting. However, public companies must not forget to implement robust and strong operation-based detective and monitoring controls that prevent larger, more material issues from striking the financial statements.

With more employees working from home and away from entrenched office systems to fight the spread of COVID-19, there may be increased use of alternative payment procedures that trade health protections for new financial risks. As we settle into our new normal of remote working and social distancing, now is the time for public and private companies to revisit their procurement processes and internal controls at a deeper operational level.


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