O F F I C E O F O I N S P E C T R G N E R A L OFFICE OF INSPECTOR GENERAL EXPORT-IMPORT BANK of the UNITED STATES Audit of Export-Import Bank’s Purchase Card Program September 26, 2012.

Purchase system and audit on purchases • 1. WHAT IS A PURCHASING SYSYTEM? • A method used by businesses to buy products and/or services. A purchasing system manages the entire acquisition process, from requisition, to purchase order, to product receipt, to payment. Purchasing systems are a key component of effective inventory management in that they monitor existing stock and help companies determine what to buy, how much to buy and when to buy it.

FUNCTIONS OF PURCHASE DEPARTMENT • Purchase materials at lowest possible cost while maintaining quality. Maintain good relationship with the suppliers. Take advantage of economies of scale. Maintain records efficiently. Develop highly competent personnel. Co-ordinate with all the departments of the organization.

TYPES OF PURCHASING SYSTEM • Tender System Stockless Purchase System • Blanket Order E-Purchasing • E-Procurement Subcontracting Rate Contract • Method Petty Cash System • Capital Equipment Purchase • Imports • WHAT IS TENDER? • In this system the entity invites suppliers to give their quotations. The supplier with the lowest quotation wins the contract. It is a kind of contract mostly followed by large organizations and governments when purchases are of large value.

TYPES OF TENDER • Open Tender. • Restricted Tender • Negotiated Tender ADVANTAGES & DISADVANTAGES • Advantages: Competitive Lower Cost Transparent Process • Disadvantages: Low Price usually Detriment of Quality Time consuming • WHAT IS BLANKET ORDER?

• Company purchase many small items on day to day basis. It becomes difficult to have inventory for all. It is most popular method for purchasing items which are used regularly. There are two methods: Agreement is made to supply a Fixed Quantity of the product at a Fixed Price for a Specific Period. Agreement is made to supply for a Specific Period but the Quantity is unknown. ADVANTAGES & DISADVANTAGES • ADVANTAGES: Flexible Avoid negotiation Avoid placement of new order again and again Advantage to supplier to plan the work at his place Reduces clerical activities Protections against higher pricing in future • DISADVANTAGES Petty frauds It requires flexible internal control Poor vendor performances Difficult to determine and forecast the quantity • WHAT IS SUBCONTRACTING? • Subcontracting refers to the process of entering a contractual agreement with an outside person or company to perform a certain amount of work.

The outside person or company in this arrangement is known as a subcontractor. Many small businesses hire subcontractors to assist with a wide variety of functions. Example: A small business may use an outside firm to prepare its payroll. SUBCONTRACTING IS ALSO KNOWN AS OUTSOURCING • Outsource means to send part of a company’s work to outside providers to simplify or reduce cost. ADVANTAGES & DISADVANTAGES • Advantages: Cost Saving Increased Efficiency Continuity & Risk Management • Disadvantages: Loss of Managerial Control Quality Problems Hidden Costs • WHAT IS CAPITAL PURCAHSE EQUIPMENT?