Every transaction your company conducts has a trail of data. Taking the time to make sure that this trail is easy to access, follow, and confirm is the first step to taking the pain out of not just audits, but procurement and accounting as a whole. Bid farewell to fines, fraud, fees, and frustration by ensuring your audit trail is transparent and complete.
Making an audit trail part of your financial and procurement strategy will not only help you record essential information, but put it to use in building value, profitability, and productivity.
But first, let’s see what an audit trail in procurement means.
What is an audit trail in procurement?
Think of an audit trail as a daily journal of everything you’ve done, including receipts for coffee, the discussions you’ve had with your boss and clients, and the work you’ve put into completing that important project.
An audit trail is vital to any process that involves your operation’s finances and assets. In its most basic form, the audit trail is a record of all activities part of a specific operation, procedure, or event your organization has been involved in.
To boil it down even further, an audit trail represents the sequence of steps taken by your company’s departments between the start and end-point of a specific operation.
Why are audit trails important?
In procurement, having a clear and detailed audit trail is not only vital to current operations but also serves to create a framework for future interactions with suppliers. It ensures your purchases become increasingly efficient and check all boxes required for the growth of your operation.
Specifically, some of the main features that make a clear-cut and detailed audit trail a requirement for any successful procurement operation include:
Weaknesses and strong points in the procurement process - these help you focus efforts in future contracts;
A layer of security for your company’s operations - a clear audit trail shows who did what, when, and why;
Compliance with the legal framework governing procurement operations;
Transparency to those operations that could be subjected to official controls, saving you time and legal fees if and when such a check occurs;
A stripped-down model of the entire procurement and administration process that serves to easily reconstruct it if need be.
Audit trail benefits
From small businesses to global conglomerates, companies of all sizes and cultures can benefit from a robust audit trail. For finance and procurement in particular, keeping a clear audit trail can:
1. Reduce errors and improve accountability
Some financial transactions are very simple, while others can become a tangled sequence of events, trailing quotes, approvals, revisions, and delays. Mistakes will inevitably occur at some point. Without a detailed record, it can be tough to pinpoint the error, the responsible party, or a valid correction.
Audit trails connect every source document and electronic record to every person interacting with a transaction in any way, making it much easier to track and correct errors while simultaneously reducing their likelihood from the start.
2. Ensure compliance
Every company is different, but all companies want to stay compliant. Falling outside the lines can cost businesses lucrative contracts and generate substantial and costly fines.
With an audit trail in place, you can quickly provide whatever information is required by the IRS, industry review boards, and other government bodies to demonstrate your compliance with all relevant protocols and laws.
3. Eliminate fraud
The enhanced internal controls provided by a well-defined audit trail create an environment where fraud won’t be able to thrive. When source documents, from purchase orders to invoices to bills of lading, are connected and cross-checked automatically, scams like invoice fraud can be easily avoided.
In addition, internal sources of fraud (embezzlement or theft, for example) and inadvertent (like invisible spend with unapproved, unvetted suppliers) can be eliminated if your staff knows the audit trail records every single step of the history of a transaction.
4. Simplify audits
Nobody purposely goes looking for an audit, but having a proper audit trail can take some of the pain out of the process. With clear, easy to verify financial records, auditors can spend less time and resources on your audit, reducing your expenses and freeing you to return to business as usual much more quickly.
5. Reassure investors and lenders
Knowing you’ve got a lock on documentation gives potential investors and lenders confidence in your internal processes and business value during due diligence. As with auditors, clear and comprehensive audit trails make it easy to verify your activity, creditworthiness, and business acumen.
How to perform an audit trail
Traditionally, the audit trail involves paper, and lots of it!
Keeping a record of all operations, communications, requests, and contracts creates a paper trail which, although needed for the above reasons, takes space, time to create, and can make auditing cumbersome.
Speaking of cumbersome, however, perhaps the main downside of the traditional paper-based audit trail is the difficulty that arises when you have to find a specific step in the procurement process; something you’d like to review from a previous operation or a report from a long time ago.
Human error is also a component that comes into play when considering traditional audit trails, as certain records could be omitted by accident or improperly logged.
How to do it better
Modern procurement platforms, like Prokuria, have moved towards electronic audit trails, thus preserving what is intrinsic to any efficient procurement process (a clear and comprehensive audit trail), but removing the elements that make it difficult or costly time-wise to pinpoint specific stages in any past procurement operation.
With everything stored electronically in the cloud and every step of the process automatically logged, cutting-edge procurement platforms such as Prokuria help your operation step confidently into the new age of procurement.