“Unlock the secrets of internal audit for freight expenses with CA. Ramanujan Sharma’s insightful checklist. From onboarding vendors to expense booking precision, dive into the details for efficient and compliant operations. Read the article for comprehensive guidance. Disclaimer: Information provided is for general purposes, and readers should verify details independently.”
In this insightful article, CA. Ramanujan Sharma simplifies the intricate process of conducting an internal audit for freight expenses. The focus is on establishing a checklist that ensures efficiency and compliance throughout the audit.
Checklist for Internal Audit function: Freight Expenses
List of Documents Required for Freight Expense Audit
1. Walkthrough of Vendor Onboarding:
- Document detailing the process of onboarding vendors.
- Includes verification procedures, documentation requirements, and approval steps.
2. Service Procurement Policy:
- Comprehensive policy outlining the guidelines for procuring services.
- Covers the selection criteria, approval processes, and compliance requirements.
3. Standard Operating Procedures (SOPs), if any:
- Documentation of standard operating procedures related to freight and service procurement.
- Details the step-by-step processes and protocols to be followed.
4. List of Existing Vendors or Alternate Vendors:
- A catalog of current vendors providing services related to freight.
- Includes contact details, services provided, and any alternative vendors available.
5. Agreements with Vendors:
- Copies of contracts or agreements with each vendor.
- Specifies terms, conditions, service levels, and any other relevant agreements.
Delving into the Intricacies of the Process:
- Internal service requisition/ hiring of vendor has been properly vetted/ validated and authorized.
- The internal requisition clearly mentions the specification of service and vendor to be hired and the supply of service by date.
- The quotations have been called as per company policy from the registered vendors.
- Quotations are opened and registered, and a comparative chart has been prepared and authorized.
- Service order has been given to lowest bidder subject to satisfaction of all other conditions/ specifications/ qualification, etc.
- Purchase order (PO) has been issued as per the requirement of internal requisition and the supply of service by date. It should also contain penalty clause, if supply has not been made as per terms and specification of PO.
- One copy of each PO should be made available to accounts department.
- Invoice shall be in the name of organization,
- Number of cases of penalty imposed on vendors during the year and reasons thereof.
- Bill has been passed by accounts department for the services hired and after making deduction for any quality discrepancy and breach of any other term/ condition including delay/ non-supply of service in time.
- Agreements and requisition for procurement of service including approval of its amendments/ modifications.
- Opening of tender/ quotations
- Comparative chart of technical and financial biddings
- Approval of rates in case service is obtained from vendor other than registered vendor or where purchase order is not raised.
- Issue of debit/ credit note for defect in service or rate difference or delay in delivery.
- Insurance of goods in transit and vehicle
Points for Special Attention:
- Expense budget and its comparison with the actual and authorization of variations, if any.
- Control over vendor developments and market rates for lower price with better quality.
- Cost reduction in expense due to technology upgradation and/ or development of new source of supply.
Accounts Department Procedures for Freight Expense Audit:
1. Proper Expense Booking: Verify that expenses are accurately booked, specifying whether they are operational or administrative in nature.
2. Capital Expenditure Procurement: Ensure that procurement for services related to capital expenditure (e.g., repair and maintenance, technical inspection, erection, commissioning, installation) is not booked as revenue expenditure.
3. Input Tax Credit Recording: Record the value of services net of Input Tax Credit, if claimed, to reflect accurate financial transactions.
4. TDS Deduction and Declaration:
- Verify whether TDS (Tax Deducted at Source) has been deducted according to the prescribed rate.
- Ensure that any declaration received exempts TDS from being charged to expenses and is booked as a liability.
5. Transporter Compliance Check:
- Determine if the transporter operates in Forward Charge Mechanism (FCM) or Reverse Charge Mechanism (RCM).
- If operating in FCM, confirm the receipt of Annexure V and the presence of the declaration on the invoice.
Conclusion:
A meticulous internal audit of freight expenses is crucial for financial integrity. By adhering to the checklist and focusing on the intricacies outlined, organizations can ensure proper expense management, compliance, and efficient operations in their freight-related activities. The emphasis on documentation, procedural adherence, and attention to special points will contribute to a robust internal audit process.
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Disclaimer: The information provided by the author in the article is for general informational purposes only. All information provided is in the good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information in the article.
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