Role of Internal Audit in P2P and O2C: Efficiency and Productivity be the end goals (2024)

No mincing of words required…..Be it a small or a big organization, Internal Audits are an essential part of any commercial company or enterprise. It is required for the effective and appropriate management of risks. Internal Audit helps assess gaps in the existing organizational policies, find areas of improvement in internal control processes and risk management governance, ensuring that the organization meets compliance goals. Internal Audit is also important for compliance, operational efficiency and to get an objective insight.

Internal Audit and Procure-to-Pay Process

How to streamline the procure-to-pay process?

The procurement process is an integral part of the effective running of an organization. An effective process helps not just save cost, time and error, but also helps in compliance. A standard procurement process involves raising purchase requisition, sending purchase order to vendor, receiving goods/services, receiving vendor invoice and making payments.

While medium and large organizations have a defined procurement department, mostly centralized, to carry out the procurement process; smaller organizations may not have well-defined processes with many employees multi-tasking and handling procurement as an extra job.

The challenges of the traditional procurement process:

• Managing supply chain can be challenging because identifying and retaining reliable suppliers having a piecemeal approach does not work.
• Inefficient procurement process can delay projects and cause critical slowdowns. Organizations tend to miss project deadlines and it could lead to stunted growth.
• Activities that can be made redundant or lack of critical activities in procurement may lead to a negative influence on the profitability of the organization. It can lead to over or under-stocking supplies, over-commitment from the senior management because of unreliable data, and more.
• Maverick purchasing can happen because the procurement department may move outside the normal procurement channel to place an order. It could lead to compliance issues and procurement risks.

Streamlining procure-to-pay process is of great significance in the organization's overall profitability and effective working.

The internal audit process can help make the procure-to-pay process better and more productive

• Routine processes like raising purchase requisitions/purchase orders/payment vouchers can be automated and digitized softwares, AI etc.
• It drives process transparency, encourages supplier engagement, optimizes inventory and makes the contract management better streamlined.
• Identifying activities wherein segregation of duties is critical or removal of bottlenecks in the process.

Internal Audit and Order-to-cash process

How to achieveefficiency in the order-to-cash process?

The O2C process predominantly receiving and fulfilling sales orders. An efficient O2C process drive value chain's efficiency ensures timely collections and improves Days Sales Outstanding. The steps of a traditional O2C process involve receiving customer orders, approving or extending credit, fulfilling orders, raising invoices, receiving customer payment and managing the receivables and reconciling with the bank records.

Internal Audit can help streamline the O2C process in the following ways:

• Establishing standards for enhanced consistency. The O2C cycle time is decreased, the working capital and operating cash increase.
• Existing systems can be integrated to help reduce O2C cycle. The integration of the entire system helps raise orders, fulfill orders, and complete the billing and payment processes quickly and efficiently.
• The system can be configured for automatic alerts, removing manual interventions and fatigue associated with manual review. Monitoring the alerts regularly helps in the faster identification of potential bottlenecks. In case bottlenecks are identified, necessary steps can be taken immediately to resolve the issues. Auditing the processes continuously helps evaluate processes and ensure if they work smoothly or not and helps identify areas of improvement productively.

In a nut shell

The P2P and the O2C processes can be further strengthened with internal audits helping reduce fraud, inefficiencies, and money leakage aspects. It helps make the organizational risk management processes strong and power-driven and the critical processes i.e. Procure-to-Pay and Order-to-Cash efficient, productive and streamlined.

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(Disclaimer: The views expressed constitute the opinion of the author and the author alone; they do not represent the views and opinions of the author ’s employers, supervisors, nor do they represent the view of organizations, businesses or institutions the author is, or has been a part of)