FAQs: Implementation of Mandatory Purchase Orders for Transactions Over $20k
1. Why is this change being implemented?
The prime benefits of the change are:
1. It ensures that there is prior approval, from a staff member with appropriate authorisation,
before major expenditures are incurred
2. It ensures that the supplier has clear instructions about what is being purchased
3. It ensures there is segregation of duties in arranging goods and services for the University
4. It records a financial commitment in the University’s finance system, which improves the
quality and relevance of financial reporting
2. Why can’t we just stick with paying on invoice and avoid the PO requirement?
There are risks with this approach:
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Is the person who arranges the invoice authorised to commit University funds for
expenditure? How would the University be able to control this?
Has the person who arranges the invoice considered all the things that should be
considered? Eg independent contractor taxation requirement, risks associated with the
purchase, compliance with the University purchasing policy, conflicts of interest etc. The
person authorising the PO needs to consider these things.
When an invoice is received, and goods/services have been provided, there is little
opportunity left for an authorised staff person to make changes to the arrangement
Once a PO is raised, a commitment is shown in the finance system and this is included in
financial reports. So anyone reviewing a project balance can see how much funding is left
after commitments. If procurement is based on an invoice, no commitment is shown and
therefore financial reports do not provide information about the planned expenditure.
The requirement to raise a PO helps ensure that these matters are dealt with.
3. Why was $20k selected as the limit?
At this level, only about 3% of supplier transactions are affected but it accounts for about 64% of
University non salary procurement expenditure. The University has tried to get a reasonable
balance between the work required to raise a PO and the enhanced financial control that a PO
brings. In many cases areas already raise POs for amounts > $20k.
4. How long does it take to raise a PO?
The PO process involves four steps:
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Create a purchase requisition (generally a few minutes once familiar with the process and if you
have the required information)
Approve the PO (generally one to two minutes)
Send the PO to the supplier (generally one minute)
Receipting that goods/services are received (two minutes)
So the University might spend 5 to 10 minutes processing a transaction that costs $20,000. The
system uses workflow to automatically email a request to the approver to approve the PO. Once
approved an email is automatically sent back to the requistioner who can then release the PO to the
supplier. In total the process would take in total no more than 5 to 10 minutes for many purchases.
5.
I don’t know how to raise a PO. Is training provided?
Training is available. Simply enrol in the next Purchasing course on the Staff Development
Opportunities web page http://www.flinders.edu.au/staffdev/index.php/finance-studenttwo
6. I don’t know how much I will spend and expect a number of invoices over the year. How can
this be managed efficiently?
In this situation a single Service1 PO is raised at the beginning of the year using the previous year’s
expenditure (with cost adjustments) or contract or the current year budget as a guide. As each
invoice is received the PO can be receipted and invoice matched for the amount and a back order
created for the balance. A back order is created when a PO is not fully receipted i.e. a PO is raised
for $25K the first invoice is for $5K the PO is receipted and matched for this amount and a back
order is automatically created by the system for $20k. This process can go on until the PO has no
balance remaining. An amendment can be made to increase the value of the PO if required.
7. I already have a contract signed by a duly authorised University staff member. Why do I need
a PO?
The contract deals appropriately with the appropriate delegation of authority, segregation of duties
and risk management. However a contract does not necessarily prescribe the amount of
expenditure that may be incurred in a financial year. By raising a PO the commitment is then
included in University financial reports. As POs are only required for amounts above $20k, only
significant commitments are required to be included by way of PO.
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A Service PO simply has details of the service and price recorded. A Goods PO has a unit quantity and price
recorded.
8. The University wants to become more efficient but raising POs is more costly and time
consuming that payment on invoice. Isn’t requiring POs for transactions > $20k a retrograde
step?
The University does want efficient processes but this needs to be balanced against the need for
appropriate controls to ensure cost effective purchasing and compliance with law and policy. The
requirement to raise POs for amounts > $20k helps ensure this. Transactions > $20k only accounts
for 3% of transactions, so for many areas the potential workload increase is negligible. And many
areas of the University already use POs for higher value transactions due to the control benefits and
commitment reporting that this enables.
9. The Library already raises POs in the Library system and there is a process in place to ensure
that the PO is approved by a staff member with an appropriate expenditure authorisation. In
this case is it possible to receive an exemption from the requirement to have POs for
transactions over $20k?
Given there is a Purchase Order raised, and there are appropriate controls in place to ensure the PO
is approved by an authorised staff member, this complies with the University Purchasing Policy
which states POs have to be raised for transactions over $20k. The point of the Policy is to make sure
large value purchases have appropriate controls in place to ensure the purchases are approved by an
authorised delegate and comply generally with University policy.
One gap is that there is no commitment in the finance system, however it is understood that in the
Library’s case there is a budget which is reviewed quarterly so the lack of a commitment is unlikely
to cause any issues.
10. Is it possible to receive an exemption from the requirement to have POs for transactions over
$20k?
Yes. There are two ways that an exemption can be granted.
Firstly, under the Purchasing Policy, a number of items are listed as being automatically exempt from
the requirement to mandatorily raise Purchase Orders for purchases greater than $20k. These are:
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Purchase and rental of real property
Payments prescribed under a research agreement, including payments to other universities
Payments for teaching of Theology by the Adelaide College of Divinity
Payments for non-contestable postal services
Maintenance or similar payments consequentially arising from contracts for University IT
systems, such as the student and finance systems
Purchases relating to a Commonwealth/State/Territory government procurement contract
Purchases relating to an existing approved University contract
Membership of professional associations
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Payments to Commonwealth/State/Territory entities as a result of a contractual relationship for
the provision of services/support
Payments related to practicum/supervision of placements at approved entities as required to
complete training/assessment of students (NB a MOU or similar agreement setting out fees and
charges should be in place to support these payments)
Statutory charges, including taxation, council rates, superannuation
Payments for utilities and telecommunications providers where a contract is in place
Payments for bank charges
Purchases relating to an existing approved University contract
Secondly, the Purchasing Policy also provides authority to the Director Financial Services to provide
an exemption on a case by case basis. If an exemption is sought, staff will need to demonstrate that
appropriate controls are in place to ensure:
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that there is prior approval, from a staff member with appropriate authorisation, before
major expenditures are incurred
the supplier has clear instructions about what is being purchased including the terms and
conditions associated with the purchase
there is adequate segregation of duties in arranging goods and services for the University
there is no or limited value in a financial commitment being recorded in the University’s
finance system eg a very short supply delivery and payment cycle.
11. What action will be undertaken by Central Accounts if an invoice for over $20k is received
without a Purchase order?
If an item is not clearly automatically exempt under the Purchasing Policy, the Accounts Department
will do a Purchase order enquiry in the University’s finance system. If the correct PO cannot be
located the invoice will be scanned into BasWare and held in suspense. A hard copy of the invoice
will then be sent to the relevant area eg Faculty School with a covering note that explains that a PO
is required. The invoice will not be processed until the PO has been approved and receipted.
12. I have a question that is not covered by the above. Who can I talk to?
Please contact Rob Ackland, Procurement Manager, on 13306 or robert.ackland@flinders.edu.au
Daniel Flaherty
Director Financial Services
10 July 2012