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Performance Measurement Phase II - User Guide - Standard 1.2

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Standard 1.2: Audit Standards and Processes

Objective:

To establish a systematic and disciplined review process of the supply chain department designed to add value, improve operations, and provide assurance to management that hospital resources are being used efficiently and effectively

Definition

The supply chain department should have an internal audit or self-assessment process to provide assurance that the department is meeting its business objectives, promote the consistent and effective application of existing policies and procedures, and contribute to the continuous improvements of the hospital supply chain processes. Self-assessments bring a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, internal controls and information systems, and governance processes.

Where applicable, supply chain audit standards and processes should be aligned with, and build on, the organization’s existing audit standards and processes, and internal audit activities should be coordinated with the external auditor.

Rationale

Effective use of audit standards and processes are not dependent on organizations having an internal audit department. Organizations can derive direct benefits from a self-assessment process focusing on the plan-to-pay supply chain functions. This process will provide assurance that risk is effectively managed, policies and procedures are adhered to, findings are reported to management, timely corrective actions are taken to improve supply chain operations, and appropriate audit trails and supporting documentation for all business transactions exist.

Benefits

Patient Care
Audit standards and processes help ensure that the supply chain department operations are effective and contribute to a high standard of patient care.

Financial Stewardship
Audits help ensure the organization is receiving appropriate value-for-money both in operating costs and expenditures.

Risk Management
Audit standards and processes ensure adequate controls are in place to minimize risks across the supply chain department.

Related Metrics

3.6 Percentage of Invoices with Purchase Orders
3.8 Percentage of Low Dollar Value Purchase Order Transactions

Guiding Principles

Audit standards and processes should be viewed as an enabler, providing proactive guidance to improve the operations of the department. Conducting reviews, or self-assessments, allow an organization to maximize efficiency and effectiveness, while minimizing risk. Effective auditing of the supply chain management process should ensure:

• Supply chain activities are undertaken consistently and to a high quality established by the organization;
• The plan-to-pay process is monitored and controlled, reducing the possibility for fraud or errors;
• The organization is operating consistently with its Code of Ethics and performs supply chain activities in line with any corporate and social responsibility requirements;
• Suppliers meet the standards required by the organization and are treated fairly and objectively;
• Controls and mechanisms are maintained for managing financial and contractual risk; and
• Financial and contractual commitments are made by those with appropriate authority and are duly documented.

The scope of audit standards and processes should cover all supply chain-related activities performed within the organization. The degree of scrutiny applied to specific supply chain processes should reflect the organization’s exposure to financial and contractual risk. Organizations should also consider conducting regular audits of the supply chain procedures used by third-party service providers.

Key Components

Format
The supply chain department should develop and implement periodic self-assessments to proactively evaluate its own processes, risk management, and ongoing compliance. An effective audit process is based on appropriate planning, execution, report writing, and follow-up procedures. The audit process should address the following areas:

• Provide clear procedures to ensure supply chain audits are done regularly and effectively;
• Direct staff in focusing on areas of greatest importance or risk, which, where appropriate, should
  align with the audit plan of the external auditors; and
• Provide standard templates for consistency to document audit scope, methodology and findings.

An effective audit strategy should also include use of varied audit tools and methodologies, including audit questionnaires, risk assessments, controls testing, interviewing and discussions, and performing financial and trend analyses.

Resources
Supply Chain Management needs to identify internal resources, i.e., assessors to conduct the selfassessment. Wherever possible, the assessors should be independent of the activities they audit and of the management directly responsible for the activities they audit. The assessors should work with management and staff involved in the activity they are auditing to identify and assess business risks and mitigation strategies.

Frequency
Self-assessments should be undertaken in accordance with a schedule determined by supply chain management. Frequency should be based on (1) the intrinsic risk of the supply chain activities, (2) historical performance and (3) a focus on proactively improving supply chain operations. Self-assessments may also be scheduled on short notice to assess the rigour and sustainability of procedures in action.

Results and Implementing Corrective Action
Self-assessments should culminate with a final report. The reports should focusing on areas of substantive risk in supply chain management and identify any gaps in the current processes and potential compliance issues. The supply chain department needs to develop a process and timeline for addressing and resolving the identified issues.

Implementation Challenges