By Carolyn Stevens, CPA, Manager, Jacobson Jarvis
Every organization has a procurement policy of some sort. It may be entirely informal and implicit, or formal and explicit. The key factor to a good system is clear communication. A procurement system will work well if everyone knows who can order what. It will work poorly if there is no clear understanding and everyone makes purchases willy-nilly.
A good procurement process may be entirely informal in a very small non-profit where everyone knows that only one designated staff person can make purchases. Most organizations of any size will want to have a written policy that specifies who is authorized to order what, and outlines a sequence of procedures and authorizations that starts with an order request and wends its way through purchasing and receiving to payment of an invoice.
If your organization is considering writing or updating its procurement policy, here are key topics to address:
- Purpose: the purpose of a procurement policy is to ensure that an organization gets the highest quality of desired goods and services for the best price. Further, the policy is designed to eliminate duplication of effort that could result in unnecessary purchases and wasted money.
- Conflicts of Interest: the policy may specify the requirement to avoid conflicts of interest if this is not adequately addressed in other agency policies. Business transactions that benefit or appear to benefit an individual staff or board member at the expense of your organization should be prohibited.
- Segregation of Duties: the staff members authorizing purchases should be different from the staff members working in the accounting system.
- Conformity with the Budget: authorized purchases should be within the organization’s budget. Any purchases not anticipated in the budget should be subject to extra levels of discussion and authorization.
- Vendor Selection: the selection of vendors should ensure that your organization receives the best quality for the right price. Larger organizations might want to create a list of pre-qualified vendors and update it periodically.
- Authorizations and Dollar Thresholds: an organization should have a list of who may authorize purchases, either by name or job title, and a dollar threshold for each. These authorizations and thresholds should be scaled as appropriate for the size and complexity of your organization. Example: program managers may order supplies for their projects up to $250, department heads up to $1,000, and the executive director or a designated person for orders between $1,000 and $10,000. Orders over $10,000 or outside of the budget must be approved by the finance committee.
- Verification of Receipt: specify who is responsible to verify that goods and services have been received in good order. In smaller organizations, the person who orders might also be the receiver. In that case, there should be a process in place for that individual to notify the finance department that the goods or services have been received. In a larger organization, a more formal receiving function may be required.
- Resolution of Disputes: the policy should also specify who is responsible for resolving problems with the timing or quality of receipts.
- Payment: payment should be made based on an invoice received from the vendor. The procurement policy should describe the process for receipt, approval and payment of invoices.
Once a procurement policy is drafted or updated, it should be vetted by organization’s leadership and approved by the board of directors. Implementation will involve writing detailed procedures, setting up adequate files, designing internal controls, and orienting staff to new systems. The viable implementation of your procurement policy will ensure that your organization achieves the goal of acquiring goods and services efficiently and economically.
For those organizations that receive federal grants, there are procurement guidelines in the Uniform Guidance that stipulate what the government suggests or requires that the organization do in regards to procurement. For more information on these requirements, CLICK HERE.
About the Author
Carolyn Stevens, CPA, is a nonprofit audit manager, consultant, and instructor at Jacobson Jarvis. As an accounting professional, she is committed to helping non-profit organizations succeed. Prior to joining JJCo, Carolyn owned an accounting business, served as director of a community service internship program, and worked and volunteered in the labor movement, peace groups, and community organizations. Carolyn has a MA degree from the University of Washington, and a BA from the University of California, Berkeley.