This section describes controls over the acquisition of inventory where there is no computerization of the process.

The basic acquisition process centers on the purchase order authoriza­tion, as shown in Exhibit 1. The warehouse issues a prenumbered purchase requisition when inventory levels run low, which is the primary authoriza­tion for the creation of a multipart purchase order. One copy of the purchase order goes back to the warehouse, where it is compared to a copy of the purchase requisition to verify completeness; another copy goes to the sup­plier, while a third copy goes to the accounts payable department for even­tual matching to the supplier invoice. A fourth copy is sent to the receiving department, where it is used to accept incoming deliveries, while a fifth copy is retained in the purchasing department. In short, various copies of the pur­chase order drive orders to suppliers, receiving, and payment.

Exhibit 1 Controls for Basic Inventory Acquisition

The controls noted in the flowchart are described at greater length next, in sequence from the top of the flowchart to the bottom.

• Warehouse: Prepare a prenumbered purchase requisition. In the ab­sence of a formal inventory management system, the only people who know which inventory items are running low are the warehouse staff. They must notify the purchasing department to issue purchase orders for inventory replenishments. To ensure that these requisitions are made in an orderly manner, only prenumbered requisition forms should be used, and preferably they should be issued only by a limited number of warehouse staff. By limiting their use, it is less likely that multiple people will issue a requisition for the same inventory item.
• Purchasing: Prepare a prenumbered purchase order. The primary control over inventory in a basic inventory management system is through the purchasing function, which controls the spigot of inven­tory flowing into the warehouse. This control can be eliminated for small-dollar purchases for fittings and fasteners, which are typically purchased as soon as on-hand quantities reach marked reorder points in their storage bins (visual reorder system). Since the purchase order is the primary control over inventory purchases, you can avoid fake pur­chase orders by using prenumbered forms that are stored in a locked cabinet.
• Verify that purchase order matches requisition. Once the warehouse staff receives its copy of the purchase order, it should compare the pur­chase order to the initiating requisition to ensure that the correct items were ordered. Any incorrect purchase order information should be brought to the attention of the purchasing staff at once.
• Reject unauthorized deliveries. To enforce the use of purchase orders for all inventory purchases, the receiving staff should be instructed to reject all deliveries for which there is no accompanying purchase order number.

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