Background: This client was in the business of manufacturing forged parts and had a plant in Bangalore. It used to procure raw material from the South Korea on a continuous basis. Since it was an international transaction, delivery terms and other conditions were established. We were called on to examine to check whether cost incurred by our client was in line with the agreed terms with the supplier.
What We Did: This transaction was not straightforward, as purchase was handled by the purchasing department whereas logistics was dealt with by a different department and finally we had to check how transport and insurance costs were accounted.
As per arrangement with the supplier, it was responsible for delivering the material till factory. So we looked at documents such as Bill of entry, delivery challan, clearing and forwarding bill. We found that supply only cleared the material till Chennai. Our client incurred the transport charges from Chennai to Bangalore.
Results: We listed down all such transactions and quantified the impact of it. It came close to 0.8 million. Subsequently, vendor paid the amount by adjusting in the next bill.
What We Can Learn From This: Have the master sheet of all the purchase orders agreed with your suppliers. Information can be organized in the spreadsheet or can be customised in ERP or accounting software.