Purchase Order Evidence for Telephone Orders 1718



  • I would appreciate it someone could provide some insight regarding SOX documentation requirements related to purchase orders that customers place via phone.
    In most cases, auditors require some sort of hard copy ‘evidence’ (i.e. a hard copy purchase order) that binds the customer to pay for the goods that they are ordering. Today, our SOP for order entry is to only accept hard copy POs. Aside from recording customer calls, what method can be used to support a purchase order if the order is placed verbally to a customer service rep?
    Thanks in advance.



  • An order acknowledgement or sales order should be generated internally for your own records subsequent to the order being put through over the phone.
    This is so as to ensure that the phone order is a genuine order, and that all shipments and bills are going to a valid customer. The date of the sales order is also usefuln for revenue purposes( ie. whether it is deferred or current revenue) and cut off procedures.



  • An order acknowledgement or sales order should be generated internally for your own records subsequent to the order being put through over the phone.
    EMM makes a good point. You don’t always need paper audit trails, provided that:

    1. Timestamp information is properly captured
    2. Folks taking orders have good electronic audit trails, separation of duties for possibly amending orders after submission, etc …
    3. Obtain the blessings from Internal Audit on the best practices associated with electronic order taking by phone.
      Besides ‘saving a tree’, the electronic record is perhaps perferrable to a document environment (as that can also be forged) as long as you have good controls in place. Hopefully, most organizations have moved more to paperless processing and thus with good controls, you’d be SOX compliant.


  • Moreover, the sales/service order, packing slip and service call report can be deemed sufficient in the absence of practical non availibility of the customer’s purchase order.



  • Moreover, the sales/service order, packing slip and service call report can be deemed sufficient in the absence of practical non availibility of the customer’s purchase order.
    The original question was taking an order by phone - all the above is very nice but dosn’t stop sales adding an order to hit target - say at month end- then saying opps I made a mistake an issuing an RMA when the customer either rejects the order, queries it or there accounts refuse to pay it.
    A sensible approach is to have a maximum limit for verbal orders (say USD10k) and ask for an email, fax, edi, html etc order to back it up. In practice this works as most receiving systems need the PO to exist before goods are received so is no more work for them to send it on to you.
    Hope this helps
    cheers
    Andrew



  • A sensible approach is to have a maximum limit for verbal orders (say USD10k) and ask for an email, fax, edi, html etc order to back it up.
    I totally agree.
    Although we’re on the other side of the fence, we request order confirmations as backup from our suppliers if the order was made over the phone, and has a value over USD 5k.
    Confirmations are helpful for both suppliers and customers.



  • Packing slip and service call report evidences that revenue triggering event has occurred for SOX relevancy as a one line answer to the original question.



  • Packing slip and service call report evidences that revenue triggering event has occurred for SOX relevancy as a one line answer to the original question.
    Sorry to come back - but surely all this proves is you have shipped an order and recorded it locally. How does this prove the customer has placed the order / will pay the invoice??
    Serious question as we have been told by our externals that this is NOT valid proof of an order being placed / income due - and it needs to be from the client (subject to limits above)
    Thanks



  • That is an impractical request from external auditors. In such cases they need to resort to confirmation of balances or post balance recovery of invoices.



  • a humble suggestion would be to counter question the auditors.
    If You are not able to satisfy the auditors with the available information, JUST ASK THEM WHAT WOULD BE A SUFFICIENT EVIDENCE.
    Audits have to check for existing practises and report/ advice. The risk of not having a valid PO from customer is inherent for Phone ordering business. Businesses cannot succumb to audit requirements.
    Best way out would be to request the auditors for a suggestion and chek out whether implementation of the same is practial/ cost effective or not.
    Cheers



  • Thanks NC - they required a copy of the PO (where orders are over our limit) It has not been an issue over the last 3 years as sales are trained to know they have to get PO’s for these orders.
    We imposed the rule as they see telephone (verbal) orders as a risk - as we do a lot of exports (based in the UK) and if they go bad the chances of recovering the debts are minimal.
    Luckly has not been an issue for us - and we do not have any issues with getting written orders.
    cheers
    Andrew



  • So you need the PO to evidence the fact that the customer has ordered the product. What if the customer has signed a contract with you, specifically ordering that product, and the contract has been signed by an authorised signatory of the customer? I keep getting companies saying this isn’t compliant with SOX but surely it must be as it completely binds the company to pay?



  • Hi and welcome to the forums 🙂
    What if the customer has signed a contract with you, specifically ordering that product, and the contract has been signed by an authorised signatory of the customer? I keep getting companies saying this isn’t compliant with SOX but surely it must be as it completely binds the company to pay?
    These types of controls are usually set as internal standards, as SOX encourages the proper fiscal accountability without mandating absolute standards. As noted above the need for PO’s would be in cases where an autonomy level is crossed (e.g., maybe for orders over USD1,000).
    It seems to me that a contract would serve as proper evidence. Still, the PO combined with the original control might serve as a stronger ‘financial control’. It would signify on large transactions that the product was delivered as promised (e.g., as cancellations might occur … or fictious paperwork could be theoreticaly created – although it’s highly unlikely).



  • Hello, and thank you


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