How Purchase Requisitions Enhance Financial Control and Prevent Fraud

A purchase requisition is a formal request made within an organization to procure goods or services. It typically includes details such as the item or service needed, the quantity, the estimated cost, and the purpose of the purchase. This document serves as the initial step in the procurement process, requiring approval from designated authorities before any purchase order is issued.

By acting as a gatekeeper, purchase requisitions ensure that all expenditures are justified, authorized, and aligned with the organization’s budget and goals. Let’s dive into how this process strengthens financial control and prevents fraud.

1. Enforcing Accountability and Transparency

Purchase requisitions create a clear audit trail for every transaction. Each request is documented, detailing who initiated it, what was requested, and who approved it. This transparency ensures that all purchases are traceable, reducing the risk of unauthorized or fraudulent transactions.

For example, if an employee attempts to make an unapproved purchase, the requisition process will flag it before it progresses to the procurement stage. This accountability discourages employees from engaging in fraudulent activities, as they know their actions are being monitored and recorded.

2. Preventing Unauthorized Spending

One of the primary ways purchase requisitions enhance financial control is by requiring approval from designated personnel, such as department heads or finance managers. This step ensures that only authorized individuals can initiate or approve spending, preventing rogue purchases that could strain budgets or mask fraudulent activity.

For instance, a fraudulent employee might attempt to order unnecessary supplies for personal gain. A well-structured requisition process would require managerial approval, catching such attempts early and preventing financial losses.

3. Aligning Purchases with Budgets

Purchase requisitions help organizations stay within their financial limits by requiring budget checks before approval. By linking requisitions to departmental budgets, companies can ensure that spending aligns with predefined financial plans. This minimizes the risk of overspending and ensures that resources are allocated efficiently.

Moreover, budget alignment reduces opportunities for fraud. For example, employees cannot inflate costs or divert funds to unapproved vendors without triggering scrutiny during the requisition approval process.

4. Reducing Fraud Through Segregation of Duties

A key feature of an effective purchase requisition system is the segregation of duties. This means that different individuals are responsible for initiating, approving, and processing purchases. By dividing these roles, organizations create checks and balances that make it harder for any single person to perpetrate fraud.

For instance, if the same employee could both request and approve a purchase, they might collude with a vendor to inflate invoices or order non-existent goods. Segregation of duties ensures that multiple eyes review each transaction, significantly reducing the risk of such schemes.

5. Streamlining Vendor Selection

Purchase requisitions often require details about the vendor, including their credentials and pricing. This allows organizations to vet vendors and ensure they are legitimate and competitively priced. By standardizing vendor selection through the requisition process, companies can avoid fraudulent vendors or shell companies created to siphon funds.

Additionally, a requisition system can integrate with vendor management software to track vendor performance and flag any suspicious patterns, such as repeated overbilling or inconsistent delivery records.

6. Enhancing Auditability

Audits are a critical tool for detecting and preventing fraud, and purchase requisitions make the auditing process more efficient. Since every requisition is documented and stored, auditors can easily review purchase histories, approval chains, and budget alignments. This level of detail helps identify discrepancies, such as duplicate payments or unauthorized purchases, that could indicate fraudulent activity.

A robust requisition system also ensures compliance with internal policies and external regulations, reducing the risk of penalties or reputational damage.

7. Leveraging Technology for Greater Control

Modern purchase requisition systems are often digitized, allowing organizations to automate and streamline the process. Digital platforms can enforce compliance by requiring mandatory fields (e.g., budget codes, justifications) and flagging incomplete or suspicious requests. They also enable real-time tracking of requisitions, making it easier to spot anomalies.

For example, advanced requisition software can detect patterns of unusual spending, such as frequent small purchases just below the approval threshold, which might indicate attempts to bypass controls. By catching these red flags early, organizations can investigate and prevent potential fraud.