Management Notes

Reference Notes for Management

Vendors should be approved by Management before purchase department executes an order. If this is not done then which of the following situations may arise-

Vendors should be approved by Management before purchase department executes an order. If this is not done then which of the following situations may arise-

 Options:

a) purchases could be made from vendors whose product quality may not be good
b) Purchases may be made from related parties without management’s knowledge
c) Purchases could be made from vendors who may have offered price to vice-president purchases
d) Any of these

The Correct Answer Is:

d) Any of these

Why “d) Any of these” is the correct answer:

When purchases are made without proper approval from management, it opens the door to several potential risks and issues, as indicated by options a), b), and c).

a) Purchases could be made from vendors whose product quality may not be good:

Without management approval or oversight, the purchase department might resort to vendors who offer cheaper rates but compromise on product quality.

This could lead to acquiring substandard goods or materials that don’t meet the required standards, impacting the organization’s operations and customer satisfaction.

b) Purchases may be made from related parties without management’s knowledge:

The absence of management approval can result in purchases being made from parties that have personal relationships or affiliations with individuals within the organization.

This can lead to conflicts of interest, biased decision-making, or even fraudulent activities, impacting the fairness and transparency of the procurement process.

c) Purchases could be made from vendors who may have offered a price to the vice-president of purchases:

Without proper oversight, there’s a risk of unethical practices such as bribery or kickbacks. The purchase department might engage with vendors who offer personal benefits or incentives to individuals in influential positions within the company.

This compromises the integrity of the procurement process and can result in biased vendor selection, affecting the company’s reputation and financial health.

However, while bribery is a significant concern, the absence of management approval could lead to a broader array of issues beyond just unethical vendor interactions, encompassing compromised decision-making, biased vendor selection, and potential financial repercussions.

Why the other answers are not correct:

a) Purchases could be made from vendors whose product quality may not be good:

While the quality of purchased goods is a significant concern, especially when purchases lack proper oversight, focusing solely on product quality overlooks other critical issues that can arise. Without management approval, various risks beyond just product quality can impact the organization.

b) Purchases may be made from related parties without management’s knowledge:

This option highlights the risk of purchasing from related or affiliated parties, indicating potential conflicts of interest or favoritism. However, the absence of management approval doesn’t exclusively result in dealings with related parties.

There are broader implications such as lack of transparency, ethical lapses, and compromised decision-making that can occur beyond just transactions with related entities.

c) Purchases could be made from vendors who may have offered a price to the vice-president of purchases:

This scenario specifically points toward potential bribery or unethical practices within the procurement process. However, this is just one facet of the risks associated with unapproved purchases.

While bribery is a serious concern, other consequences like compromised vendor selection, inflated costs, and skewed decision-making can also stem from purchases made without proper oversight.

In summary, while each of these options highlights a particular risk associated with executing purchases without management approval, they don’t encompass the entire spectrum of consequences.

The broader implications encompass various ethical, financial, and operational risks that can impact the organization’s integrity, reputation, and overall functioning. Therefore, “d) Any of these” remains the most comprehensive and accurate choice, considering the multifaceted nature of risks associated with unapproved purchases.

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