MANAGEMENT & OPERATIONAL AUDIT
MANAGEMENT AUDIT :
“M.A. concern itself with whole field of activities of concern, from top to bottom, primarily concerned with whether the general management is functioning smoothly and satisfactorily.” T.G. Rose
It is audit of management.
(Management Audit = Op. audit + Review of adequacy and competence of top management).
Primary accent is on evaluating managers ability to manage.
Scope of Management Audit
1. Purposes of organization.
2. Management Structure.
3. Reports required by the management.
4. Internal controls.
5. Nature of production of Business.
6. Production planning.
7. Factory layout, design and installed capacity.
8. Personnel policy.
9. Material management.
10. Sales management.
11. Decision making process.
12. Books and Records.
13. Financial Managements.
Thus, management audit includes all the elements of op. audit also.
Need / Desirability of Management Audit
1. For detecting and overcoming current problems – Managerial problems and related operational difficulties can be spotted before their adverse effects. This is thus forward looking approach.
2. It is another tool to assist the organization in accomplishing desired objectives – Management Audit questionnaire pinpoint the important problem areas. Thus corrective actions can be taken so that organizational objectives can be achieved with utmost efficiency.
3. Helpful for ailing industries – Management audit is helpful in detecting the problems of such industries and providing the suggestion to improve them. It becomes more important if such industries are to be taken over by government etc.
4. Public sector undertakings – In such PSUs mostly problems occur because of poor management which may be improved by conducting management audits.
Organising Management Audit
(1) Devising statement of policy.
(2) Location of audit function within organization or outside
(3) Allocation of personnel.
(4) Staff training program.
(5) Time and other aspects.
(6) Frequency.
Conducting Management Audit
Getting facts through interview.
Measuring performance through Management Audit questionnaire.
Concluding it.
Oral recommendation for improvement.
Management Audit Reports
(1) Oral Reports : emergency wants. However not considered reliable. No permanent record but corrective steps can be taken immediately.
(2) Interim written report : If it is advisable to inform management before regular report for their early consideration.
(3) Regular written reports : formal report at end of work, may be short or long.
(4) Summary written report : “Flash’ reports summarizing various individual reports. For top management. Integrated approach. It facilitates management by exception because management (top) has not time to go to through those lengthy individual reports.
Organisation of written report
(1) Format :
(i) Title
(ii) Objectives.
(iii) Scope.
(iv) Findings, conclusions and opinions.
(v) Recommendations.
(vi) Auditee’s view.
(vii) Summary.
Behavioural Aspects in Management Audit
Financial auditor deal with figures, Management auditor with people.
Colleagues in own department.
Staff of auditee department
Top management.
Causes :
1) Staff / line conflict : Management Auditors are staff, thus line unhappy.
Reasons
(i) Normally staff has superiority complex they don’t wonna understand line considering it to be inferior.
(ii) Staff may give irresponsible advice without judging its feasibility.
(iii) Line doesn’t co-operate with staff.
(iv) Line doesn’t provide sufficient information to staff.
(v) Line doesn’t use staff advice property.
(vi) Staff has fault finding advice.
(vii) Staff doesn’t consider line before advising.
2) Control : Auditee fear that his actions will have adverse effect on top management. They have fear of criticism, fear of changes and punitive actions due to – (i) insensitive audit practices and (ii) Hostile audit style.
3) Changes : Resistance to changes. Auditor’s recommendation for changes to which auditee resists.
Solution to such problem
1. For constructive benefit.
2. Maximum service.
3. Minimum interference with regular op.
4. Officers should be informed and review findings with them before submission of formal management audit report to top management.
5. Trust and friendly atmosphere.
6. Constructive criticism.
7. Reporting Methods : Participative. Suggest with those who have to implement them.
8. Right management culture, good auditee and right auditor.
Three cases
1. Auditor Objective
Auditee Offensive
Management indifferent.
2. Auditor cantankerous
Auditee progressive.
Management indifferent.
3. Auditor progressive
Auditee participative.
Management objective.
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