Management Audit Definition
In simple terms, a management audit means ‘an Audit of Management’ wherein audit tools are used to assess the performance and progress of the management towards the process of best decision making.
Focus of Management Audit:
- Planning, Organising, Directing & Controlling the team towards attaining the objectives are called the functions of Management, so the focus of Management Audit will be on the ‘Quality of decision making’ of an establishment instead of focusing on the operational aspects.
- Right Strategy formation, Collection of right documents/information on the right time for the right decision making is an important focus that will be ensured under Management Audit.
Objectives of Management Audit
The following are the objectives of a management audit.
#1 – Establishing Proper Strategies
The audit team must ensure the ability of the management whether it has proper strategies to obtain the required information for better decision making, again the team also ensures whether the collected information is sufficient to achieve the objectives of the organization without hassles. Usually, the strategies are the key to achieve the objectives of any kind of establishment.
#2 – Implementation of Required Internal Control
Audit Team should verify the effectiveness of the Internal Control of the organization to overcome the deficiencies of the management. If the Implemented Internal Controls are not effective of course it will lead to unnecessary problems in the process.
Example: In a reimbursement policy of a company, First documents to be verified by an accountant before encashment, later the same documents will be reviewed by the Senior Accountant and at the end the cash will be paid by the cashier which ensures triple check of one transaction, here the internal control will be so strong to avoid the manipulation of cash.
#3 – On-time Report Generation
- The management Audit team should confirm whether the management placed proper control to generate and provide the reports on time.
- Report generation will be called as an important tool for identification of errors, sometimes it will also act as whistleblowing to control the greater mistakes during the process.
- Generally, the reports of the audit should improve the efficiency of the management for the betterment on a regular basis.
Management Audit Plan and Execution
Following are the steps for the planning and execution of a management audit.
#1 – Appointment of Proper Personnel
In the process of audit, a proper person should be appointed for executing the plan under management audit, proper in the sense, he must be professionally qualified, knowledgeable and experienced to execute the audit plan without ambiguities.
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#2 – Drafting Management Audit Programme
- Collection of required documents
- Assessment of policies and procedures
- Monitoring the Strategy
- Inspection of Books and other supporting documents
- Investigate with available Information
- Inquiries with staffs/team
- Observing the internal control
- Test check of the transactions and its results
- Scientific method evaluation and review (If necessary)
- Preparing the reports with solutions
#3 – Training Programme
Proper training must be provided to the team before executing the audit.
Example: Management Audit on Construction industries required a certain type of evaluation skills and technics which must be provided prior to the execution.
#4 – Time Concern
Every plan of the audit program must be executed on a proper timeline to get the exact results of it.
Example: Observing the manufacturing process can result in the identification of normal and abnormal wastage which should be executed during the process.
#5 – Frequencies of Audit
Management Audit should be conducted frequently to odd out the mistakes occurring during the decision making the process.
Frequencies may be decided based on the nature of business and also to be considered with the duration of understanding of business and its transactions
#6 – Reports with Solutions
- Usually, the audit report consists of the errors which interrupt the management to take proper decision making.
- The team should provide their findings along with the required solutions to overcome the issues.
- Each and every report should be provided with a detailed analysis of its repercussions in the future.
M/s ICI information technology services face a lot of trouble in finishing off their projects on time and they incurred huge losses due to the delay in the management decisions and related process. They have appointed a management auditor recently to do the audit on the management and their decision-making process.
Based on the audit, the finding are as below,
- No Proper internal control in the management to finalize the projects on time.
- No proper communication with clients to finalize the projects on time.
- No coordination between management and teams to complete projects.
- No proper report generation software for internal control.
The above findings to be cleared out to get good feedback in the future.
- Proper Strategy Preparation and formation to achieve the objectives.
- Proper Placement of Internal Controls for effective decision making.
- Improvisation on the management decision-making process.
- To overcome the deficiencies of the management.
- Deployment of proper human resources.
- Rectification of Errors with the least cost or less damage.
- Avoid abnormal wastage of resources such as men, materials, money & machine.
- Timely results without delay.
Difficulties in Conducting Management Audit
- Lack of Investments and Technology – Generally, the suggestions may involve high investments on 4M resources such as Men, Machinery, Material or Money which will be an issue for most of the organization. Sometimes the classical process may require to change with a technological update but the management or the staff of the organization may have trouble to undergo the new or required updates.
- Lack of Management support for the change – The Management of the organization may have some trouble to change from their classical process to the latest one for many reasons.
- Staff Behaviour is a problem sometimes to execute the audit plan because they may resist providing the actual information for the audit at the time of discussions, interviews or inquiries. They use to feel that their mistakes will come out during the audit process if they provide all the necessary details for the audit.
- Tackle with top management – It is also an issue in certain situations where the top management will be against the audit process.
Audit report findings and recommendations should yield better results for the organization, the same way, findings also to be reported in better terms which should avoid further conflicts by the management. The recommendations of the findings can be executed with a mutual understanding between the audit team and top management for the success of the establishment.
In the end, the success of a management audit will be based on the participative and friendly approach rather than focusing only on harassing the staff or management for their mistakes.
This has been a guide to Management Audit and its definition. Here we discuss how management plans and execute the audit along with its objectives and example. You can learn more from the following article –