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AUDITING

AUDITING
PRESENTATION
PRESENTATION
TOPIC:MANAGEMENT AUDIT
DONE BY,
GROUP-5..
What Is It?
A management audit may be described as a systematic
and objective appraisal of the quality of management,
aimed both at individual managers and toward the
management team as an interlocking system of
decision makers. Despite tremendous advances in both
management appraisal and training, the need for
further improvement in these areas is more evident
now than ever before. Many agribusinesses have been
moving toward the implementation of a system of
appraising managerial performance wherein an outside
party compares actual operating results with
verifiable quantitative and qualitative goals.
How Is It Useful
The results of the successful management audit
serve a vital control function within a firm by
providing management with an objective, impartial,
and competent appraisal of operational proficiency.
It also provides a means for redirecting the firm’s
efforts toward those objectives deemed desirable.
With the continued growth of firms, the
importance and complexity of control becomes more
apparent. As a firm grows, its manager is pushed
further away from both daily operations and
contacts with employees and customers. Control is
even more adversely affected when rapid firm
growth is accompanied by a movement toward
managerial decentralization. Financial reports can
partially describe the status of a particular
segment of a firm’s operation.
Continued…
Yet such status reports do not prove as effective
when used to describe those agribusiness functions
which are not well suited to the fields of finance and
accounting.
For example, a deterioration in the quality of the
contacts between your customers and service
personnel will not rapidly appear in any financial
status reports. Other similar personnel problems can
remain totally undetected by a manager who finds
himself too far removed from daily activities.
INTRODUCTION
• Three basic evaluation methods exist for any work activity:
inspection, compliance auditing and management auditing.
The first method, inspection, measures a process's output
against certain characteristics. These characteristics,
generally identified as form, fit and function, are specified,
and the process output either possesses those
characteristics or it doesn't. As a result, an inspection's
outcome is always binary: pass or fail.
•  In contrast, compliance audits check on the implementation
of written manuals, procedures and work instructions. The
compliance audit evolved in the 20th century as business
practices became more complex. The first use of compliance
auditing appeared in financial transactions, because tax
collectors and bank examiners needed assurance that the
financial data were correct. This concept of verifying
compliance was picked up by the quality profession in the
1960s and applied to the military and the nuclear power
industry.
CONTINUED…
• Compliance audits are still used in high-risk activities, where
there is a desire to verify that the activities are being
performed in strict compliance to approved requirements.
Third-party registration audits, regulatory inspections and
most supplier audits measure compliance. The application of a
compliance audit results in stability and assurance that rules
are being followed.
• The management audit is a more recent concept. It focuses on
results, evaluating the effectiveness and suitability of controls
by challenging underlying rules, procedures and methods.
Management audits, which are generally performed internally,
are compliance audits plus cause-and-effect analysis. When
performed correctly, they are potentially the most useful of
the evaluation methods, because they result in change.
Compliance Audits vs.
Management Audits

                                                
            
BASIC RULES
• Whether performing a compliance or a
management audit, auditors must obey four
basic rules. First, audits must provide
information for a defined need, that is, the
customer's need. Second, auditors must be
capable of performing their duties. Third,
audits must measure performance against
agreed criteria. Fourth, audit conclusions must
be based on fact.
Rule 1: Serve your
customers
• Audits provide information. All affected parties
need to know if product, process and system
controls are present and being applied, and
obviously it doesn't hurt to know whether these
controls actually work. An auditor evaluates the
controls against requirements and produces a
report. If controls are present and working, all
parties' confidence in the process is increased. If
controls are missing or not working, then resources
can be applied to fix the problems.
•  Auditors serve three customers: the auditee, the
client and the organization.
Rule 2: Use qualified
people
• Auditors must be able to carry out their
assignments in an impartial and objective fashion.
This means that they cannot have a vested
interest in the activity being audited. If they
developed the rules, they cannot impartially
evaluate the effectiveness and application of those
rules. Although an auditor can never be totally
independent of the auditee, some separation must
be maintained. It's fine to audit within a group.
Rule 3: Measure against
agreed criteria
• Auditors are not allowed to make up the rules--they must audit
against performance standards that are already in place and
accepted by the auditee. This is the planning part of the plan-do-
check-act loop. The highest level of requirements includes
corporate policies, management system standards and regulatory
requirements. Usually originating from outside the auditee's
organization, these requirements establish the goals and
objectives to be achieved. National and international standards,
such as QS-9000 and ISO 9001, fall into this highest category.
Next comes the local approach, often called a quality manual or
quality plan, for implementing these high-level requirements. It
gives the framework for achieving the concepts and should be
fairly compact. This document is then followed by a number of
process-specific procedures. Further detail can be provided in
work instructions, such as drawings, traveler sheets and sampling
plans.
Rule 4: Use facts to form
conclusions
Auditing is fact-based; conclusions are drawn from the data. Facts can be
good (a requirement was met) or bad (a requirement wasn't met), but no
judgment or opinion should taint them. These facts, also known as
objective evidence, can come from five sources. They can be physical
properties, such as flow rates and dimensions; sensory-derived input
from seeing, hearing; documents or records; information drawn from
interviews with auditee staff members; or patterns such as percentages
or ratios. Auditors use checklists and other tools to determine the
facts to be gathered, and then they perform the fieldwork to gather
these facts.
 
• The output of the audit process, be it a management or compliance
audit, is a report. The client (audit boss) receives the report from the
auditor and delivers it to the auditee. To prepare a report, the auditor
must take all of the positive and negative facts and make some sense of
the data. In other words, the auditor must analyze the data.
Management Audit
Process
**Audit Plan
• The audit plan will detail the objectives and the
steps to fulfill the audit objectives. As in any
audit, a project management audit will begin with a
preliminary analysis of the control environment by
reviewing existing standards and procedures.
During the audit, these standards and procedures
should be assessed for completeness and
operational efficiency. The preliminary survey
should identify the organization’s strategy and the
responsibilities for managing and controlling
development.
**Project Management Process Review
• A project management process review would
assess the adequacy of the control environment
for managing projects. The review points listed
represent checkpoints in the project management
process. Auditors can use these checkpoints to
determine both the status of the project’s
internal control system and the status of the
development project itself. These reviews
eliminate the necessity of devoting large amounts
of audit resources to the development effort. As
long as the development process is well controlled,
the need for audit involvement is minimized.
**Project Management
• Auditors may assist the project manager in identifying
project risks and evaluating plans to mitigate and manage
risks (e.g., training, devoted resources, management
support, and end-user commitment). Auditing can provide
management with an independent review of project
deliverables (e.g., project charter, task list, schedule,
budget). Auditing may also review the project task list
and budget to verify that all project tasks are defined
and all milestones have a deliverable.
• During the planning phase the auditor can facilitate
communication between functions and raise issues that
may impact the quality or timeliness of the project. In a
development project, resources from various departments
need to come together to implement an automated
process that may affect multiple user functions.
CONTINUED
Because of various audit projects, auditors develop an
overall knowledge of the organization and establish
relationships in multiple departments. These
relationships are helpful in a development project for
making sure information is flowing between the
development team and other functionaries. Consider
the following groups:
• Primary users
• Secondary users
• Vendors and consultants
• Programmers and analysts
• Database administrators
• Testing teams
• Computer operations
• Interfacing systems
• Implementation team
• Production support (i.e., maintenance programmers
**Communication
• The first area to communicate is the auditor’s role in the
systems development project. It is very important to
make sure that the management and development teams’
expectations of the auditor’s role are understood and
communicated to all participants. In order to influence
the systems development effort, the auditor must
develop an open line of communication with both
management and users. If a good relationship between
these groups does not exist, information might be
withheld from the auditor. This type of situation could
prevent the auditor from doing the best job possible. In
addition, the auditor must develop a good working
relationship with the manager, the analysts, and the
programmers. Although the auditor should cultivate good
working relationships with all groups that have design
responsibilities, he or she must remain independent.
**Recommendations
• Throughout the development project, the
auditor will be making control recommendations.
Depending on the organization’s culture, these
recommendations may need to be handled
informally by reviewing designs with the project
team or formally by presenting recommendations
to the steering committee. In either case, the
auditor must always consider the value of the
control recommendation versus the cost of
implementing the control. Also, recommendations
should be speci?c, identifying the problem and
not the symptom. This allows the proper controls
to be implemented and tested.
• Recommendations are often rejected because of
a time and cost factor.
Case Studies -
CycleEnergy
• Situation Analysis
Client’s objective to gather information on the managerial strengths
and gaps of the 5 members of the managerial team of an Austrian
young and dynamic company in the area of renewable energy sector

• Action
• structured HR Management Audit
• assessment against generic managerial competency model:
Planning & Organising, Interpersonal Sensitivity, problem
Solving & Ananlysis; Commercial Awareness, Action Orientation;
Strategic Mindset; Personal Motivation; Resilience & Innovation
Continued….
• Instruments:
Structured Psychological Test - Personality
Questionnaire,
Managerial Numerical Ability Test, Managerial Verbal
Ability Test,
Occupational Interest Inventory
• Unassigned Role Group Exercise
• Individual Analysis Presentation Exercise
• CV-Analysis
• Structured Competency-Based Inter
Result
• personal reports on each
management team member
detailing competencies and
immediate development needs
• vertical and horizontal team
analysis report with management
development suggestions
• Vertical (people) analysis
showing one outstanding member
in team, others not excelling
in managerial skills
CONTINUED….
• Horizontal (competency)
analysis:
management team quite balanced,
but not fully developed.
• Conclusion:
in future challenges
might appear especially on people-
related
and operative levels, need to
introduce external member to balance
term.
Management Audit:
Small Business Management
• Small businesses often fail because owners are unaware of the
many elements that can prevent the business from growing
and being successful. Often, small businesses are organized
around the manager's specific area of expertise, such as
marketing, accounting or production. This specialized
expertise often prevents the business owner from recognizing
problems that may arise in other parts of the business.
• This management audit will provide the small business
entrepreneur with the essentials for conducting a
comprehensive search for existing or potential problems. The
audit was designed with small businesses in mind and
addresses their unique problems and opportunities.
Continued…
DESIGNING THE Management AUDIT

The authors have combined case evidence, logical procedures,


expert advice and systematic thinking to create a management
audit for small businesses. This instrument is not exhaustive,
i.e., the business owner/manager still must rely on personal
judgment and past experience. However, it does provide a
systematic framework to ensure that critical areas have been
addressed before action is taken. The audit is a tool, not a
replacement for good management skill. Audits and handbooks
cannot do the consultant's job; however, effectively designed
instruments, such as this audit, can save  time for the
seasoned as well as the novice small business manager.

• The authors studied actual case reports to find out what


management practices were being used by small business, and
used that information to create this audit.
Continued…
HOW TO USE THIS
AUDIT
In order to gain maximum effectiveness from this  Management audit, the small
business manager should answer all questions in the audit, with an affirmative
answer indicating no problem and a negative answer indicating the presence of a
problem in a specific area.

• After completing the audit, the manager can review the analysis of each
section of the audit that follows to determine what action is most appropriate.
The audit analysis provides an overview of how the various elements of the
audit are related. The audit covers seven critical business functions: basic
planning, general bookkeeping and accounting practices, financial planning and
loan proposals, sales and marketing, advertising and promotion, personnel and
production.

• In the healthy and financially sound small business, these seven functional
areas are in balance. In many cases, one cannot work on all seven areas at
once. The manager must decide which area to concentrate on based on past
practices and the needs of the business. Regular use of this audit instrument
can help make the small business manager more efficient.
Continued….
Outline of the audit:

• Basic planning
• Personnel
• Production
• Sales and marketing
• Advertising and promotion
• General bookkeeping and accounting
• Financial planning and loan proposals.
CONCLUSION..
• The authors have attempted to present a
methodology for enhancing the success rate of
growing small businesses. This methodology
helps the small business manager to critically
assess the strengths and weaknesses of all
facets of the business. By using the management
audit instrument and the audit analysis on a
regular basis, the small business manager will be
better able to see pitfalls in sufficient time to
react appropriately, thus ensuring a greater
possibility of business survival and prosperity
TO BE CONTINUED A
REPORT OF MANAGEMENT
AUDIT…..
IN ADOBE READER……

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