What do you understand by management audit ?

The concept of management audit and operational audit is really not capable of statutory definition since it is a continuously evolving concept arising from the needs of management. We can refer to some meaningful interpretations.

“Management Audit is appraisal of managers as managers” (Harold Koontz, Cerill 0Donell) Management auditor may  be defined as comprehensive and constructive examination of the organisational structure of a company, institution, or branch of government or of any component thereof, such adivision or department and its methods of controls, its use of human and physical facilities and its plans and objectives” (Leonard, William P.) “Management audit is an appraisal of the enterprise in all ” aspects, in the light of its present and probable future environment (Mekinsey J. 0.

“A management audit is a future oriented, independent and systematic evaluation of the activities of all levels of management for the purpose of improving organisational profitability and increasing the attainment of other organisational objectives through improve, rents in performance of the management functions, achievement of programme purpose, social objectives and employees development Included are evaluation of the adequacy of the management decision-making process in terms of existence, compliance and relevance to the attainment of organisational objectives; the manage ment decision itself in relation to the organisational objectives and the quality of management. The resultant audit report both identifies problems and recommends solutions.” (Research Report of the Institute of Internal Auditors of America)

“Management audit is an investigation of business from the highest level downward in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with outside world and smooth running of internal organisation”. (L R. Howard) Clearly and precisely, management auditing is a method to evaluate the efficiency of the management at all levels throughout the organisation. More specifically, it comprises the investigation of a business by an independent body from the highest executive level downwards, in order to ascertain whether sound management prevails throughout and to report as to its efficiency and effectiveness or otherwise, with recommendations to ensure its effectiveness. In the light of above philosophies and significance of management audit it appears that management audit cares for managerial decisions and policies which determine the future of a business enterprise.

The performance of managerial personnel is tested as to see to what extent the decisions and policies have been successful in achieving the objectives of a business. is created on the strength and fluency of the team of management, the functioning of management should also be subject to assessment and review. The viability, correctness and effectiveness of the decision-making process should be tested comparing to the standard laid down for achieving the goals. Thus management audit is a total examination of an organisation or any part of it. It includes checks on the effectiveness of managers, their compliance with company or professional standards, the reliability of management data, the quality of performance of duties and the recommendations for improvements and reformation. A Case Study 1, Observations: XYZ Ltd, a prosperous, with a strong goodwill products, suddenly started receiving complaints about its for its products and sales retarded. So an investigation into the roots is For planned. 2. Enquiries: The enquires centered around the following points: ‘e, (a) What was the nature of the complaints and what was the of magnitude of the complaint? (b) What was the period of manufacture t of the products? (c) What is the reason for much defectivequality? t 3. Results of the enquiry: It was found that the complaint was genuine and serious about the sudden fall inquality.

The products were manufactured in the second quarter of the year. The enquiries revealed that there was no change in set-up of labour and machinery or in technical process. Decision: It was therefore decided that the fall in quality was due to use of inferior material. Action: Purchase Manager (materials) was called for explanation. He submitted that the price for the first quality material went too high up, and therefore secondquality was used. He was counter-questioned as to why he could not foresee the rise in price, because foresight and forecast would be considered very important functions of management. To this the Purchase Manager answered that he had foreseen the rise in price and accordingly wanted to make earlier purchase, but the finance department expressed its inability to provide for finance. The Finance Manager was called for and he submitted that he could not make the finance available. The Finance Manager was counter-questioned as to why he could not arrange the finance. His submission was acceptable but not very sound and encouraging.

The Purchases Manager was further questioned as to why he did not make a arrangement for forward contracts (Le. rate to be settled earlier and delivery afterwards). No satisfactory answer was received. The Sales Manager was then questioned as to why he did not take up the matter seriously when suddenly sales started falling. His contention that he considered the reason might be some other market factor was also not acceptable. Also the Quality-Control Manager (or the Production Manager) was called upon to explain as to why he did not explain to higher authority the danger of wrongly breaking the co-ordination between men, machine and material. Reporting: Therefore the Management Auditor had to report against. (a) The Purchases Manager, (b) Sales Manager, (c) Production Manager primarily and also submitted a note of caution for stringent financial policy regarding availability of finance. This case study shows that management audit goes over and above the mere quantified financial data, it strikes to the root of managerial behaviour.

Updated: July 24, 2019 — 7:05 am

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