After reading this article you will learn about Management Auditor:- 1. Qualities of a Management Auditor 2. Functions of a Management Auditor.
Qualities of a Management Auditor:
A management auditor should have the following specific qualities:
(i) Ability to understand and gauge business problems.
(ii) General understanding of the organisation.
(iii) Expert knowledge on the principle of delegation of authority, management by objective, management by exception, management planning and control and the different budgetary systems, and those of internal control devices (viz. flow chart, flow of work, analysis of work scheduling, use of computer, etc.).
(iv) Sufficient knowledge and experience in preparing various reports for presentation.
(v) General understanding of different laws—general laws, company law, tax laws FERA, MRTP, etc. that affect the functioning of the whole of the organisation.
(vi) Background knowledge about—Engineering, Statistics, Costing, Management accounting, Financial accounting, Industrial psychology, Managerial economics, etc.
(vii) Tactfulness, perseverance, and lastly—pleasing and dynamic personality.
Functions of a Management Auditor:
Comp-field has categorized three broad functions of a management auditor:
1. (To) furnish guidance in the development of format and related instructions pertaining to revenue and expense budgets for each responsibility centre.
2. (To) review or give guidance in the preparation of complete statements of the performance standards and yardsticks for measurement applicable to each major decisions or performance area. The auditor should carefully examine each set of statements to make sure that they are consistent with policies, plans, procedures and standards established at higher levels of responsibility e.g. assure that they are compatible with and properly support the company wide profit budget.
3. (To) critically examine and refine the units of measurement commonly applied in each major performance or decision area. In this regard the auditor should help management in pinning down and inter-relating the performance standards and measurements with the operating responsibilities of each person affected.”
Thus, the functions (or services) of a Management Auditor may embrace the following aspects:
(i) Formulation of plan and policy:
He should ensure that “accounting, economic and other data needed by the management in constructing its basic policy framework” — are supplied by the management services unit.
(ii) Decision-making process:
He should take into account the outcome of the decisions previously applied, and see that the decisions are based on—management by objectives, management by exception, management information services.
(iii) Designing organisational authority structure:
He should assist in the flow of information among different functional managers (responsibility-wise).
(iv) Measuring and evaluating business performance:
He should concentrate on key functions or operations in the profit-making process.
(v) Tax-planning and budgeting:
He should appraise the appropriateness of tax implications, and those of different information and data needed for budget preparation.
(vi) Improving communication system:
He should guide in the flow of internal communication (between various departments) to strengthen the organisation structure, and in the flow of external communication (e.g. market conditions, legal requirements, social accounting, competitors’ standing, economic trends, etc.) with a view to strengthening the progress of the business.
The role of a Management Auditor in the co-ordination (or harmonisation) of the functions of planning, organising, controlling and appraising of business, is crucial. This can be best explained by a chart below.
A management auditor should have the following general considerations to:
1. Indicate source, nature and basis of data.
2. Stick to essential information; that is, not matters of general knowledge.
3. Avoid gathering data acquired during a previous study, except when a change in the data presents new evidence.
4. Obtain the complete details where cost is an important factor.
5. Look for irregularities, uncertainties, conflicts and possible disagreements about plans, objectives, functions, systems and operations.
6. Be alert for weaknesses in organisation systems, methods, controls, operations and personnel.
7. Substantiate all data by verification through actual observation, examination or test checks.
8. Watch out for inaccurate, incomplete, inadequate and unnecessary reports, forms and statements.
9. Determine compliance of policies and procedures by checking performance.
10. Seek out methods for improvement.
11. Note areas and functions for greater effectiveness in performance.
12. Be on the lookout for inadequate protective and preventive methods.
13. Determine whether or not responsibilities are being appropriately discharged.
14. Look into the matters of cost-effective utilisation of all resources—human, physical financial and national, including the scarce resources and utilities of public nature.
15. Take note of fluctuations in production, work-loads and services.
16. Ascertain the ultimate use (i.e. utility aspects) of each activity, record and report in order to determine value or necessity.
17. Look for problems, bottlenecks, waste, unnecessary work or function, poor coordination, low morale, inadequate motivation and other defects in all functions and areas under study.