Notes on Management Audit

Management Audit is a service function predominantly with an objective to assist the management (and not fault finding) in achieving the most efficient administration. So planning and organising the management audit unit involves successful introduction, and position of the management audit functions in the organisation structure.

The organisation necessary to do Management Audit should have the following attributes:

(i) Right from introduction throughout its operation the top management’s support, initiative and enthusiasm are vital for its success. It will reduce resistance to a great extent.

(ii) In case it is decided to have a separate Management Audit Department, the head of the unit should be accorded proper seniority preferably of a senior rank in the organisational hierarchy—because functional heads will be reluctant of the idea that their work should be scrutinized by somebody junior to their rank.

(iii) The department should be made responsible directly to highest level of the management.

(iv) In an organisation chart, the position of a Management Audit Department should be at a level shown below:

Level of Management Audit Department

Formation of Audit Team:

A corporate sector entity consists of various parts and aspects of management, viz. purchases, production, sales, marketing, engineering, finance, etc. The functional areas are again complicated by the management of resources—human, physical, financial and national. Social responsibilities (that is—external diseconomies) are also to be taken care of.

In this sense, the audit of all aspects of the management involves multi- disciplinary and multi-dimensional approach, and entails a systematic and dispassionate examination, analysis, and appraisal of the overall performance.

It takes into account both financial and non-financial factors including economic environment, their effect on the administration and goals of the business organisation. Thus for critically assessing the enterprise management from the broadest possible point of view, the audit thrust should be on evaluation of all facets and functionaries including internal environment, with appropriate analysis for improvement on contribution towards industrial development. This evaluation and audit, therefore, is not a job of a single professional but of a team.

It can best be accomplished by an experienced team of professionals drawn from various disciplines. To cite an illustration with the production management (say), the team may be formed on the following lines and the head of the team (Management Auditor) may act as a coordinator.

Management Areas, Team or Task Force and Co-Ordinated Audit Thrust on

Audit Committee:

Since the support of and direction from the top management are sine qua non for the successful conduct of such audit, ‘audit committees’ should be formed. Such committees may be established function-wise in very broad terms so as incorporate a functional Director as the ex-officio chairman and the management auditor as its secretary.

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