After reading this article you will learn about Outline of the Management Audit Report.

The form of the report should be uniform in design that is, in outline but not in content. The written report should include the purpose and scope of the auditor’s examination, any limitations made or encountered and the auditor’s findings, opinions, conclusions, and recommendations.

A Management Audit Report should identify and contain the following:

I. Purpose and Scope.


II. Facts of Major Importance.

III. Matters discussed.

IV. Current Practices.

V. Discussion or Comments.


VI. Recommendations.

VII. Exhibits.

Examples of ‘Facts of Major Importance’:

A few typical examples that might be indicated under this caption are given below:


1. The functions of the Industrial Relations Department and the Public Relations Department have not been defined clearly. This has caused a serious friction and confusion in the proper conduct of these activities and thereby affects the smooth operation of the company.

2. The activities of the inspection department do not include last-piece inspection. This has resulted in sending numerous parts back later for rework and rectification.

3. Conflicting areas of authority exist between departments, such as Production & Engineering causing duplication of certain functions and unnecessary expenditure in the operations of the enterprise.

4. Greater emphasis is necessary in streaming the procedures in negotiating long-term purchase contracts to better safeguard and protect the corporation’s interests.


5. Materials received by the Receiving Department are not reaching the stores or operating department concerned, indicating defective system of control and short ages at receiving and storing points of the enterprise.

6. Re-check of the system of procedure and close scrutiny, planning, analysis and evaluation of the clerical functions are necessary in Order Writing Department because activities are lagging, becoming more and more troublesome and causing excessive customer cancellation of orders for delivery.

7. Planning of capital expenditure and alignment of facilities are ineffective at all operating points. This has created problems in determining prices and profit performance of the company.

8. No policy appears to have been established limiting the time within which the obsolete models are to be supplied with replacement parts. As a result, large quantities of slow-moving items, at a considerable cost, are carried in inventory.


9. The records maintained in Incoming Inspection department for incoming raw materials and purchased parts were absolutely inadequate and, for this reason, numerous charges of large amounts could not be claimed for defective items supplied.


The auditor should carefully reflect his practical recommendations which he believes to be beneficial to the enterprise.

Here are the examples taken from an actual report based on the result of an examination of a manufacturing plant:


1. Engineering and manufacturing functions be divorced and the engineering work be carried on by two sections—Development Engineering and Production Engineer­ing—both under the Manager (Engineering).

2. The functional status of purchasing be elevated to have its head reporting directly to the Executive Vice-President.

3. A position be created for an Industrial Relations individual to report directly to the Executive Vice-President.

4. Manufacturing be broken down into five sections—Tools and Methods, Production Control, Plant Engineering, Inspection and Manufacturing Shops—all under a Manager (Production).


5. Tools and Methods department should prepare complete and detailed process or operation sheets.

6. Production Engineering be assigned to issue a ‘bill of material’ for each model and accessory.

7. Development Engineering be made responsible for all development work and the operation of its own cost estimates.

8. Part numbers be assigned by Production Engineering.

9. Drawing revisions be identified by a suitable code and that the revisions be detailed on the drawings.

10. Design standards be developed covering parts, raw materials, finishes etc.


11. The release of drawings by the production dep’t. be held until the processing has been completed.

12. Engineering specification changes for a part previously released for production be made after a routine which provides for the development of the full effect of the change.

13. Outside expediters be transferred to report to the Manager (Purchasing).

14. The report on lead time required for procurement of various materials by classes be furnished by Purchasing Department to Production Control and be kept current.

15. Invoices be approved by the Accounting Department rather than Purchasing.

16. All contacts with the vendors be made by the Purchasing Department unless individually and specifically relinquished by Purchasing Department.

17. Rejected-in-process material be reported and used as a guide in decreasing rejections.

18. Disposition of Rejected-in-process material be established by a ‘salvage board’ consisting of representatives from Manufacturing, Tools and Methods, Production Engineering and Inspection.

19. Tools and Methods be headed by a competent Industrial Engineer experienced in plant layout, processing, tooling, methods, time standards and their development and capable of diplomatic handling of individuals at all levels.

20. Time standards be set prior to performance.