AUDITING AUDITING PRESENTATIONPRESENTATION

AUDITING AUDITING PRESENTATIONPRESENTATION

TOPIC:MANAGEMENT AUDITTOPIC:MANAGEMENT AUDITDONE BY,DONE BY,

GROUP-5..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.

CONTINUEDBecause 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 strengthsand gaps of the 5 members of the managerial team of an Austrianyoung 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, problemSolving & 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 eachmanagement team memberdetailing competencies andimmediate development needs• vertical and horizontal teamanalysis report with managementdevelopment suggestions• Vertical (people) analysisshowing one outstanding memberin team, others not excellingin managerial skills

CONTINUED….

• Horizontal (competency) analysis:management team quite balanced,but not fully developed.

• Conclusion: in future challengesmight appear especially on people-relatedand operative levels, need tointroduce 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

AUDITIn 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……