Objectives and Scope of Management Audit

Objectives of Management Audit

The basic objectives of the management audit can be briefly stated as under:

• To identify the overall objectives of the organisation.
  
  
• To find out the extent to which these objectives are achieved.
  
  
• To assist the management in carrying out its operations most efficiently and thereby improve the performance of the organisation.
  
  
• To locate the area of inefficiency and weaknesses and draw attention of the management towards them.
  
  
• To improve the functions of the management and increase the productivity of the organisation.
  
  
• To assist the management in increasing profitability of the organisation.
  
  
• To ensure optimum utilisation on all the resources employed, including money, materials, machines, men and methods.
  
  
• To help management by providing health indicators and help prevent sickness or help cure in case of sickness.
  
  
• To anticipate problems and suggest remedies to solve them in time.
  
  
• To suggest improvement in methods of operations.

Scope of Management Audit

Scope of management audit is very wide and it is difficult to explain the scope fully. The management audit implies the evaluation of the total management performance and this includes the performance of highest level of management to lowest level of management.

Functions performed by management at all levels are evaluated and deficiencies and weaknesses in the working are expected to be located in the process of the management audit. Thus it can be said that there are two main aspects included in the management audit.

These two aspects are:

• To locate the reasons for the deficiencies in the existing system and procedures which cause waste and deficiencies in the organisation, and
  
  
• To make continuous review, analysis and appraisal of:
  • Plans and Objectives
  • Organisational Structure
  • Systems and procedures
  • Policies and practices Methods of control
  • Means of operation
  • Manpower and other physical resources

The management auditors while performing their work are required to see how the decisions have been taken by the persons working at each level of management.

If there is delay in taking some decisions, the reasons for the delay and the effects of delay should be enquired into by the management auditors. They should also find out whether the decisions are taken after receiving all the relevant information by the management people.

In the scope of management audit, evaluation of the Board of directors is included. Performance of each director of the company is evaluated by considering the contribution made by him to the Board activities, the extent to which the directors act as a team and whether the directors work in the capacity of trustees of the company. The management auditor should evaluate the executives working in different departments.

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Areas covered by Management Audit

The following chart showing various areas covered by Management audit:

Sales Functions

• Market survey, sales forecast and sales and distribution policy
• Policy for sales promotion or advertising
• Organisation of various channels of sales and distribution
• Products pricing policy, discount and credit facilities
• Sales planning based on market research, Keeping in view of production policy and capacity

Producing Management

• Research- Value Analysis Job Evaluation, Cost Reduction.
• Production planning and its co-ordination with production.
• Production performance valuation, deviations from norm.
• Utilisation of capacity, best use for idle or surplus capacity.
• Organisation for tools, maintenance and repairs.
• Specifications and standards for material and operative time, machine as well as manual.
• Improvement of production methods and development, designing and testing of new products and production methods.

Financial Control

• Delegation of Financial powers.
  
• Setting and operation of budgetary system of control, report of variances decisions.
  
• Internal audit including cost audit.
  
• Scrutiny of financial proposals, investment plans and project decisions.
  
• Financial reports and financial ratios, rendering analysis of interpretation.

Inventory Control

• Purchase organisation and procedure.
  
• Operating of provisioning drill e.g. determination of order levels, recording levels, safety balances and optimum levels.
  
• Storage procedure, cost of inventory carrying and inventory shortage.
  
• Issue routine
  
• Slow moving and obsolete films, inventory turnover.
  
• Valuation of stock and partly finished goods.

Personnel Administration

• Procedure for appointment, transfer, promotion, demotion and training.
  
• Absenteeism and sickness, action taken to reduce them.
  
• Methods of wage payment and incentives.
  
• Accidents, preventive measures for safety.
  
• Welfare measures- Discipline and morale-Productivity of Labour.
  
• Labour turnover, methods adopted to analyze and action taken to reduce the same.

General

• Organization for delegation of authority, responsibility and accountability.
  
• Organisation for flow of information
  
• Organisation for level of decision-making.