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Management Audit

Ms. Manjusha Parial ,Management Consultant

Management Auditing - A result-oriented audit can provide the impetus for positive change.

Three basic evaluation methods exist for any work activity: inspection, compliance auditing and managementauditing. The first method, inspection, measures a process's output against certain characteristics. Thesecharacteristics, generally identified as form, fit and function, are specified, and the process output eitherpossesses those characteristics or it doesn't. As a result, an inspection's outcome is always binary: pass orfail.In contrast, compliance audits check on the implementation of written manuals, procedures and workinstructions. 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 bankexaminers needed assurance that the financial data were correct. This concept of verifying compliance waspicked up by the quality profession in the 1960s and applied to the military and the nuclear power industry.Compliance audits are still used in high-risk activities, where there is a desire to verify that the activities arebeing performed in strict compliance to approved requirements. Third-party registration audits, regulatoryinspections and most supplier audits measure compliance. The application of a compliance audit results instability and assurance that rules are being followed.The management audit is a more recent concept. It focuses on results, evaluating the effectiveness andsuitability of controls by challenging underlying rules, procedures and methods. Management audits, which aregenerally performed internally, are compliance audits plus cause-and-effect analysis. When performedcorrectly, they are potentially the most useful of the evaluation methods, because they result in change.

Compliance Audits vs. Management Audits

Whether performing a compliance or a management audit, auditors must obey four basic rules. First, auditsmust provide information for a defined need, that is, the customer's need. Second, auditors must be capable ofperforming their duties. Third, audits must measure performance against agreed criteria. Fourth, audit

conclusions must be based on fact.

Rule 1: Serve your customersRule 2: Use qualified peopleRule 3: Measure against agreed criteriaRule 4: Use facts to form conclusions

Auditing is fact-based; conclusions are drawn from the data. Facts can be good (a requirement was met) orbad (a requirement wasn't met), but no judgment or opinion should taint them. These facts, also known as

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objective evidence, can come from five sources. They can be physical properties, such as flow rates anddimensions; sensory-derived input from seeing, hearing, smelling or tasting; documents or records; informationdrawn from interviews with auditee staff members; or patterns such as percentages or ratios. Auditors usechecklists and other tools to determine the facts to be gathered, and then they perform the fieldwork to gatherthese facts. The output of the audit process, be it a management or compliance audit, is a report. To prepare areport, 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 audits require some additional work. The auditor needs to identify the pain associated with thosegroups of bad facts. (It's important to identify business problems, such as scrap, rework and overtime, aspain.) Then the auditor combines the missing control (the system error that's causing the problems) and thebusiness pain into one statement, called a finding. The finding will reveal cause-and-effect patterns occurringwithin processes. Because the business pain is identified, there will be a tremendous desire to do somethingabout it. By associating the negative facts with missing or weak controls, the auditor rises to the system levelof analysis. This has lasting value, because the system affects the process, which affects the product orservice.

Instilling a desire to improve Audits measure actions against requirements; they examine the product, process or system against

performance standards. This has value when the requirements have been thoroughly tested and scientificallyproven, but, unfortunately, this is rarely the case.

Management Auditor's Rules1: Be prepared.2: Dig for threads and patterns.3: Look for cause and effect.4: Use the language of business.(e.g. cost, risk and opportunity)

Most manuals, procedures and work instructions are imperfect; they're the result of a small number ofindividuals assembling some rules with limited resources. By focusing on results, the management audit can

determine whether those plans and approaches are any good. If they aren't, the developers and users arecompelled to improve their methods because they can see the adverse consequences of not doing so. Whenemployees and managers begin to see audits as opportunities to improve, they begin to see auditors not aspolice officers but as productive members of the organization.Management audit is concerned with the quality of managing. The principal reason for undertaking amanagement audit is the need for defecting and over coming current managerial deficiencies. The evaluation ofmanagerial performance is achieved with the aid of a management audit questionnaire. Its forward lookingapproach is analogous to the preventive maintenance program/Concept found in production . The capability ofthe management audit questionnaire to pin point important problem that are related to managing on organizationin a real plus factor for its use. Management Audit would be helpful in the cast of acting industries to isolate theproblem and account for their ailments, even a sound entity would benefit is as well as the brewing or latestproblem may be defeated and analyzed and opportunities or difficulties created by changing circumstances

can be known.