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 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. 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

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 Rule 2: Use qualified people Rule 3: Measure against agreed criteria 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, smelling or tasting; 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. 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 audits require some additional work. The auditor needs to identify the pain associated with those groups of bad facts. (It's important to identify business problems, such as scrap, rework and overtime, as pain.) Then the auditor combines the missing control (the system error that's causing the problems) and the business pain into one statement, called a finding. The finding will reveal cause-and-effect patterns occurring within processes. Because the business pain is identified, there will be a tremendous desire to do something about it. By associating the negative facts with missing or weak controls, the auditor rises to the system level of analysis. This has lasting value, because the system affects the process, which affects the product or service. 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 scientifically proven, but, unfortunately, this is rarely the case. Management Auditor's Rules 1: 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 of individuals 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 are compelled to improve their methods because they can see the adverse consequences of not doing so. When employees and managers begin to see audits as opportunities to improve, they begin to see auditors not as police officers but as productive members of the organization. Management audit is concerned with the quality of managing. The principal reason for undertaking a management audit is the need for defecting and over coming current managerial deficiencies. The evaluation of managerial performance is achieved with the aid of a management audit questionnaire. Its forward looking approach is analogous to the preventive maintenance program/Concept found in production . The capability of the management audit questionnaire to pin point important problem that are related to managing on organization in a real plus factor for its use. Management Audit would be helpful in the cast of acting industries to isolate the problem and account for their ailments, even a sound entity would benefit is as well as the brewing or latest problem may be defeated and analyzed and opportunities or difficulties created by changing circumstances can be known.