Methods, Process and Practices of Management Audit Balananda Paudel.

Methods, Process and Practices of Management Audit

Balananda Paudel

Management

• The process of planning, organizing, leading and controlling the work of organization members and of using all available organizational resources to reach stated organizational goals

Audit

•Process of appraisal

Management audit tries to search the answer of

• how well the management has been operating the work of the organization?

• Is managerial style well suited for organizational operation?

Management Audit focuses on

• Results, evaluating the effectiveness and suitability of controls by challenging underlying rules, procedures and methods

Management Audit

• It is a systematic examination of decisions and actions of the management to analyze the performance.

• It involves the review of managerial aspects like – organizational objective,– policies,– procedures,– structure, – control system

• in order to check the efficiency or performance of the management over the activities of the organization

Financial audit and management audit

• Unlike financial audit management audit mainly examine the non financial data

Management Audit

• Management Audit is an assessment of methods and policies of an organization's management and the use of resources, tactical and strategic planning, and employee and organizational improvement.

• Management Audit is generally conducted by the employee of the organization or by the independent consultant and focused on the critical evaluation of management as a team rather than appraisal of individual.

Objectives of Management Audit

– Establish the current level of effectiveness– Suggest Improvement– Lay down standards for future performance– Increased levels of service quality and performance– Guidelines for organizational restructuring– Introduction of management information systems to

assist in meeting productivity and effectiveness goals– Better use of resources due to program improvements

Methods of management audit

• Making survey • Reviewing management reports• Reviewing internal audit or inspection reports• Making physical inspections• Making test examinations of transactions• Holding discussions with agency officials and

employees

Making survey

• By obtaining and studying information on– how an activity is supposed to be carried out– how a procedure is supposed to work,

• key features or procedures can usually be identified that appear difficult to control or to be susceptible to abuse.

Reviewing internal auditor inspection reports

• These are invaluable sources of information Of particular interest to the external auditor are those which bring to light .

• Important findings on which the management has not acted.

Making physicalinspections

• To observe possible inefficiencies or problems that should be analyzed and studied.

• Examples of such problems would be idle employees; disposal of apparently good and usable materials

Making test examinationsof transactions

• This is a very useful way to obtain a practical working insight into the efficiency of procedures and their effectiveness in assuring that things are done in the way and with the results intended.

Holding discussions withagency officials and

employees

• success in obtaining useful information in this way is greatly dependent on the auditor's reputation for independent and constructive inquiry.

• If he is regarded with fear because of overly critical reporting in the past, this source of information may not be productive

Inquiry

• A management auditor collects most of the evidence by asking relevant questions and obtaining answers to these questions.

• Proper framing of questionnaires is one of the first steps in conducting management audit.

• Good question is often a key to uncover a hidden problem.

• Raising a proper question is often a matter of personal judgment in a specific situation.

Examination

• Examination of documents and records. • It needs collaboration

Confirmation

• A management auditor may also have written or oral statements from various persons in order to confirm the information procured by him.

Observation of pertinent activities and conditions

• In many cases the management auditor may have to rely upon his own observation of pertinent activities and conditions in the organization.

• A management auditor may prepare organizational charts and flow charts as a result of his observation of pertinent activities and conditions.

Correlation of information

• The information collected through the various techniques has to be correlated so that proper conclusions can be arrived at.

• The management auditor has to compare the actual performances with the standards laid down or with the performances in the previous years.

• A good deal of skill is required in correlating the relevant information so as to reach meaningful conclusions.

THE MANAGEMENT AUDIT PROCESS

• STAGE 1: Planning• Engagement Letter• Entrance Interview/Opening Conference• Survey• Internal Control Review• Audit Program

THE MANAGEMENT AUDIT PROCESS

• STAGE 2: Executing• Transaction Testing• Advice and Informal Communications• Audit Summary• Working Papers• STAGE 3: Reporting• Exit Conference• Draft Report• Management Response• Auditee Comments• Audit Follow-up

STAGE 1: Planning

• During the planning portion of the audit, the

auditor – notifies the auditee of the audit, – discusses the scope and objectives of the

examination with management,– gathers information on important processes,

evaluates existing controls, and– plans the remaining audit steps.

Engagement Letter

• The auditee is informed of the audit through an engagement letter from the competent authority.

• This letter communicates-– the auditors assigned to undertake the audit, – Scope of audit– what materials/documents should be made

available and other relevant information

Entrance Interview/Opening Conference

• During this meeting, the auditee describes or is asked about the department or system to be reviewed, available resources and other relevant information

• If required, the auditor meets with other senior officers directly responsible for the department under review and any staff members he/she wishes to include.

• It is important that the auditee identify issues or areas of special concern that should be addressed.

•

Survey

• In this phase the auditor gather relevant information about the department in order to obtain a general overview of operations.

• Talks with key personnel and reviews reports, files, and other sources of information

Internal Control Review

• The auditor will review the department’s internal control structure, a process which is usually time-consuming. In doing this, the auditor uses a variety of tools and techniques to gather and analyze information about the operation. The review of internal controls helps the auditor determine the areas of highest risk and design tests to be performed in the fieldwork section.

Audit Program

• Preparation of the audit program concludes

the preliminary phase. • This program outlines the fieldwork necessary

to achieve the audit objectives.

STAGE 2: Executing

• It concentrates on transaction testing and informal communications.

• The auditors determine whether the controls identified during the preliminary review are operating properly and in the manner described by the auditee.

• This stage concludes with a list of significant findings from which auditor will prepare a draft of the audit report.

Transaction Testing

• After completing the survey the auditor performs the procedures set out in the audit program.

• These procedures usually test the major internal controls and the accuracy of transactions

Advice and Informal Communications

• As the fieldwork progresses, the auditor discusses any

significant findings with the auditee. • Hopefully, the auditee can offer insights and work with the

auditor to determine the best method of resolving any queries or findings.

• Usually these communications are oral. • However, when dealing with more complex situations written

communications (memos, interim reports and emails) are used.• 360 degree feedback to collate the perceptions of colleagues on

some of the key issues

Working Papers

• Working Papers are a vital tool of the audit profession.

• They are the support of the audit opinion and they connect all the dots, that is, the auditee records to what auditors found.

• They are comprehensive and serve many functions such as reference materials and providing a history of the audit relationship between the auditee and auditor

STAGE 3: Reporting

• principal product is the final report in which auditor express his opinions based on proof collected during the executing process.

• Audit findings are presented and recommendations discussed for improvements.

•

Exit Conference

• When audit management has approved the draft report, auditor will meet with the department’s management team to discuss findings and recommendations.

Draft Report

• The auditor then prepares a formal draft, taking into account any revisions resulting from the exit conference and other discussions.

• After the changes have been reviewed by audit management, the draft is issued to the auditee for management response.

Management Response

• The auditee has the opportunity to respond to the audit findings prior to issuance of the final report which can be included or attached to the final report.

Auditee Comments

• Finally, auditor will ask auditees to comment on the performance of auditor.

• Auditor would have changes in his procedures as a result of auditees’ suggestions.

Audit Follow-up

• At the next audit of a particular department it will perform a follow-up review to verify the resolution of the previous report findings.

Audit Summary

• Upon completion of the field work the auditors summarize the audit findings, conclusions, and recommendations necessary for the draft audit report.

Management Audit

Management Audit

Civil service

• it is expedient to make provisions on the constitution, operation and conditions of service of the civil service in order to make the civil service more– competent,– vigorous,– service-oriented and– responsible;

Central body vis-à-vis Personnel Administration

• TheMinistry of General Administration shall, in order to run the administration of the country, act as the central body in respect of the constitution, operation and conditions of service of the civil service and the management and operation of the civil employee

Procedure relating to management audit(civil service rule)

• The Ministry of General Administration may, carry out casual management audit of all bodies of the Government of Nepal on the rotational basis.

• The Ministry of General Administration may also cause its subordinate departments and agencies to carry out management audit and to submit a report thereof.

• The concerned bodies of the Government of Nepal shall show concerned records and documents while making management audit

• The Ministry of General Administration shall publicize the annual report of the management audit submitted to the Government of Nepal and send it to the body of which management audit has been carried out.

• It shall be the responsibility of the concerned Chief of Office to make clearance of the remarks, suggestions or irregularities mentioned in such a report.

Procedure relating to management audit(civil service rule)

• The Ministry of General Administration shall specify a period and write to the Head of Department or Chief of Office who has not make clearance of the remarks, suggestions or irregularities mentioned in the report.

• The Authority shall take departmental action against the Head of Department or Chief of Office who does not make clearance of such remarks, suggestions or irregularities within the period so specified.