Management Audit Essentials to Learn and Conduct

Management audit is the examination of all processes within the management department, including transactions, in a systematic and independent way. Let’s explore about management audit and what it exactly entails.

As you may already know, auditing in the finance domain refers to the unprejudiced inspection of all the financial transactions externally in an enterprise. Now, management audit is much broader in scope, and it is not just about looking into the past 12 months of processes like a financial audit. 

What Does Management Audit Mean?

Management audit means the assessment of performance across all levels of management along with policies, operations, existing structures, etc., in a firm. The primary goal is to improve the overall performance of the company by identifying errors and fixing them systematically. 

By errors in management, one means the inefficiency of processes or wastage of resources. 

Management audit is more related to controlling in management than the other functions of management.

Factors Considered in a Management Audit

As a management auditor, one has to ensure they gather information as scientifically as possible. William Patrick Leonard, in his 1962 book, The Management Audit: An Appraisal of Management Methods and Performance, discusses the seven factors that should be analysed. 

1. Plans & Objectives 
2. Organisational Structure 
3. Policies and Practices
4. Systems and Procedures
5. Methods of Control
6. Means of Operations
7. Human and Physical Facilities

Scope of Management Audit

Now that you know the factors, let’s explore why they are considered by looking into the scope of management audit. Also note that there is no limitation to its scope. 

Assessing Efficiency of Management 

This is evaluated scientifically through all the levels of management, irrespective of responsibility and authority.  

Evaluating Plan and Policies Implementation

This is to evaluate if the plans and policies are executed correctly. While the management lays down the policies and have a solid plan, the employees may not follow them correctly.

Checking Relationship between Management and Staff

Management audit is not just about the evaluation of processes. It is also about the human side of things. An organisation may be understaffed with managers. What happens is that the subordinates may not get the best direction or guidance. They may not be motivated, too. The point is to assess whether the staff is comfortable working in the organisation. 

Assessing Returns

The management auditor looks into whether the returns are adequate for the company.

Looking For Variances

As mentioned earlier, a management audit is akin to the controlling side of things. The audit looks into the deviations (if any) from the plan and policies set by the management in the first place. 

Reason for Variances

After noting down the deviations, the management auditor looks into the reasons – taking once again a scientific/objective approach. 

Suggesting Improvements

Once everything is gathered, the auditor can provide suggestions that will increase efficiency in the organisation. 

3 Main Objectives of Management Audit

When it comes to management audit, the objectives are simple, and they are a simplified version of the scope, so to speak. 

• Reviewing the organisation’s structure from a critically scientific perspective. 
• Determining the inefficiencies in all functional areas of the organisation
• Providing solutions for the challenges

By critically analysing the organisational structure, potential improvements and optimisations in processes can be identified. This may lead to a more streamlined hierarchy, improved communication channels, and better alignment with overall business objectives.

Identifying inefficiencies allows for targeted improvements in various departments. Addressing these inefficiencies can lead to optimised processes, reduced waste, and improved resource utilization, ultimately contributing to cost-effectiveness.

Offering solutions to identified challenges enhances the organisation's ability to overcome obstacles. This proactive approach can lead to improved decision-making, agility in adapting to changes, and better overall performance in the face of internal or external challenges.

How Management Audit is Conducted

Gathering of Information

This is collected through questionnaires like surveys or in-depth questions. The aim is to understand the planning process of the organisation. 

Evaluation of Information

The information, once collected, must be investigated as objectively as possible. The purpose is to know the current state of the organisation. 

Verifying and Confirming Information

Information that is collected must be verified by whoever is providing it. Generally, verification is done through signatures. The management auditor also has to check whether the sources are validated. 

Taking Preventive Action

Once the information is confirmed, the management auditor must determine solutions for each challenge. After that, they can suggest the organisation with solutions that will have the best possible outcomes. 

Parting Thoughts

Management audit has a broad scope, as you can see now. The purpose is to ensure the organisation runs efficiently in all its processes. 

Learn more about such important concepts with management courses.