by A management audit is an independent and systematic analysis and evaluation of a company’s overall activities and performances. It is a valuable tool used to determine the efficiency, functions, accomplishments and achievements of the company.
The primary objective of the management audit is to identify errors in management activities and suggest possible changes. It guides the management to manage the operations most effectively and productively.
In other words, a management audit is involved in evaluation and assessment of the management system and information in the various departments or the entire company. Its reach has been extended to review system and subsystem, authorisation, procedure, accountability, quality of data generated, quality of personnel, etc.,
The Scope of Management Audit:
A management audit is vast as compared to financial review because it not only evaluates finance but also other features of a company. It has an efficiency for assessing management from top to lower level. Few main scopes of management audit are described below:
- Calculate the Effectiveness of the Management: It audits the entire level of management of a company.
- Execution of Principals and Policies: It reviews whether the policies and the principals deployed by the company is effective and successful.
- Locate and Examine the Differences: It helps to identify the differences in productivity and if the pattern set by the company is not fulfilled.
- Suggest for Improvement: The management audit suggests improvement in areas, e.g. purchase, sale, finance, administration, human resources, etc.
Scope of Management Audit
The scope of Management Audit has no limitations. The areas of review depend on the objectives of the business.
Accordingly, the scope of Management Audit may include:
(a) The suitability, practicability and present compliance or otherwise of the organization with its designated objects and aims.
(b) The current reputation of the organization in relation to the general public and within its own particular industrial or commercial field.
(c) The rate of return on investors’ capital whether poor, adequate or above average.
(d) Relationship of the business with its own shareholders and the investing public in general.
(e) The ratios of operating returns and the rate of return on capital projects.
(f) The relationship between management and staff within the business.
(g) The aims and effectiveness of management at its various levels such as top level, middle level and operational level.
(h) Financial policies and control relating to production, sales and distribution and in other functions of the organization.
Weaknesses Revealed by Management Audit
The weaknesses that a Management Audit might reveal may include:
(a) Weaknesses among the members of the Board of Directors.
(b) A lack of awareness among directors and managers of the objectives of the organization and the extent to which these are being achieved, failure to define clearly the objectives and responsibilities of individual managers.
(c) Inadequate steps taken to provide adequate finance.
(d) Lack of technical competence of managers.
(e) Retaining authority by managers for matters which ought to have been delegated.
(f) Lack of clear and identifiable management style in the organization.
(g) Lack of proper staff/management training.
(h) Failure on the part of managers to measure and assess the performance of their subordinates.
(i) Inadequacy of the management information system.
(j) Lack of enforcement of procedures and too much wastage of time in enforcing such procedures.
Weaknesses revealed by Management Audit should be studied in detail to ascertain the real causes and proper remedial action may be taken by the top management to eliminate such weaknesses.
