PART I Management Audit: Concept, Principles and Approaches Shared by Pratap Kumar Pathak

Welcome and Good Morning

Understanding Management Audit

Management Audit “A comprehensive and constructive examination of an organizational structure of a company, institution or branch of government, or of any component thereof, such as a division or department and its use of human and physical facilities.” - William P. Leonard “A systematic assessment of methods and policies of an organization’s management in the administration and the use of resources, tactical and strategic planning, and employee and organizational improvement.” - Business Dictionary

A result-oriented audit with strategic intent and capacity to provide the impetus for positive change.

Audit findings/judgments/ reforms Management Audit (Why of audit) Audit Intention Audit evidence/facts (what is) (How should be) Audit capacity Audit criteria/norms (what should be) Audit findings/judgments/ reforms (Outputs/impacts)

Evolution of Management Audit System Initiated as a management reform tool for increasing productivity and profitability in business entities Practice of conducting independent assessment of organization and management capacity to achieve efficiency, economy and effectiveness: Policy, institution, resource, performance and delivery

Taylor’s Scientific Management: First Organized Initiation at 1909 Increasing efficiency and productivity through assessment of management process and driving improvement in management system. Identification and solving management problems through intensive as well as scientific inquiry into job performance of workers. Finding out ‘one best way of doing things’ in production process through time and motion study. Build the capacity of management and workers to enhance efficiency through teamwork , performance management and production-based incentive system.

Basic Methods of Evaluating Policy and Management Inspection Measuring the process’s output against certain characteristics: form, fit, function Binary outcome – good or bad Compliance Audit Implementation of policy, law, manuals, operating guidelines and instructions Used in high-risk areas Achieving stability and assurance Management Audit Focus on performance and results Compliance audit with value addition of cause-effect assessment Leads future improvements

Objectives of Management Audit Assessment of compliance to policy and law and results of enforcement Internal management control system to assure quality of performance and delivery Effectiveness of organization and management reform process Development of competency of human resource system Improving investment decision system Assessing market effectiveness of performance and delivery Identification of risks and search for mitigating measures

Basic Features of Management Audit Guided by strategic planning Systematic, scientific and independent examination of management decisions and actions Assessment of efficiency and effectiveness in conformity with performance standards Examination of non-financial data Challenges underlying rules, procedures and methods with focus on competitive efficiency and results

Focus on critical evaluation of management or project or programme or function as a whole rather that the appraisal of the behaviour and action of individual decision maker or employee. Conducted by the independent expert or the team of experts from within or outside the organization but with autonomy, authority and professional competence

Basic Rules of Management Audit Rule One: Focus on Serving Customers Rule Two: Criteria-based measure of management performance Rule Three: Audit should be evidence and fact-based Rule Four: The results and conclusion of the audit should be made public Rule Five: Use qualified and competent auditors Rule Six: The audit should instill future improvements Rule Seven: The audit should be participatory

Management Audit: Examination of Logical relationships Relationship I : Policy – Organization and management – Performance – Result Relationship II : Problem – Cause – Improvement Relationship III: Measures for Reform – Implementation – Achievement of Reform Relationship IV : Performance - Delivery - Customer/Market Satisfaction

Different Perspectives of Management Audit Management Audit Perspective Programme/Resource Efficiency Policy and Strategy Internal Management Human resource Market and Client Stakeholders

Theoretical Frameworks of Management Audit

Key Principles of Management Audit Compliance to policy and law Strategic orientation Assurance to standards and accountability Performance improvement Enhanced continuation and innovative/research-based reforms Professional capacity with ethical and moral values Focus on critical risk areas Evidence-based

Management Audit Approaches Performance and Delivery Auditing Compliance Auditing Results and Satisfaction Auditing

Models of Management Audit Systemic and Operational Audit Model Collaborative Model Delegated or Decentralized Model Virtual Auditing Model Strategic Auditing Model Outsourcing Model Integrated and Fragmented Models Mainstreaming Model

Evidence-based Approach Focus on Sufficiency Focus on Relevance Objectively verifiable Objective Means of verification Research-orientation

Scope of Management Audit Comprehensive audit Thematic Audit Project Management Programme Management Sectoral Functional Sub-function

Basic Requirements for an Effective Management Audit Strategic Direction Organizational Independence Formal Mandate and authority Unrestricted Access to Fields of Inquiry Sufficient Funding and Resource Management Capacity Competent Leadership and High Level of Willingness Competent Staff with Motivation and Morale Stakeholder’s Meaningful Support Professional Audit Standards Post-audit Follow-up Capability External Scrutiny System

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