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Outlines of management audit programme

1.Organisation. He should study the structure of the organization in the area of the
management audit work assigned to him. In this connection be should compare the
company’s organization chart. if any, He should ascertain whether careful attention has been
paid to the principles of good organization .
2. Plans and objectives. He should discuss the plans and objectives of the concern with the
3. Policies and practices. He should find out whether the policies as laid down are properly
adhered to. Whether any improvement can be made to the existing policies and practices so
that they may be more effective.
4. System and procedures. He should study the systems and procedures with a view to find
out whether there are certain defects in them. If he finds such a thing, he should suggest
improvements to the existing systems and procedures.
5. Controls. He should find out whether these controls are adequate and effective.
6. Operations. He should ascertain whether there is any loophole in the working of the
organizations in connection with the manufacturing process which hinders the achievement
of the maximum production. If this is the case, he should suggest ways and means to
overcome these drawbacks and difficulties.
7. Layout and physical equipment. He should study the existing layout and see whether any
improvement can be made therein in order to take maximum advantage of it. Similarly in
regard to the physical equipment, whether better and greater use of modern physical
equipment can be derived.
8. Personnel. He should see whether manpower is fully utilized and if not, what can be done
to increase productivity. He should see whether there is co-operation between the worker
and management. How can better and improved relationship between them be established.
9. Regulations. He should ascertain whether the concern complies with not only its own
rules and regulations and the Companies Act but also those of the municipal and local
The efficiency of the management audit will depend upon the management auditor as to
how he handles the audit work; how cleverly and tactfully he extracts information; how he
conducts investigation and how he analyses the data collected by him. He should bear in
mind the following points while conducting audit:-
1. He should look for irregularities which might have been committed.
2. He should see whether there has been any conflict and any disagreement amongst
the members of the management about the planning, objectives and functions.
3. He should pay special attention to the cost element and obtain complete details in
regard to this element.
4. He should be alert for weaknesses in the organization, systems, methods, controls,
objectives and personnel.
5. He should go deeper into details if he comes across any incomplete, inaccurate or
inadequate data or statement.
6. He should see whether procedures, policies, etc. are properly followed.
7. He should ascertain whether or not duties and responsibilities are being carried out.
8. He should pay attention that the manpower, equipment, materials, etc. have been
fully utilized.
9. He should pay attention to any bottlenecks, wastes, unnecessary work, Lack of
coordination and other defects in all the areas of the his study.

Work and duties of the Management Auditor

In this small book it is not possible to deal in detail of the work to be done by the
managing auditor in regard to different transactions. However, we shall deal with a few
items in the form of synopsis. If the management auditor is satisfied as to the conditions
of the general management of the business he may proceed to check the items on the
following lines:-

(a) Buying: Materials of right specification, right quantities, right time, right prices.
(b) Planning: Receipt of customers orders; execution of their orders.
(c) processing: If he is not a technical hand he should be very careful in the critical
analysis of the manufacturing process.
(d) Storage: Proper inspection of materials before storage; storage conditions; whether
storage conditions will damage or deteriorate the materials; whether placed properly;
safety measures; etc.
(e) Internal transport and dispatch: Movement of materials; whether quick or delayed;
packing problems; whether packing cases regularly supplied or not.

2. Distribution
(a) Sales Records: Whether adequate sales records are maintained; whether sales service
is satisfactory; selling costs.
(b) Sales policy: Critical examination of sales policy; sales agents; sales depots; sales
reports from the agents and depots.
(c) Services: Whether there have been complaints from customers; after-sale service;
whether interest of customer is waning whether goodwill of the concern is
(d) Publicity: Whether scrap book is maintained in regard to publicity is media for publicity
satisfactory; whether results of advertising analysed.
(e) Sales control: Whether orders are executed promptly; whether there are complaints
regarding quality of goods and so on.
For want of space in this small book, we have not dealt with the work involved regarding
market research, accounts, finance, personnel, etc.

Management Auditor’s Report

1. Essentials of good management auditor’s report
(a) The report should be correct, i.e., the statements which he makes in the report
should be correct and should be based upon definite information he receives
while engaged in the audit work.
(b) It should be concise, but clear cut and comprehensive of facts.
(c) It should be courteous, i.e., even if it has to criticize the management, it should
be so worded as to avoid unnecessary sharpness or implication.
(d) It should contain the recommendations if any, which should be constructive and
not condemning in nature.
2. Matters to be dealt in the report
(a) Is the return on the investments of the shareholders poor, adequate or above
(b) Comparison of the rate of return on investment between the current year and
the previous year/ years.
(c) Comparison of the operating costs of the concern with other concerns
conducting the same type of business.
(d) Whether plant and machinery in use is suitable or otherwise to get the maximum
amount of production.
(e) Whether the relationship between management and the staff and the workers
has been cordial.