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.
Management Audit
Audit Intention
(Why of audit)
Audit evidence/facts
(what is)
Audit
findings/judgments/
reforms
(Outputs/impacts)
Audit capacity
(How should be)
Audit criteria/norms
(what should be)
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
Compliance
Audit
Management
Audit
• Measuring the process’s output against certain
characteristics: form, fit, function
• Binary outcome – good or bad
• Implementation of policy, law, manuals,
operating guidelines and instructions
• Used in high-risk areas
• Achieving stability and assurance
• Focus on performance and results
• Compliance audit with value addition of causeeffect 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 factbased
• 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
1. Relationship I : Policy – Organization and
management – Performance – Result
2. Relationship II : Problem – Cause –
Improvement
3. Relationship III: Measures for Reform –
Implementation – Achievement of Reform
4. Relationship IV : Performance - Delivery Customer/Market Satisfaction
Different Perspectives of Management
Audit
Internal Management
Human resource
Policy and Strategy
Programme/Resource
Efficiency
Market and Client
Management
Audit
Perspective
Stakeholders
Theoretical Frameworks of
Management Audit
Performance
improvement
Assurance to
standards and
accountability
Enhanced
continuation and
innovative/researchbased reforms
Professional capacity
with ethical and moral
values
Strategic
orientation
Compliance to
policy and law
Focus on critical
risk areas
Key Principles
of
Management
Audit
Evidence-based
Management Audit Approaches
Performance
and Delivery
Auditing
Compliance
Auditing
Management Audit
Approaches
Results and
Satisfaction
Auditing
Virtual Auditing
Model
Strategic Auditing
Model
Delegated or
Decentralized
Model
Outsourcing
Model
Collaborative
Model
Systemic and
Operational Audit
Model
Integrated and
Fragmented Models
Models of
Management
Audit
Mainstreaming
Model
Objectively
verifiable
Focus on
Relevance
Focus
on
Sufficiency
Objective
Means of
verification
Evidencebased
Approach
Researchorientation
Scope of Management Audit
Comprehensive
audit
Thematic Audit
Project
Management
Programme
Management
Functional
Sectoral
Project
Management
Programme
Management
Sub-function
Basic Requirements for an Effective
Management Audit
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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
• Thank You