MANAGEMENT AUDIT AS A TOOL OF ACHIEVING ORGANIZATIONAL OBJECTIVE

Description

MANAGEMENT AUDIT AS A TOOL OF ACHIEVING ORGANIZATIONAL OBJECTIVE

ABSTRACT

The topic of the study was management audit as a tool of achieving organizational objective. A case study of Emenite Nigeria Limited Enugu) the objective of this study was to safeguard the company against possible financial loss due to fraud or errors, to achieve the completeness, accuracy and validity of recording in the organization, chapter one was the introductory part of the research work. Chapter two contains the literature review, which included ideas from other articles, textbooks and journals on the same subject matter. Chapter three was research methodology and method of data collection and analysis. Chapter four contains the presentation and analysis of data. Chapter five was based on the findings, conclusions and recommendations of the research.

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

Auditing is an activity carried on by the auditor when he verifies or examines accounting information, determines the accuracy and reliability of accounting statement and reports and then express his opinion.

It is also an activity carried on by an independent person with the main objective of reporting the true and fair view of financial statement.

Management audit is an audit that evaluates the efficiency of management at all levels through out an organization with a view to recommend improvement in areas where effectiveness is not assured.

Management audit is also a systematic assessment of methods and policies of an organization’s management in the administration and the use of resources, technical and strategic planning and employee and organizational improvement.

Management audit carry out the following purposes:

ØTo establish the current level of effectiveness.

ØSuggest improvements

ØLay down standards for future performance

Management auditors (employees of the company or independent consultants)  do not appraise individual performance, but may critically evaluate the senior executives as a management team.

The person carrying out such an examination is known as an auditor. The auditor’s opinion is expressed in the form of a report called audit report. The auditor does not receive the  financial statement only, he also carried out a skillful and careful examinations of the records of the organization to ensure that the financial statement is in agreement with affaires of the affairs of the organization as recorded in the books of account.

It is important that the auditor involved in the establishment of audit management carry out the following planning stages:

§  Identify the objectives of the organization

§  Define the management audit objectives

§  Take account of relevant changes in legislation and other external factors.

§  Take account of known strengths and weakness in the management system

§  Take account of management concerns and expectations

HISTORY OF AUDIT

According to an author in his book that auditing can be traced to the ancient times of Britain, when landowners allowed tenant farmers to farm on their land. The land owners did not involve themselves in the cultivation of the land or in the supervision of this tenant farmers. Cultivation of the land was done by tenant farmers while the supervision was done by overseers appointed by the land owners which is in our own present time known as an auditor. Overseers listened to the account of the tenant farmers and final accounts were made by these overseers to the land owners.

HISTORICAL BACKGROUND OF EMENITE LIMITED

Emenite limited was incorporated since 1961, Emenite Enugu has gained a wealth of experience through meeting the requirements of the construction industry in promoting the development of Nigeria through the manufacture and marketing of its fibre cement roofing and ceiling products and the supply of high quality product and services.

Emenite manufacture roofing sheets, Concrete roofing tiles, Ceiling and cladding, Ultra span metal roofing truss and accessories. Emenite also offers assistance in fixing the sheets, repairs and maintenance, technical support from their trained staff, training programmes for their installer and building professionals, on site supervision and contract installation services.

Management  audit focuses on results, evaluating the effectiveness and suitability of controls by challenging underlying rules, procedures and methods. Management audits, which are generally performed internally, are compliance audits, plus-cause-and- effect analysis. When performed correctly, they are potentially the most useful of the evaluation methods, because they result in change.

Management audit helps in the achievement of organizational objectives through prevention of friction and ensuring smooth running of the organization. There should be proper delegation of special duties to staff with the relevant skill and performance. To prevent bottle neck in the procedure and a definite arrangement vocation to replace those who are essence. The total completion of the audit work and adherence of laid down standards are the primary responsibilities of the managers.

Whether performing a compliance or a management audit, auditors must obey four basic rules.

Rule 1: Serve your customers

Audits provide information. All affected parties need to know if product, process and system controls are present and being applied, and obviously it doesn’t hurt to know whether these controls actually work. An auditor evaluates the controls against requirements and produces a report.

Auditors serve three customers: the auditee, the client and the organization. Auditees’ primary goal may be to simply pass the audit, but auditees trying to derive the most benefit from the audit will also want to know whether the organization is functioning effectively. The client (the person who commissions the audit), in contrast to the auditee, is accountable for the auditors’ actions and reports.  Finally, auditors must serve the organization’s needs. Business values are important and the auditors can assist by determining whether the enterprise is actually achieving its goals.

Rule 2: Use qualified people

Auditors must be able to carry out their assignments in an impartial and objective fashion. This means that they cannot have a vested interest in the activity being audited. If they developed the rules, they cannot impartially evaluate the effectiveness and application of those rules.

Auditors must also be capable of doing their jobs. They need certain emotional, intellectual and mechanical skills, which they can obtain by attending a course, reading a book or observing others. Often, all three methods are used. In addition to knowing how to conduct an audit , auditors must be familiar with the technical processes being examined. A good way to demonstrate this familiarity is to flowchart the activity to be audited if a person can’t flowchart it, he or she can’t audit it. Finally, auditors need to be able to communicate well, both orally and in writing.

Rule 3: Measure against agreed criteria

Auditors are not allowed to make up the rules–they must audit against performance standards that are already in place and accepted by the auditee. This is the planning part of the plan-do-check-act loop. The highest level of requirements includes corporate policies, management system standards and regulatory requirements. Usually originating from outside the auditee’s organization, these requirements establish the goals and objectives to be achieved. National and international standards fall into this highest category. Next comes the local approach, often called a quality manual or quality plan, for implementing these high-level requirements. It gives the framework for achieving the concepts and should be fairly compact. This document is then followed by a number of process-specific procedures. Further detail can be provided in work instructions, such as drawings, traveler sheets and sampling plans. One of an auditor’s challenges is to obtain and become familiar with the many levels of requirements forming the basis for the audit.

Rule 4: Use facts to form conclusions

Auditing is fact-based; conclusions are drawn from the data. Facts can be good (a requirement was met) or bad (a requirement wasn’t met), but no judgment or opinion should taint them. These facts, also known as objective evidence, can come from five sources. They can be physical properties, such as flow rates and dimensions; sensory-derived input from seeing, hearing, smelling or tasting; documents or records; information drawn from interviews with auditee staff members; or patterns such as percentages or ratios. Auditors use checklists and other tools to determine the facts to be gathered, and then they perform the fieldwork to gather these facts.

The output of the audit process, be it a management or compliance audit , is a report. The client (audit boss) receives the report from the auditor and delivers it to the auditee. To prepare a report, the auditor must take all of the positive and negative facts and make some sense of the data. In other words, the auditor must analyze the data.

The first step is to list all of the positive and negative observations (data), then sort those data into controls or problem areas. Generally, there will be a large number of negative observations associated with just a few control items. This natural chunking of the data allows the auditor to see the patterns, rather than the individual events.

The present organizational structure is reviewed in relation to current and prospective demand of business and study must relate to aims and objectives of enterprises. It include the study of present return on investor capital. Whether the return is adequate, fair or poor. Management audit also requires the study of relationship of business with shareholders and investing public in general.

The systems of management differs from one establishment to another. The system to be adopted by management will depend on the particular circumstance of the management and the requirement of the organization. There are some general principles and recognizable features that are section for essential good system  of internal management. Some of these features relate to the basic control while others relates to the decipline of some degree of effectiveness of decision making in an organization.

1.2 Statement of the Problem

Auditing in management cannot be over emphasized. It assist in relation of both strength and weakness in manpower management, the review of theinternal procedures and records of an organization so as to test the reliability and credibility as a foundation for the computation of final accounts and balance sheets.

According to the research carryout on management audit as a tool for achieving organizational objective (a case study of Emenite limited Enugu) these are the problems encountered as follows:

i.                   How can the company determine the degree of efficiency, effectively and economy in the operations of the service.

ii.                 Evaluation of activities of “line” managers and supervisors in the execution of accepted policies.

iii.              To what degree can the staff confirm with the established standard.

1.3 Objective of the Study

In the system of management audit it do not onlyintend to mention an adequate method of processing accounting data, but also to safe guard the company against possible financial loss due to fraud or errors. There is also the overriding need on the part of the management to run the business in an  orderly manner.

As a test, the management audit achieves the following objectives.

1.  To establish good planning system, in order to identify the strength and weakness of the company.

2.  To carryout proper recruitment exercise in a systematic and well controlled way in each vacancy in the organization.

3.  Adequate safeguard of all the company’s assets against loss, damage or waste.

4.  To recognize all the liabilities and correctly record themand the adequate provision for known and anticipated losses.

5.  To record all the expenditure incurred by the company and any payment made must be properly authorized by the company.

Most management decisions are based on financial quantitative and qualitative information obtained from the record of the business for best decision, therefore the information must be relevant, timely and accurate. Hence the immediate objective of the management audit is to achieve the completeness, accuracy and validity of recording the transaction of the organization.