The Use Of Management Audit As An Aid For Effective Management

Project and Seminar Material for Business Administration and Management BAM

The Use Of Management Audit As An Aid For Effective Management


Abstract


This study was carried out to examine the use of management audit as an aid for effective management using some selected firms in Nnewi, Anambra State as a case study. Specifically, the study was aimed at examining the importance of the use of management audit as an aid for effective management, find solution to the problems of understanding the concept and purpose of management audit, find out if management audit would be appreciated as an aid for effective management once its aim, purpose and concept are understood by the top management and other functional heads, staff, managers and management auditors themselves, and if properly understood, management audit is one of the most reliable aid management could use in achieving overall organizational corporate objectives and goals. The study employed the survey descriptive research design. A total of 54 responses were validated from the survey. From the responses obtained and analysed, the findings revealed that management of the companies on where the research was conducted upon is committed to the effective functioning of the management audit function. Furthermore, the management audit function are regularly reviewed by the top management. Also, Many companies do not use management audit because of lack of generally accepted auditing standard, and the scope of management audit is not clearly defined The study recommend management auditors should be allowed total independence in case of reviewing and appraising various units and departments. Recommendation emanating from investigations of the derivations and irregularities should be treated with the seriousness they deserve.


Chapter One


1.0 Introduction

1.1 Background of the Study:

This study seeks to enhance the understanding of the concept of management audit as an aid for effective management. The management auditor’s role in the evaluation of management performance cannot be over emphasized.

Just as change has compulsory challenge to management, so also the problem of change gives new and unparalleled opportunities to management auditors.

Today’s management auditors represent almost top most valuable medium by which the management can extend decision making and responsibility throughout the entity. This extension is feasible because responsive management auditing is a tested mechanism for checking upon and appraising the exercise of management authority and responsibility in every level. Management audit is a total management unfortunately, however, many top managers and business executives are not interested in any sound system of management audit therefore does not place importance on its review on appraisal.

The truth is that most successful business enterprises in the world have dedicated managers who have appreciated the importance of management audit and any business firm who wants to be successful should place much importance and attention to management audit.

Management audit helps management to achieve the following:

  1. Maintaining the continuity of business entity
  2. Achievement of corporate objective of profit maximization and efficient management of resources.
  3. Effective information management and communication throughout the organization.
  4. Evaluation of pressure corporation policies in the area of planning and controlling
  5. Formulation of new management polices when existing ones tends to be absolute or not workable.

The above results might have been hindered because of the following constrains.

  1. Top managements are not interested in the resources and the use of management audit.
  2. The concept, aim and purpose of management audit are not fully known.
  3. Incompliance and lack of integrity of management audit staff.

1.2 Statement of Problem

This concept of management audit has been widely misunderstood, perhaps to poor organizations and management orientation. Some directors, accountants, corporate planners and top management executives occasionally undertakes corporate planning without clearly setting the idea of management audit appreciated by managers. It is therefore not surprising that management audit has not been properly understood in many of our business enterprise even when it is a reliable and dependable aid for effective management, other problems for which solutions are sought for include:

  1. The effect of lack of management interest and management resistance application of management audit staff.
  2. Misunderstanding the concept of management audit by the management audit staff.
  3. Incompetence and lack of integrity of management audit staff.
  4. Pressure within and outside the company which hinders the effective use of management audit work.

1.3 Purpose of the Study

  1. The objective of this project is to study the importance of the use of management audit as an aid for effective management.
  2. It hopes to find solution to the problems of understanding the concept and purpose of management audit.
  3. Management audit would be appreciated as an aid for effective management once its aim, purpose and concept are understood by the top management and other functional heads, staff, managers and management auditors themselves.
  4. If properly understood, management audit is one of the most reliable aid management could use in achieving overall organizational corporate objectives and goals.

1.4 Significance of the Study

It is the duty of the management to ensure at all items that the interests of owners of the business are safe guarded. Management of all resources: man, machines, materials and money of the organization. A proper application of management audit will help to achieve these goals especially the management audit and operating resources. It is responsible for preventing and detecting misuse of basic economic resources, land, labor, capital and entrepreneur in the light of foregoing. There is need for proper understanding of the concept of management audit.


1.5 Research Question

  1. Is there any effect of lack of concept of management audit in the business firms?
  2. Is there any effect of lack of management interest and management resistance in the application of management audit?

1.6 Scope of the Study

The research work is limited to the study of the role of management auditor in any business organization. The management auditor, his primary objectives and the function of management will be reviewed and evaluated. The role played by some selected firms in Nnewi will not be underestimated.

The study will be directed at the management and senior staff of these firms and questionnaires will be given to them.


1.7 Definition of Terms

Auditing

Auditing standard defines it as the independent examination of an expression of opinion on the financial statement of an enterprise by an appointed auditor in accordance to the term of his engagement and in compliance with any relevant statutory obligation and professional requirement. In order words, it is independent examination of books of account and other records by an independent expert called auditor.

Auditor

According to Odion O.A (2002) an auditor is someone who is responsible for evaluating the validity and reliability of a company’s financial statement.

In order words, is a person who is in charge of the responsibilities of examining books of accounts.

Conceptualize

To form a concept or a general idea, thought or understanding.

Investment

This is the commitment of money or capital to purchase financial instrument or other assets in order to gain profitable return in the form of interest, income or appreciation of the value of the instrument. It is to use money ot make more money out of something that will increase in value.

Management

This is the utilization of human and natural resources to achieve a stated objective or goals in other words, it is the direction of an enterprise through planning, organizing, controlling and co-ordinating of its human and materials resources towards the achievement of predetermined goal / objectives.

Additionally, it is the act of getting things done through others (Freed Mund Malik).

Liquidity

Is a measure of the extent to which a person or organization has cash to met immediate and short term obligations or assets that can be quickly converted into cash.

Production

It is calculated rate of making goods. In other words, it is the creation of goods and services for the satisfaction of human want.

Profitability

This is the ability of a business to earn profit. A profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue such as producing a product and other expenses related to the conduct of such business activities

Profit Margin

The difference between the cost of production and selling price.

Capital Budgeting

Is the planning process used to determine whether an organization’s long term investment such as new machinery new plant, replacement machinery, new product and research development project are worth the finding of cash through the firm capitalization structure (debt, equity or retained earnings). It is thee process of allocating resources for capital or investment expenditure.

One of the primary goals of capital budgeting investment is to increase the value of the firm to shareholders. Capital budgeting is the planning of long-term corporate financial project relating to investment funded through and affecting the firm’s capital structure. Management must allocate the firm’s limited resources between competing opportunities (project) which is one main forces of capital budgeting (Joel Dean 1951)

The owners of a company or business organization. In order words a shareholder is any person, company or other institution that own at least one share of a company stock.

Shareholders are a company’s owners. They have he potential to profit if the company does well, but that comes with the potential to lose if the company does poorly.

Unlike the owners of sole-proprietorship or partnerships, corporate share holders are not personally liable for the company’s debts and other obligations. Also shareholders do not play major role in running the company. The board of directors and executive management performs that function (J.C. AROH, 2013).


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary of Finding

The research work reveals the undisputed truth that ever before an enterprise embarks on its objectives and goals, it must at first set plans, then it must establish a system of policies for managing and controlling effectively all the resources of the organization so that options will use financial materials, human or operational.

Accordingly, in order to carry out its co-operate objective, efficiently, some specific plans are set to cover some of the following areas.

  1. Raw materials and production
  2. Marketing and sales strategy
  3. Financial and operational resources to be made available
  4. Capital budgeting

In spite that management audit is a vital tool for effective management, industries are yet to fully appreciate its usefulness as revealed by the twelve negative responses to the use of management audit.

The summary of the major findings are as follows:

  1. Management of the companies on where the research was conducted upon is committed to the effective functioning of the management audit function.
  2. Also in companies, the job of management auditor are not adequately defined by top management even though it has not hampered the management audit function. The management auditors are qualified and experienced. This could be attested by the production of reliable reports by the top management.
  3. The management audit function are regularly reviewed by the top management.
  4. Many companies do not use management audit because of
    • Lack of generally accepted auditing standard.
    • The scope of management audit is not clearly defined

5.2 Conlusion

It is however clear that use of management audit brought about change in some selected firms in Nnewi. In drawing the conclusion of this study, it is necessary to state that the conclusion is based on the findings revealed in the study.

However, the views expressed by various authorities the literature review, with the exception of negative responses do not hold true in this research.

The researcher believes that possible solution is the implementation of the recommendation given below. It is hoped that this research work will go a long way towards a better appreciation of management auditing.

Furthermore, if the recommendation advanced in this project be followed by business enterprises, the need and importance of the use of management audit and its role as a tool for effective management cannot be over emphasized.


5.3 Recommendations

Based on the empirical study, the researcher makes the following recommendations.

Top management should appreciate the partnership role by the management auditor in the organization, indeed the management auditor is a partner as the other units of companies moves towards the attainment of the corporate good. There is no use viewing the management audit function with apathy or disclaim, no single unit of any organization can work in top management should get involved in the planning and controlling of the management staff function.

If this is done, there will be a sense of commitment in all management staff since good congruencies is enhanced. Top management should ensure that only professionally qualified and experienced men are drawn into the management audit team / staff. This step if taken will remove the credibility problem associated with those involved in the management audit operations.

  1. Top management should always refer irregularities and shortcoming in current operation to the management auditors for prompt and appropriate action.
  2. The management auditors should be allowed total independence in case of reviewing and appraising various units and departments. Recommendation emanating from investigations of the derivations and irregularities should be treated with the seriousness they deserve.
  3. Essentially, the management audit function is a challenge to all level of management. Examines the way in which they have set about their operation and if that way is not leadings to the most effective means of attaining management objective, he criticizes it and effectively address it himself, he need the real fact and support from top management.
  4. Management auditors should report directly to the managing director or Chief executive.
  5. The management auditor should have free and unrestricted access to information and be given free hand to select the staff adequate for the task before him.
  6. To management should appreciate the fact that in order to accomplish their enormous task, they need the assistance readily offered by the management auditors.

Any management which is conscious of the responsibilities of its shareholders as well as protecting the company’s asset would agree that the management audit function is indeed helpful and invaluable .

This research work would be found useful by companies already operating with management audit while those with it may see the desirability of living it.

Finally, the various regulatory professional bodies should work on standards and guideline for measuring qualitatively the management audit function as well as working on the scope.


5.4 Limitation of the Study

Financial Setback

This result to the inability of the researcher to extend the study to other firms.

Time Limits

The time for this project is limited, there is no enough time for the project as we are always occupied with lectures.

Lack of Independence, Competence and Integrity of the Management Audit Team.

These qualities might be altered due to pressure from within and outside the organization these qualities will only be assured through selection and training.

Misunderstanding of the Exact Function of Management Audit

The management audit team lack understanding of the exact function of management, since there are yet no statutory procedure to be followed in management auditing.


5.5 Suggestion for Further Research

Based on this empirical analysis of the study, a further researcher or investigator that will take interest in the project with a view of useful and constructive criticism should.

  1. Widen his population aspect of the study: The researcher should interview directors, proprietors to seek the views on the employee’s participation in the growth of the business concern.
  2. The researcher should also interview the population of the team / staff (firm) if possible to ascertain form them more problems.

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