Management Audit in different functions Cost and Management Audit 9.

Corporate Objectives are the overall objectives of the organization that influence the direction of
corporate strategy. In other words, what the organization seeks to achieve is corporate objective. These
are the specific, realistic and measurable aims which an organisation plans to achieve.

Corporate Image: The term “Image” indicates an idea or procure formed in the mind of a person about
an individual or an institution. Corporations, like individuals, consciously build up images in the minds
of the people with whom they come into contract. In developing a ‘Corporate Image’, an enterprise
has to ensure an overall consistency, as regards the quality of the products, the ethics of its

1
Includes the contents of Study Note – 12: EVALUATION OF CORPORATE IMAGE

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management, employee relations, attitudes towards customers, quality and service to customers etc.
the Public have different perceptions of “Corporate Image”.
• Customers measure it by the product quality, prompt and courteous after sales service, regularity
in maintaining supplies; etc.
• Shareholders, measure it by the consistency in financial performance and prospects of growth.
• Supplier measure it by the company’s liquidity and ability to honour commitments.
• Banks and Financial Institutions measure it by the financial health, net worth and history of
servicing debts.
• Government looks at it from the point of view of revenue generation and as an honest tax payer.
• Employees look for steady career growth and smooth Industrial Relations.
(June 2013 & 2014, December 2015, December 2016)

Evaluation of Corporate Image (December 2015, December 2016)

Evaluation of Corporate Image is a very complex process and it involves a critical examination of
events and trends concerning business environment-both internal as well as external. The following
are the steps to evaluate Corporate Image
• Prepare a list of desirable attributes
• Group them functionally and specify the qualifications
• Assign weights to each attribute based on their relative importance.
• Involve experts in the respective fields in rating the qualifications and attributes- based on facts,
judgments and interpretations.
• Summarise the rating under the selected groups and present a composite evaluation to the
management. The summary should through light on what the company has been able to do for
itself and for the public in general, represented by the six group- identified earlier.
Corporate Culture refers to a corporate’s values, beliefs and behaviours on the basis of which
people interpret EXPERIENCES AND BEHAVE. In this era of globalization, successful companies
have a customer driven corporate culture. In simple language, corporate culture is the operating
working environment and is shaped by the way people conduct their work, the way customers are
treated and served, the way workers interact with each other or their supervisors or the way people
present themselves.
It is the management’s responsibility to ensure the building up of a corporate culture comprising of:
▪ Commitment to honest productivity
▪ Planned performance and growth
▪ Informative, informing and informed, organization
▪ Consideration for others in partnership with the organization
▪ Participative management
▪ Good employee relations
▪ Good decisions and timely action
▪ Quality consciousness
▪ Mutual trust
▪ Futuristic outlook
▪ Helpful nature, inter-institutional and towards neighbourhood
▪ Cleanliness, timeliness, truthfulness, open home, orderliness, humility, creativity, learning,
and sense of values.

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Corporate Services: Corporate Services are the support infrastructure of a company. The activities in
such areas are stated below:
• Combine or consolidate certain enterprise-wide needed support services provided based on
specialized knowledge, best practices, and technology
• Serve internal (and sometimes external) customers and business partners
• co-ordinate the diverse organizational units and help them to focus on organizational goals
• exploit resources and develop core competencies that enable an organization to keep its edge
over its industry competitors
• combining operations with another competitor in the same industry to increase competitive
strengths and lower competition among the industry rivals

Corporate Services Audit: The term “Corporate Services” refers to the activities that combine or
consolidate certain enterprise-wide needed support services, provided based on specialized knowledge,
best practices, and technology to serve internal (and sometimes external) customers and business
partners viz. employees, shareholders, community, fellow businessman and Government.

In other words, the scope of corporate services audit extends to the critical examination of the different
aspects of services and the extent to which the corporate body has rendered satisfactory services.
The areas of Corporate Service Auditors are:
1) Consumers – quality goods in right quantity at right price, place and time
2) Employees – pay, training, safety, welfare, industrial relations, job security etc.
3) Shareholders – safety of investments and satisfactory returns, appreciation of investment
4) Community – social cost and social benefit, public relations

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5) Fellow businessmen – business ethics and fair trade dealings

6) State / Government – compliance of laws, fair trade practice, timely payment of taxes
The concept of corporate services audit is that its appraisal should consider the level of contribution a
business entity makes to society and its environment towards raising the quality of life through better
product quality and services rather than profit maximisation. The corporate services audit thus attempt
to distinguish between the end and means of business and provides a new dimension to the concept of
audit approach. In corporate services audit, the auditor checks the company’s response to different
social needs.
(December 2008 & 2012 and June 2011, 2014 & 2017)
Corporate Development (Corp Dev) is the process of taking strategic decisions to grow and restructure
one’s business, establish strategic partnerships, and/or achieve organizational excellence. The purpose
of Corp Dev is to create opportunities for the company through actions such as mergers and
acquisitions (M&A), divestitures, and deals that leverage the value of the company’s business
platform.

Corporate development audit is an independent objective study of an organization’s capabilities. It

aims at identifying strengths and weaknesses and moving toward state-of-the-art2 performance. A
Corporate Development Audit gives a comprehensive picture of the status of corporate development
effectiveness and highlights developmental needs. Such corporate development audit assures that –
a. The various factors and forces constituting a corporate enterprise are the right kind and quality.
b. Communication remains the key to the functioning of an enterprise.
c. The pattern of departmentalization in an enterprise adopted in the past and proposed for the
future for dealing with multidirectional responsibilities is fully responsive to circumstances and
business environment.
d. The personnel problems are handled appropriately considering the overall objectives of
development of the corporate enterprise.
e. The responsibilities of planning, coordination, motivation and control at functional management
levels are discharged in proper spirit. (June 2018)

Checklists in the areas of Corporate Development Audit: (June 2018)

A. Check list on Corporate Planning:
a) Whether SWOT Analysis has been made?
b) What are the corporate strengths and weaknesses in relation to price, quality, market share,
distribution network, after-sales services, technology improvement, corporate structure and
qualities of members?
c) What are the opportunities and threats in relation to rivalry among the existing firms, threat of
new entrants, threat or opportunity of technical know-how, and strategy of suppliers?
d) How were the threats overcome and opportunities availed of in the past?
e) Whether the "corporate image} is going to improve in the near future?
f) What specific techniques are applied by the management for corporate planning (long term
and short term)?
g) Whether the corporate objectives and goals are clearly defined?

2
State-of-the-art means which incorporates the latest ideas in terms of technology, features etc.

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h) Whether the corporate planning premises and plans have been drawn up based on adequate
information?

B. Check list on Corporate Objectives:

a) Whether the corporate objectives are clear and explicit?
b) Whether the different component of the enterprise have separate objectives?
c) Whether these objectives are clearly defined?
d) Is there sufficient flexibility in the organizational design in the form of the responsiveness to
changes taking place from time to time?

C. Checklist on Delegation of Authority:

a) Whether there are clear lines of authority from top to bottom in the corporate enterprise?
b) Whether accountability has been properly coupled with corresponding authority?
c) Whether responsibility and authority in each position are clearly defined in writings?
d) Whether the number of levels of authority have been kept minimum?
e) Whether the duties assigned to the subordinates are indicative of the exact activities expected
of them?
f) Whether responsibility via Delegation of Authority has been created among the subordinates
to complete the given task?
g) Whether the methods of Delegation of Authority are Compatible with the organization
structure?

D. Checklist of span of Management

a) Whether span of Management has been recognised in the organization?
b) Whether everybody in department reports only to one supervisor?
c) Whether the accountability of the higher authority for the acts of its subordinate is in
accordance with the current practices?
d) Whether the corporate management recognizes the following factors that affect the span of
Management?
i. Degree of interaction between the units or the personnel being supervised
ii. The incidence of new problems in any department
iii. The extent of standard procedures adopted
iv. The extent of non-managerial responsibilities

e) Whether the different activities and functions are grouped together in order to:
i. Obtain the most effective use of men and facilities
ii. Meet the objective in the optimum way
iii. Run the operation most economically
iv. Whether responsibilities are grouped, wherever possible, so that the overall control of a
function can be established so as to hold the superior manager accountable?

Personnel Management / Development is a vital aspect of corporate development is systematic

training of managers and specialists to fill present and future needs for the company. It also helps
further individual growth to ultimately facilitate corporate growth and expansion. Therefore, personnel
management is concerned with managing people at work.

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The various components of personnel management are as under:-

a. Organization review and analysis: Continuous review and analysis of organization’s operation
may be necessary in order to determine and develop appropriate work structure, roles and
responsibilities, inter and intra-department relationship, and levels of authority.
b. Manpower, planning, recruitment and selection: Forecasting and planning is essential to an
organization for ascertaining sufficient number of qualified personnel for manning its operations.
c. Manpower training and development: Appropriate methods and techniques of training and
development may be adopted. Nİkkhil Guƥt@. Proper facilities and opportunities are to be provided
for personnel to enable them to acquire necessary skills and knowledge to perform the jobs for
which they are employed.
d. Performance appraisal: There should be proper measuring, rating and evaluation of performance
of personnel, guiding employee development and promoting motivation, communication and
equity.
e. Employee remuneration: This function includes developing and administering appropriate
system of remuneration including job evaluation, wage and salary structure, incentive payments,
fringe benefits and non-financial rewards.
f. Employee services: There should be satisfactory services relating to the safety, health and welfare
of all employees, including social security plans and community development programmes.
g. Administration and records: This include designing, implementing and controlling of adequate
records and administrative procedures to provide useful and pertinent information for planning
purposes and for the documentation for all personnel in service.
h. Industrial relations: It includes establishing appropriate procedures for the resolution for
personnel and institutional differences by means of appropriate measures and machinery, e.g.
standing orders, grievance procedures, conciliation, collective bargaining, and joint consultation.
i. Auditing and research in manpower management: These are the responsibilities of personnel
management, which call for the attention of a management auditor.

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Consumer services audit –A customer is the most important person for business. The primary
responsibility of a business enterprise towards consumers is to make available the products of the right
qualities at the right time, in right quantity, at the right place and right price. The consumer services
audit critically examines and apprises management on these aspects of services. Corporate Services
include public relations, customer assistance or call centres, training, engineering, human resources
and procurement etc. to create new business value. It helps the company function more effectively due
to improved internal processes, managing customer relationships and extending the organisation.
These services co-ordinate the organisation units and helps them to focus on organisational goals by
exploiting resources and developing core competencies. It helps organising to stay competitive. It may
also involve co-ordination with rivals. (December 2008 & 2011)

The following are some of the important aspects/questions, which the auditor must address while doing
a consumer services audit:
• Do the products manufactured meet the needs of the customers of different classes, different tastes
and different purchasing power?
• Are the product prices reasonable and consistent with the quality variations, efficiency
variations and reasonable profit margin?
• Is the share of “added value‟ through increased profitability reasonably passed down to the
consumer?
• Whether after-sales service, spare parts facility, etc., enable the customers to derive maximum use
and pleasure?
• What are the efforts made to constantly improve the product and its use value, esteem value?
• Whether the customer complaints are handled promptly and efficiently?
• Whether the company responds quickly to the customers’ enquiries relating to product or
services?
• Whether safety norms relating to products are maintained as per the accepted standards laid down
by the statutory bodies, such as ISI, BSS, etc.?

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• Whether all the “warranties” are explicitly stated? Is the procedure for invocation of warranty
stated in unambiguous terms? (June 2013)

Audit of Corporate social responsibility - Environmental Audit

(December 2008 & 2009, June 2013)
Environmental audit refers to the process of ensuring whether a company is taking active steps to
control the pollution (Air, Water, Noise, Smell, Thermal, Visual, Climate, Radiation, Soil/Land) which
affects its environment and its efficiency to conserve environment. Waste management records to be
maintained and annual returns to be submitted under Hazardous Waste (Management and Handling)
Rule, 1989 may be audited by Practicing Cost Accountants.
Conservation of environment extends not only to control pollution of air and water but also control of
noise level, prevention of denudation of forests, maintenance of ecological balance etc.

Marketing audit is an independent examination of the entire marketing effort of a company, or some
specific marketing activities covering objectives, programme implementation, and organisation for
purposes of determining what is being done, appraising which is being done, and recommending what
should be done in future. (June 2011 & 2014)

Features of Marketing Audit (June 2011 & 2014)

- It is carried out periodically at regular intervals and not only when the company is facing
marketing problems
- It is the appraisal of the entire system and the process of marketing, after taking into account
all the elements of the marketing operations
- It evaluates a total appraisal of the marketing efforts of a company
- It reviews the formal lines of authority and responsibility, delegation of authority, status of
marketing head and its staff, adequacy of the personnel, proper manning of key tasks and
assignments thereof

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Marketing audit covers the following broad areas: (June 2014)

- Objectives: Marketing objectives should be clearly established

- Programme: The auditor should carry out an appraisal for the programme which the company
has laid down for achieving the objective
- Implementation: The auditor will take up the examination of the company’s implementation
of the marketing programme
- Organisation: A suitable organisation assists in a success of marketing plan.

Energy Audit (June 2006, 2007, 2014, 2015, 2017 & December 2018, 2019)
An Energy Audit has been defined as an inspection, survey and analysis of energy flows in a building,
process or system with the objective of instituting energy efficiency programs in an establishment.
It consists of activities that seek to identify conservation opportunities for an energy savings program.
In other words, an energy audit is conducted to seek opportunities to reduce the amount of energy input
into the system without negatively affecting the output(s).
An energy audit also seeks to prioritize the energy uses according to the greatest to least cost effective
opportunities for energy savings. It also involves suggesting ways and means of reducing wastage of
energy by adopting new measures.

The following are some of the key functions of the Energy Auditor:
(June 2014, 2015, 2017 & Dec 2018, 2019)
(i) Quantification of energy costs and quantities.
(ii) To devise energy database formats to depict to correct picture-By product, department or
consumer.
(iii) To correlate trends of production or activity to energy cost.
(iv) To focus on the possible sources for conserving energy.

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a. Steam Generation
b. Steam Distribution
c. Steam Utilization
d. Electrical Energy Utilization
e. Total Energy System
f. Diesel Exhaust Recovery
While performing the aforesaid key functions, the energy auditor is required to carry out the following
activities:
(i) To analyse the historical energy consumption and cost data.
(ii) To conduct preliminary energy audit with the objectives to identify:
(a) major energy consuming equipment and process:
(b) obvious inefficiencies and energy wastes; and
(c) priority areas for further detailed investigation,
To conduct detailed technical and economic analysis of energy efficiency measures involving large
efficiency measures involving large capital investment or long payback periods.
Productivity Audit / Efficiency Audit
The Productivity audit is basically an analysis of the productivity of the resources deployed by any
organization. It is generally done to generate information about the status of productivity in the
organization for the purpose of determining the scale of efficiency and effectiveness of ‘resource
utilization’.

Twin objectives of Productivity Audit

a) to attain optimum result, and
b) to improve on the benchmarks.
This audit would generally comprise –
i. comparison of expected returns on utilization of the resources vis-à-vis the actual returns;
ii. comparison of optimum returns on utilization of the resources vis-à-vis the actual returns; and
iii. the steps taken to improve benchmarks of returns and the utilization.

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(December 2017 / June 2019)

Productivity audit is done by using the following ratios–
(a) Ratio analysis – Return on capital employed – Return on sales – Turnover ratios of fixed assets,
current assets, inventories, category-wise debtors etc.
(b) Capacity utilization of plant, machinery and equipment against available capacity.
(c) Productivity analysis of man (labour) hours in time and cost.
(d) Material consumption against norms and benchmarks.
(e) Capital employed per capita
(f) Capital employed per unit of product
(g) Gross profit to capital employed
(h) Net profit to capital employed
(i) Debt equity ratio
(j) Net worth and long-term debts to gross fixed assets
(k) Net worth and long-term debts to net fixed assets
(l) Debts to fixed loans
(m) Debts to floating loans
(n) Current assets to current liabilities
(o) Net working capital
(p) Total inventory to capital employed. (December 2017 / June 2019)

Propriety Audit - The term ‘propriety’ has been defined by Kohler as ―that which meets the tests of
public interest, commonly accepted customs and standards of conduct and particularly as applied to
professional performance, requirements of Government regulations, and professional codes. Thus,
propriety audit is verification of transactions in best interest of public, commonly accepted customs
and standards of conduct. Nİkkhil Guƥt@. Thus, propriety audit seeks to ensure that expenditure is not
only appropriate to the circumstances, the objectives for which it was incurred are also achieved.
Propriety audit is concerned with executive actions and plans bearing on the finances & expenditure
of the company. The cost auditor has to judge:
a) Whether the planned expenditure is designed to give optimum results.
b) Whether the size and channels of expenditure were designed to produce the best results, and
c) Whether the return from expenditure on capital as well as current operations could be bettered
by some other alternative plan of action.
The auditors, while conducting the propriety audit, should in any case ensure observance of the
following Canons of Financial Propriety:

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1) The expenditure should not be more than the occasion demands. Every public officer is expected
to exercise the same vigilance in respect of expenditure incurred from public money as a person
of ordinary prudence would exercise in respect of expenditure of his own money.
2) No authority should exercise its power of sanctioning expenditure to pass an order which will be
directly or indirectly to his own advantage.
3) Public money should not be utilised for the benefit of a particular person or section of the
community unless:
(i) The amount of expenditure involved is insignificant or
(ii) A claim from the amount could be enforced in a court of law or
(iii) The expenditure is in pursuance of a recognized policy or custom.
4) The amount of allowances (e.g. travelling allowances) granted to meet the expenditure of a
particular type, should be so regulated that these are not on the whole sources of profit to the
recipients.
(December 2018)
Corporate Social Responsibility (CSR) Audit- Process
A CSR audit program can cover all or any of the following risks: - (December 2019)
• Effectiveness of the operating framework for CSR implementation
• Effectiveness of implementation of specific, large CSR projects
• Adequacy of internal control and review mechanisms
• Reliability of measures of performance
• Management of risks associated with external factors like regulatory compliance, management
of potential adverse NGO attention, etc.
A CSR Audit should cover the following points: (December 2019)
• Human Rights: Fundamental Human Rights, Freedom of association and Collective bargaining,
Non-discrimination, Forced labor, Child labor
• Business behavior: Relations with clients, suppliers and sub-contractors, Prevention of
corruption and anticompetitive practices
• Human Resources: Labor relations, working conditions including steps taken for preventing
accidents and health hazards, health and safety measures including compensation in case of any
accidents, career development and training, Remuneration system that motivates the employees.
• corporate Governance: Board of Directors, Audit and internal controls, Treatment of
shareholders, Executive remuneration
• Environment: Incorporation of environmental considerations into the manufacturing and
distribution of products, and into their use and disposal, effect on pollution, pollution control
measures undertaken,
• Community Involvement: Impacts on local communities, contribution to social and economic
development, General interest causes, creation of socials infrastructure like roads, schools,
hospitals.

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Corporate Social Responsibility (CSR) under Companies Act, 2013

India`s new Companies Act 2013 has introduced several new provisions for Corporate Social
Responsibility (CSR). Section 135 deal with CSR.
Section 135(1) Every company having net worth of rupees five hundred crore or more, or turnover of
rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year
shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more
directors, out of which at least one director shall be an independent director.
Section 135(5) states that The Board of every company referred to in sub-section (1), shall ensure that
the company spends, in every financial year, at least two percent of the average net profits of the
company made during the three immediately preceding financial years, in pursuance of its Corporate
Social Responsibility Policy:
Provided further that if the company fails to spend such amount, the Board shall, in its report made
under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
Ministry of Corporate affairs has further clarified / specified the Projects or programs relating to
activities in pursuance of recommendations of the CSR Committee of the Board as Per declared CSR
policy of the company like:
(i) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation
and making available safe drinking water;”
(ii) Promoting education, including special education and employment enhancing vocation skills
especially among children, women, elderly, and the differently abled and livelihood
enhancement projects;
(iii) promoting gender equality, empowering women, setting up homes and hostels for women and
orphans; setting up old age homes, day care centres and such other facilities for senior citizens
and measures for reducing inequalities faced by socially and economically backward groups;
(iv) Ensuring environmental sustainability, ecological balance, protection of flora and fauna,
animal welfare, agroforestry, conservation of natural resources and maintaining quality of
soil, air and water;
(v) protection of national heritage, art and culture including restoration of buildings and sites of
historical importance and works of art; setting up public libraries; promotion and development
of traditional arts and handicrafts;
(vi) Measures for the benefit of armed forces veterans, war widows and their dependents;
(vii) Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic
sports; Nİkkhil Guƥt@
(viii) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the
Central Government for socio-economic development and relief and welfare of the scheduled
castes, the scheduled Tribes, other backward classes, minorities and women;
(ix) Contributions or funds provided to technology incubators located within academic institutions
which are approved by the Central Government;
(x) Rural development projects
(xi) COVID 19 related projects

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SAMPLE CHECKLIST FOR VARIOUS FUNCTIONS OF AUDIT

Sample checklist for conducting a MANAGEMENT AUDIT
1. How is the production plan prepared? Is it based entirely on market forecasts, or does it also take
into account limitations of materials, personnel and finance?
2. Are the product-mix decisions based on optimum profitability? What is the proportion of
standard products and tailor-made items?
3. Whether all infrastructure like machinery, materials, manpower and money have been assured
at the scheduled time for uninterrupted production.
4. Are there any constraints in achieving maximum capacity utilization? Are there any imbalances
in the plant? If so, what steps are being contemplated to set right the imbalance?
5. Is it possible to subcontract some jobs to increase production capacity or maintain production in
times of power-cuts etc.?
6. What is the percentage of scrap, waste and rejects? Is it reasonable?
7. Is the idle time being monitored regularly? Is it being analysed reason-wise? How much of it is
due to machinery breakdown which is controllable by production department?
8. Is there excess or shortage of manpower? How is the control exercised – time & motion study,
incentives, labor budgets or any other means?
9. Is there any wastage in consumption of utilities like power, fuel, steam, compressed air, etc.?
10. How effective is the material handling system? Are there any avoidable movements of materials?
11. What is the system for preventive maintenance? If the in-house maintenance capability is not
adequate, are there annual maintenance contracts for all important items of plant and machinery?
12. How is the control exercised on inventory of stores and spares?
13. What is the procedure to handle breakdown emergencies?
14. Are all statutory requirements in regard to safety measures complied with?
15. Are history cards available for all plant and machinery giving details of downtime, replacement
of parts, etc.
16. Does the system provide for flexibility or change of production schedules to execute urgent
orders or changes in the product mix? (June & December 2015)

Sample checklist for auditing PURCHASE MANAGEMENT

(a) What is the organisation for purchase function?
(b) Whether the purchase policy is realistic?
(c) Whether the purchase requirements are related to production schedules and dependent upon the
level of invention?
(d) How are suppliers selected and eliminated?
(e) Whether regular and dependable suppliers are ensured?
(f) Is there any system of purchase authorization?
(g) Whether latest market information automatically collected regarding new spares, etc.?
(h) Whether proper information is kept about price trends?
(i) Whether regular comparison is made between average price paid and the corresponding average
market price?

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(j) What are built-in-controls against misutilisation of purchasing powers?

(k) How effective is the system of follow-up?
(l) What is the system of executing emergency purchase?
(m) What is the procedure followed for impact of raw materials?
(n) Is there any proper coordination between purchase, stores and production?

Evaluation of PERSONAL MANAGEMENT

a) What is the organisation of the Personal Department?
(b) Is the personnel department adequately staffed?
(c) What is the status of personnel manager in the organizational hierarchy?
(d) What is personnel policy? Is the organisation production-oriented or people-oriented? How does
the top management look at its employees?
(e) How are the manpower requirements assessed? Are manpower requirements defined clearly
according to the degree of skills required?
(f) What is the requirement policy? Are qualifications for each job specified clearly? Is the
requirement procedure well designed?
(g) What is the internal promotion policy? Are the employees given a chance to grow in the
organisation itself through the objective tests to their qualifications and performances?
(h) Are training programmes conducted regularly? Are they effective in updating the knowledge and
skills of the employees? Are the opportunities for training adequate?
(i) Are the training methods modern or scientific? Are they suited to the needs of the organisation?
(j) Are proper records maintained for all workers? Is time keeping effective?
(k) What is the procedure for dealing with the grievances of the employees? Are they encouraged to
speak to the personnel manager?
(l) How is the discipline maintained? How are the erring workers dealt with? Is there a uniform and
stable policy of dealing with indiscipline and misconduct on the part of all the employees?
(m) Are the various human cost properly analysed? Is the cost of labour turnover and absenteeism
worked out periodically? Are attempts made to reduce labour turnover to optimum levels?
(n) What effectively are labour welfare organized in the organisation?
(o) Is there a machinery for dealing with the demands of the workers? Is legitimate union activities
encouraged?
(p) What is the extent of man-hours lost due to strike or lockout?
(q) How these losses compare with the man-hours lost by similar organisation in the area?

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Evaluation of PRODUCTION MANAGEMENT

(a) Is there an adequate system of production planning? Are production schedules drawn up to
optimize various factors like plant capacity, raw materials, skilled labour, availability of funds,
machine hours, availability of power, etc.?
(b) Is there close coordination with sales department to ensure acceptability of the finished products
by customers? How effective is the quality of finished products by customers? How effective is the
quality control system?
(c) How quickly are the customers’ complaints dealt with?
(d) Is the production design properly worked out? Is there a constant review of the production design
to improve the cost-benefit ratio?
(e) Are the inputs and outputs of each process, operation or department linked up periodically?
(f) Does the input-output ratio conform with the standard ratio? (g) What is the system of reviewing
delays in production?
(h) What is the frequency of accidents? Are safety measures adequate?
(i) Is there a system of incentive scheme linked with the output of various production departments?
(j) Have the incentive systems been designed on the basis of scientific studies?
(k) How effective is control over idle time?
(l) Is the production process review done periodically to explore the possibility of having more efficient
production method?
(m) Are the performances of service departments appraised periodically? Have standard efficiency
factor worked out? Are they compared with actual efficiency ratios?
(n) How effective is the management information regarding production function as a whole?

Evaluation of RESEARCH AND DEVELOPMENT ACTIVITIES

(a) What are the major achievements of the R&D?
(b) What is the input-output ratio?
(c) Whether the R&D scientist have actual operating experience in industry in order to visualize what
they are developing?
(d) What are strategic issues formulated at the Board level relating to industrial research?
(e) How does the company formulate its approach on the annual outlay on research and development?
(f) Whether the outlay on R&D is a fixed sum, a percentage of turnover, of profits, or capital
investment, or on industry average?

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(g) Whether the Board of Directors identify or endorse the broad “types of research” to be undertaken
to order to ensure that the efforts are concentrated in line with the defined goals?
(h) Whether the R&D is considered as an independent department in the company?
(i)Whether the R&D is viewed as a separate profit centre?
(j) What is the level and extent of contribution of the company’s profit through sale of technologies?
(k) Whether there is proper coordination between the R&D cell and corporate planning cell?
(l) Are the guidelines from the Board clear and workable?
(m) How is the R&D budget formulated?
(n) Whether the R&D results are properly recorded, classified and analysed?
(o) Whether the control scheme for a particular R&D programme realistic and effective
(p) What successes and failures occurred in the past?

DIRECTORIAL CHECKS
(a) What routine reports are considered as directors’ meetings and do this prima facie provide
information for effective and efficient control of the business?
(b) Do the directors receive projected information covering the various functions of the business, in
addition to any figures which they receive to enable them to review the present performance of the
business?
(c) Is there evidence that directors established their control primarily on such projections secondarily
on past records?
(d) “Whether the Director review and approve the strategic and financial plans for achieving long-term
success of the company.
(e) What is the directors’ policy for ensuring that the right kind of senior managers including CEO are
engaged?
(f) What interest do directors take in R&D? In particulars, if formal R&D facilities are available, what
significant efforts are made to relate these to market research?
(g) Have the directors set out the objects of the organization in writing?
(h) Are all activities of the organization within the scope of its objectives?
(i) Whether they have been briefed about major risks faced by the business and strategies for addressing
these risks.

MANAGERIAL CHECKS

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(a) Are all level of managers competent in their functions?

(b) What evidence is there that managers are up-to-date in their particular function?
(c) Do all managers sufficiently and efficiently delegate their function?
(d) Are there any example of delegation to the point where control is lost?
(e) Are there adequately defined communication procedures?
(f) Is it possible to identify the management styles of the senior managers and assess their
effectiveness?
(g) Is there adequate definition of stuff responsibilities?
(h) Is there a precise organizational structure?
(i) Is there a system of management by objectives?
(j) Are job specifications available for each or the majority of positions?
(k) Are job specification/staff responsibilities revised as circumstances change?

ORGANISATIONAL CHECKS
(a) How effective is the coordination and integration of the various departments?
(b) Is there any evidence of duplication of function as between one department and another?
(c) What is the management information system and who is responsible for it?
(d) Is the information supplied well and logically presented in the various reports?
(e) Is the information structured in such a way that the information given in the highest level reports
is analysed in detail in the next level reports, and the information given in the second level reports
analysed in the third level reports, etc.? If not, what is the detailed information retrieval system?
(f) What strengths and weaknesses of the organisation are revealed by the scrutiny of the special
reports?
(g) Do special reports in general evidence of critical appraisal?
(h) How is the budget structure related to operational responsibilities and how are expenditure
controlled within the budget and remedial actions taken?
(i) How is inflation catered for in budgets?
(j) Is reporting based on the exception principle, or what other methods are used to highlight
information areas requiring investigation?
(k) Has each manager defined the responsibilities of his staff? Nİkkhil Guƥt@

(l) What forms do such definitions take? Are they available to other members of the staff so that they
can see their relationship to each other?

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CAPITAL CHECKS
(a) Given that the directors ultimately control the cash flow in the sense of receiving reports and acting
thereon, who actually controls the cash flow on a day to day basis?
(b) How effective is the control of cash flow? Does the cash flow plan include control of important
liquid assets other than cash? Is there evidence that temporary cash surpluses are used to gain short
term interest, if necessary, on a day-to-day basis?
(c) Is the cash flow plan adequately linked to the sales budget finished goods, inventory budget and
raw materials procurement, e.g. to reflect the cash requirements for inflation, a sudden demand for raw
materials or extra labour, or to meet an unexpected sales upsurge? Is the control system capable of
quick response to the mix and quantity of transactions affecting cash?
(d) Is the working capital adequate?
(e) Is the capital employed optimum for the business?
(f) Are the fixed assets valued carefully, especially in the sense that land and buildings can be
substantially under valued in an inflationary environment and result in unrealistic business decisions?
(g) What authorizations are required for the purchase of fixed assets and are they effective?
(h) Is there an up-to-date asset register, and how are the assets physically identifiable?
(i) How often is the asset register compared with the actual fixed assets position?
(j) Where asset purchase control is exercised by value, is there evidence of any circumvention of the
controls by splitting orders, or by rental or lease arrangements, for instance?

DATA PROCESSING SYSTEMS CHECKS (June 2019)

(a) What are the main categories of data processing system? How are they divided between manual,
mechanical and computer methods?
(b) Has the right balance between such methods being achieved over all?
(c) Are there adequate controls on the accuracy of all systems?
(d) Is efficient use made in manual systems of aids such as add-listing machine, to check, for example,
that the positing made to individual accounts total to the posting of a control account?
(e) Are similar methods used in mechanical systems, e.g. to check that an accounting machine total
agrees with a pre listed total of items posted on accounting machine?
(f) Is use made of appropriate office techniques, such as photocopying, duplicating etc?
(g) Is such equipment the best of the particular purpose for which it is being used?
(h) Are the systems the best that can be devised?
(i) Are computer systems used where appropriate, for example, a mini computer instead of a small
selection of accounting machines?

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(j) Is the computer installation appropriate in size and staffing?

(k) Is the computer process and its peripherals correctly balanced to the work load?
(l) What control is exercised on input to an output from the computer installation, and if by a control
system is this sufficiently independent?

STANDARD PROCEDURES CHECKS

(a) Do standard procedures exist and are they in writing?
(b) Who is responsible for keeping them up-to-date and are they in fact, so kept?
(c) Do they adequately reflect changes in organization or responsibilities that have occurred since the
date they were originated?
(d) To whom are they circulated?
(e) Are any checks carried out on behalf of general management to verify that the procedures are being
adhered to?
(f) If so, who is responsible for carrying out such checks and to whom does he report?
(g) What determines whether it is the organization’s policy in any set of circumstances to cover them
by a standard procedure, e.g. are standard procedures indicated if coordinated action is required by
more than one department, or may they be confined to one department only?
(h) Are the standard procedures written as general instructions, leaving the details to be determined by
individual department heads, or is very detail intended to be covered?

PLANNING FUNCTION ORGANISATION CHECKS

(a) Who is responsible for overall planning within the organisation?
(b) If detailed planning is a staff function, what arrangements are there for making sure the planning
does not get out of step with the planning policy makers?
(c) What arrangements are there for information feedback from the operating units to the planners?
(d) Is there a corporate planning unit?
(e) Is there a corporate stimulation model?
(f) If not, how far is stimulation used in the planning function?
(g) How accurate are the models?
(h) How are the various models kept up-to-date?
(i) To what use are the models put?
(j) If the stimulation models are processed on a computer, is the terminal operated by a responsible
person proficient in the function which is the subject of the model?

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(k) Are environmental surveys carried out, and how is such information is used?
(l) Do the computer facilities provide an effective medium for interactive operation?
(m) Are there adequate computer formula subordinates on call to the terminal operator?
(n) Can backwards iteration be used on the computer model as a provided function, so enabling a
planner to choose a required result and iterate to the elements that builds up to the final result?
(o) Are there reasons of divergences from plans analyzed and the lessons learned used to modify later
projection?

PURCHASING FUNCTION CHECKS

(a) Are there effective arrangements for minimizing the price of purchases, e.g. total purchases for
multi location organizations, contract pricing, forward purchasing, quantity controls and correct
timing?
(b) What arrangement are there for controlling stock investment, in particular for controlling deliveries
of raw materials, perhaps as a result of contracts placed for raw materials to be called off as required?
(c) Is there evidence that the purchasing budget is developing on sound lines?
(d) Is the budget, once prepared, used as an effective control on the purchasing function?
(e) Are ‘make-or-buy’ proposals made to ensure optimum supply arrangements?
(f) What is the system for synchronizing deliveries with the scheduled production requirements?
(g) What follow-up is there on scheduled deliveries?
(h) Is the receipt of goods adequately controlled?
(i) What procedures are there for dealing with over-deliveries and under-deliveries?
(j) Is there an effective system of inspection of materials received?

INVENTORY CONTROL FUNCTION CHECKS

(a) How are maximum and minimum stock controlled?
(b) What customer service level is required?
(c) How are these limits determined?
(d) Within the permitted overall value coverage of stocks, how are permitted quantities of each stock
item determined?
(e) Is the stock of each item definitely related to the production program and the forecasted sales?
(f) Is stock control also a function of the economic batch quantities?
(g) How is raw material stock valued for production purposes and for balance sheet purposes?

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(h) How is the issue of stock controlled?

(i) What are the systems of stock security?
(j) What are the procedures to be followed when stock is found to be defective in store?
(k) Who has authority to scrap the stock?
(l) Who has authority to issue stock at other than the normal prices to production or to customers?

PRODUCTION FUNCTION CHECKS

(a) How are the production requirements for raw materials communicated to the purchasing function?
(b) How is the production scheduled and controlled against the schedule? Nİkkhil Guƥt@

(c) Are these methods suitable for the type, size and complexity of the production processes? (d) What
is the system for amendments to the production schedule?
(e) How is rescheduling carried out when production is not to schedule, or there are machinery or
labour troubles?
(f) What methods are used to control the supply of raw materials for production?
(g) How are labour requirement determined?
(h) What system is there for ensuring good utilisation for machinery and what statistics on the subject
are available?
(i) Similarly, what is the system for ensuring good utilisation of labour and what statistics on this
subject are available?
(j) What is the inspection system during production and at the final product stage?
(k) How are scrap items to be re-worked and controlled?
(l) What methods are used for forecasting the production levels that will be required for the future
months/years?
(m) How is scheduled production broken down into its constituent items, to be produced at times which
will make them available when required to merge with the part forming the finished product?
MARKETING FUNCTION CHECKS
(a) Have clear marketing objectives been set? What are they?
(b) What plans have been developed to attain those objectives?
(c) What is the extent and nature of market research?
(d) What principles apply to product planning?
(e) What arrangements are therefore the planning and control of packaging?
(f) How is the effectiveness of special sales promotions and advertising analysed?

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(g) Is the selling administration adequate for the type of market served?
(h) Are transport arrangements suitable for the average size of order, the type of customer served and
the pattern of distribution?
(i) Are there economically satisfactory arrangements for such matters as minimum order, minimum
quantities and particular item and packing carton quantities?
(j) How is the sales force divided geographically, by specialization, according to category of customer,
or by any other method?
k) How is the performance of salesman measured? Are short falls against targets identifiable to
salesmen and specific customer?
(l) What special incentives are there for salesmen?
(m) How are customers’ orders received?
(n) Has a standard order form been considered?
DISTRIBUTION FUNCTION CHECKS
(a) Are there arrangements for deciding the most viable means of transport of finished goods?
(b) What are these arrangements? Are they well known by the transport staff?
(c) Did the arrangements result from some kind of the study of the transport problem and, if not, how
were they developed?
(d) Has the limit of liability for claims on the various carriers in relation to the need of customers been
considered in the choice of carriers?
(e) Have the economics of employing the company’s own transport fleet been examined, particularly
for high density and local deliveries?
(f) Has an attempt been made to compound claims with the carriers, so avoiding administrative expense
in dealing with abortive paperwork and lengthy investigatory procedures?
(g) If the organisation uses its own transport fleet, have the pros and cons of contract hire or contract
maintenance been considered?
(h) Are decentralized warehouses part of the distribution system? If not, have the possible benefits of
such an arrangement been considered?
(i) Particularly where the organization’s own transport and computer facilities are involved, has there
been any attempt to optimize distribution patterns?
FINANCIAL FUNCTION CHECKS NOTE:
(a) Is there an internal audit department? If so, is it responsible to a person independent of the accounts
department?
(b) Does the internal audit department make regular reports and do these show a satisfactory position?

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(c) Are control checks made of the agreement of the financial records with the control records of other
departments? For example, do the wages ‘books’ for the appropriate period agree with standards
wages plus or minus variances of the operations processed during the period?
(d) What are the checks on non-row materials expenditure, e.g. capital expenditure, rental and lease of
equipment expenditure, personnel expenditure? Nİkkhil Guƥt@ Are personnel authorized to approve
such expenditure listed, together with the appropriate limits, and does the accounts departments edit
the paper work to ensure that proper approval has been obtained in each case?
(e) Is there an appropriate system of approval for the engagement of labour, and do the accounts
department check that this has been carried out before entering a person on the pay roll?
(f) Is there a budgetary control system and what is the level of control exercised?
(g) Is there evidence that management and supervisory personnel have been personally involved when
their particular budget was fixed?
(h) How effective is the budget system?
(i) What is the method for presenting management and supervision with the actual results against the
budgets? Is this effective?
(j) Are the reasons for the discrepancies carefully ascertained and noted in the records?
(k) How are especially serious discrepancies and the discrepancies which recur without apparent
reconciliation brought to the attention of senior management?
(l) Are the financial records so organized that the performance of senior managers can be measured?

PERSONAL FUNCTION CHECKS

(a) Is there a manpower specification of the establishment of the organisation?
(b) To what is the specification related e.g. level of sales, production?
(c) Who has the authority to amend the manpower specification, other than in accordance with
established rules, e.g. in proportion to sales?
(d) How do staff measure up to this manpower specification?
(e) Has job evaluation been carried out throughout the organisation and what are the arrangements for
evaluating new jobs as they occur?
(f) Do job specifications exist for all jobs in the organisation?
(g) At what intervals is the structure, age, profession, grade, etc. of employees reviewed in relation to
the manpower specification?
(h) Are adequate personnel records properly maintained at all times?
(i) If such records are kept centrally, what arrangements are there for access to them by remote
managers and supervisors?

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(j) Whether they personnel records kept in such a way that selection by employee characteristic can be
made therefrom?
(k) Is there an active training programme?
(l) Who is responsible for training managers

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