Unit 4

Governance &
Management Techniques

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Unit Objectives
describe at least five types of management
techniques and styles in businesses

explain the importance of governance and

management styles in internal audit

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Unit Objectives
compare two types of organizational
structure and span of control in relations to
the internal audit function

explain risk appetite, its considerations and

interrelationship between strategy and
management decisions, and the steps
involved

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Unit Objectives
differentiate between risk appetite and
tolerance

explain conflict resolution, change

management and resistance to change in
relations to internal audit

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Management Techniques and Leadership
Styles
People in the Control
System

Include the board of

directors, management &
other personnel

 Reaction of the people

who are impacted by the
control process
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Management Techniques and Leadership
Styles
People in the Control System

Control system should be supported by the

people
See control as a positive step
See control as a form of motivation
Should not resist controls

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Management Techniques and Leadership
Styles
People in the Control System

Respect feedback and guidance.

Guidance and feedback (faults, deviations
etc) must be communicated by the right
person.
This is to be done in a positive manner.

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Management Techniques and Leadership
Styles
People in the Control System
Know their responsibilities
Limits of authority
Involvement of the people increases support.

Example: Benefit of responsibilities

assignment in decentralized control system is
increase initiative and motivation.
Disadvantage is duplication

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Management Techniques and Leadership
Styles
It is important to examine:
the people in the control process
the structures and decision making process
the span of control

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Management Techniques and Leadership
Styles
It is important to examine:
Management philosophy and operating style
affect:
management of the enterprise
risk and controls

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Management Techniques and Leadership
Styles
Leadership
Leadership is the
process of:
 influencing others

 enable willingness
among a group

 working towards the

achievement the
group/organization
goals
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Management Techniques and Leadership
Styles
Leadership
The classical view –
 leadership is a characteristic of an individual
 cannot be subdivided and transferred to
others.

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Management Techniques and Leadership
Styles

Characteristics of a leader effectiveness

include:
intelligence
maturity
social participation
socioeconomic status.

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Management Techniques and Leadership
Styles
Leadership Styles
Autocratic
Consultative
Participative
Free-rein/laissez-
faire
Bureaucratic
Transformational

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Management Techniques and Leadership
Styles
Leadership Styles
Autocratic
The manager dictates
Does not allow employees input.
Relies on threats and punishment.

Most effective to meet timelines or the only

style employees respond to

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Management Techniques and Leadership
Styles
Leadership Styles
Consultative –
the manager makes the decisions
Incorporating the opinions of the employees.

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Management Techniques and Leadership
Styles
Leadership Styles

Participative/democratic
the manager makes the decision,
but must take group opinions into account.

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Management Techniques and Leadership
Styles
Leadership Styles

Free-rein/laissez-faire – employees are

allowed to make their own decisions.

Bureaucratic – the manager goes by the

rules and policies of the organization
defer decision to the next highest level when
policies do not exist.

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Management Techniques and Leadership
Styles
Leadership Styles
Transformational – this is a leader who is a
supporter and implementer of change.
Inspire employees and is charismatic
Articulate vision

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Management Techniques and Leadership
Styles
Leadership Styles
Transformational
encourages individual development
Provides regular feedback.
The transformational leader has charisma
and is inspirational (able to motivate
employees).

http://www.youtube.com/watch?v=cYA7eMox
UBA&feature=related
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Organizational Structure
Elements of the Organizational Structure
A structure of an organization may be defined
in terms of its
Complexity,
Formalization, and
Centralization.

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Organizational Structure
Elements of the Organizational Structure

• Vertical hierarchy
Dimension • Horizontal
s hierarchy

• formal
Type • informal

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Organizational Structure
Vertical differentiation/tall structures –
 more levels
 more complex
 less adaptive

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Organizational Structure
Horizontal differentiation/flat structures
–
relates to skills and knowledge required to
complete the tasks (not much hierarchical
differentiation) .
More complex when a greater diversity and
depth of skills are required.

Spatial differentiation –Geographic

separation of the organization's activities.
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Organizational Structure
Formalization
Job standardization
Clarity of the procedures and tasks

A strong corporate culture reduces the need

for the formal expression of all corporate
standards

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Organizational Structure
Flat structure Tall structure

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Organizational Structure
Span of Control
The span of control is the upper limit of the
number of subordinates that a manager can
effectively supervise.

Wider span results in

Less supervision
Increased job satisfaction

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Organizational Structure
The span is dependent on:
The supervisor’s
 training
 abilities
 time available to supervise

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Organizational Structure
The span is dependent on:
The subordinates’
interest in working with less supervision
commitment to the job
training and attitudes.

The job itself and the environment of the

company
 Note: The size of the organization does not affect the span
of control.
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Organizational Structure
Span of Control
narrow span of control /tall organization
In a tall organization:
there is more room for advancement
communications takes longer.

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Organizational Structure
Span of Control

wide span of control/flat organization

fewer levels
more appropriate for standard/routine task

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Organizational Structure

Structu
re

Mechan
Organic
ic

mechanistic or organic – these are the

two ends of the spectrum of the structure.
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Organizational Structure

mechanistic structure
 set and detailed system
tight controls
extensive division of labor
high formalization.

This type of structure works well for mass

production and any time there is a high
concern for operational efficiency.

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Organizational Structure

An organic structure,

low complexity and formalization
participative decision-making
more flexible and adaptive to change

These are better in more dynamic (changing)

and complex environments and product
development.

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Organizational Structure

Structure

decentralisati
centralisation
on

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Organizational Structure
Centralization vs decentralisation
Is freedom of decision-making
concentrated in one location or
 dispersed over many locations, departments
or individuals.

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Organizational Structure
Centralization vs decentralization

Classical theorists
view decentralization negatively.
View it as a dissolution (weakening) of the
authority of management.

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Organizational Structure
Centralization vs decentralization

Behavioralists
decentralization as a positive development.
Helps to motivate employees and keep
morale as high as possible.

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Organizational Structure
Centralization vs decentralization

Modern view
centralization or decentralization is
necessarily good or bad in itself.
The company needs to select method that
best serves its needs.

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Organizational Structure
Centralize when
Where necessary and proper information
available centrally and
timeliness is key

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Organizational Structure
Advantages of decentralization:
Encourage initiative among employees
Improve understanding of company goals
throughout the organization.

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Organizational Structure
Disadvantages of Decentralization

Increased risk due to the loss of control by

top management.
Difficulty in coordination
Issue with delegation (cannot delegate final
responsibility)

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Control Implications of Organizational Structure
organizational structure
greatly impact the control environment
success of the controls of a company.

Authority is the right to direct

Responsibility is the obligation a person has
to perform.
Accountability is the duty to account for the
completion of the responsibility.

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Change Management

http://www.youtube.com/watch?v=MOV47qzYPNI
Organizational change is the process of
changing the organizational structure.

1. What are the Changes (business changes, the

environment changes, people change)
2. Type of change (small/strategic re-
organization)
3. Implementing change
4. Resistance to change (fear, management
treatment).
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Change Management

5. Management of resistance (proactive and

participative)

a. Communicate the nature, extent and reasons

for the changes.
b. Give sufficient notice before the change is
made.
c. Allow employees to participate in the process

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Change Management

d. Have formal and informal conferences about

the change.

e. Anticipate the perceived impact of the

change on the
economic
social
and psychological
needs of employees.

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Change Management

INCREMENTAL STRATEGIC

ANTICIPATORY TUNING 1 REORIENTATION 3

REACTIVE ADAPTATION 2 RE-CREATION 4

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Change Management
Nadler and Tushman (anticipatory vs.
reactive and incremental vs. strategic)

1. Anticipatory – preventative measures

2. Reactive – corrective measure
3. Incremental – In stages

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Change Management
Nadler and Tushman (anticipatory vs.
reactive and incremental vs. strategic)

4. Tuning – promotion and reevaluation of the

corporate structure with minor adjustments

5. Adaptation – changing the structure of the

company to meet changes in the operating
environment

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Change Management
Nadler and Tushman (anticipatory vs.
reactive and incremental vs. strategic)

6. Strategic Reorientation –
making changes to meet upcoming
requirements

7. Re-creation – starting over completely with

the corporate structure

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Negotiation and Conflict Management

Negotiating is the
process of:
 bargaining an
agreement for the
exchange of goods
or services
at an agreed upon
rate of exchange.

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Negotiation and Conflict Management
Distributive bargaining - zero-sum
situation/ limited discussion where one party
will get it and the other party will not.

Integrative bargaining occurs when there

is a possibility for both sides to win.

Subordination bargaining - subordinate

agrees to anything that is reasonable.

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Negotiation and Conflict Management
third party negotiations:
Mediation - neutral party intervention
Arbitration – appointed/chosen third party
Consultation engaging a conflict expert.

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Negotiation and Conflict Management
Conflicts will arise in organizations. They may
be realistic (rational) or unrealistic (irrational)
Conflicts may be disruptive (difficult to control)
or destructive (consumes everything)

Best Condition Worst

Condition

Disruptive Behavior Destructive

Behavior
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Negotiation and Conflict Management
Conflict triggers) are:

Unclear job boundaries

Unclear responsibilities;
Competition for scarce resources;
Differences between people/status
Personality clashes;
Disagreement with rules and regulations
Unrealistic expectations
Communication problems.

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Negotiation and Conflict Management
RESOLVING CONFLICTS

Use Problem solving techniques

Smoothing is a short-term avoidance
process to forget
Forcing – use position to solve the conflict.
Superordinate goals - “common good over
individuals

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Negotiation and Conflict Management
RESOLVING CONFLICTS

Compromise
Expanding resources if due insufficient
resources.
Changing the human element attempts to
change the behavior – long term
Diffusion – solve smaller issues
Public media

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Negotiation and Conflict Management

Benefits of Conflicts:
improves performance
helps the organization achieve its objectives.
serves to “clear the air” and manage
frustrations

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Summary
Types of Leadership Styles
Organizational Structure and span of control
Governance and enterprise risk management
Types of risk
Risk appetite within organizations
Change Management
Conflict resolution

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References
https://na.theiia.org/Pages/IIAHome.aspx
Gleim, I.N. CIA Review – Part I Internal Audit Role in
Governance, Risk and Control(12 ed.). Gainsville,
Florida: Gleim Publications.

Moeller,R. (2009). Brink's Modern Internal

Auditing: A Common Body of Knowledge (7th ed.).
Hoboken, New Jersey: John Wiley & Sons Inc.

 Vallabhaneni, S.R. (2005). Wiley CIA Exam Review

Volume 1 Internal Audit Role in Governance, Risk and
Control (3rd ed.). Hoboken, New Jersey: John Wiley &
Sons Inc.
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