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Unit 12: Cost Audit

see the patterns, rather than the individual events. For a compliance audit, these patterns are Notes
then reported as either conformities or non-conformities.
Management audits require some additional work. The auditor needs to identify the pain
associated with those groups of bad facts. (It’s important to identify business problems, such as
scrap, rework and overtime, as pain.) Then the auditor combines the missing control (the system
error that’s causing the problems) and the business pain into one statement, called a finding. The
finding will reveal cause-and-effect patterns occurring within processes. Because the business
pain is identified, there will be a tremendous desire to do something about it.
By associating the negative facts with missing or weak controls, the auditor rises to the system
level of analysis. This has lasting value, because the system affects the process, which affects the
product or service.

12.3.6 Instilling a Desire to Improve

Audits measure actions against requirements; they examine the product, process or system
against performance standards. This has value when the requirements have been thoroughly
tested and scientifically proven, but, unfortunately, this is rarely the case.

Management Auditor’s Rules

Most manuals, procedures and work instructions are imperfect; they’re the result of a small
number of individuals assembling some rules with limited resources. By focusing on results,
the management audit can determine whether those plans and approaches are any good. If they
aren’t, the developers and users are compelled to improve their methods because they can see
the adverse consequences of not doing so. When employees and managers begin to see audits as
opportunities to improve, they begin to see auditors not as police officers but as productive
members of the organization.
1. Be prepared

2. Dig for threads and patterns
3. Look for cause and effect
4. Use the language of business
(e.g., cost, risk and opportunity)

12.3.7 Management Audit Procedure

Management audit procedure include following steps:

Initial Steps of the Audit – Notification, Planning, Opening Meeting and Fieldwork
Notification: The audit process begins with notification. The notification process alerts the
party to be audited of the date and time of the process. The notification also will list the documents
that the order wishes to review in order to understand the organization of the company. Main
points that need to be considered are:
1. Establishing the objects of organization: The first job in the management audit is to
identify the objectives of the business organization.
2. Evaluation of the organization structure: Next step in the management audit is to evaluate
the organization structure. To find out that whether the structure enough to achieve the
goals of the organizations.

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