How to Conduct an External Management Audit
For the financial integrity of a company, management has to take into consideration the need for external management audits at some point. This is critical for the peace of mind of investors and stakeholders, and should be for executive management in terms of identifying growing problems in company operations. The methodology of an external management audit is not hard; it involves a defensible process of identifying problems and offering solutions. Follow it as an audit manager, and the audits produced should provide practical and useful recommendations for improvements.
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Instructions
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Entrance Meeting and Initial Review
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Meet with company management to go over the scope of the examination to occur. Specify what the purpose of the examination is, what will be examined, how the examination will occur, what materials will be needed and the general time plan involved. Obtain access from company management to various authorities and clearances that will be needed for the review. Include in the meeting at a minimum the company chief financial officer, the operations chief and the head of the program to be inspected. Include other area or program head managers as needed.
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Perform preliminary research on the company and/or program involved prior to the entrance meeting. Research the various aspects of company information online or available through reports such as annual and quarterly reports. Obtain information from media sources as well to gain third party aspects that can be helpful on specific issues.
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Gather on-site any related documentation and data within the company associated with the review target and scope. Copy relevant information to support your findings.Obtain both canned and random reports to compare information and prevent manipulation that could hide relevant data from the review. Obtain all relevant information regardless of form, including hard copy, electronic and interviews of related personnel. Sample and perform limited random examination of various databases to collect a broad spectrum of information rather than just one segment.
Analysis, Evaluation and Recommendations
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Read and review the entire data collected. Avoid using just the first sample or set of documents to arrive at conclusions for the entirety of the information collected. Familiarize yourself with the documentation and the processes used for its collection.
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Establish a set criteria for how the processes examined should work and then apply that criteria to the samples collected. Look for aberrations and variations from the expected norm. Examine issues found for all the reasons why the particular item is different from the norm. Perform interviews if necessary to understand the context of how the issue was created.
As analysis is performed organize the questions, findings and results in categories. This makes it easier later on to segment conclusions and the areas they apply.
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Evaluate the final data collected and related findings. Compare this information with the expected norms that should have occurred. Write up and summarize the result of each finding and why it is different from the expected norm based on the review and any discoveries made. Identify if the reasons are considered appropriate or inappropriate given the rules of the company or the rules of the processes involved.
Define your recommendations by what is found to be wrong in the company's review and how it can be fixed. Avoid just reading a rule and pointing out what is wrong; suggest a solution based on the company's resources available and how it can be fixed quickly. Use industry or trade standards for tried-and-true suggestions and improvements.
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Tips & Warnings
The solutions offered need to be usable and doable from the company staff perspective. Gaining agreement during the review from company staff on such suggestions helps strengthen their acceptance in the final report.
External management audits can quickly get lost chasing tangents and loose hairs if the audit team leader does not restrict the activities to the goal of the review. This requires regular monitoring and feedback with the audit team to keep them on track. Audits also lose effectiveness in reports if they don't provide recommendations that make sense in the company context.
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