Management, Operational and Performance Audit — Practice

Question 1

Which type of audit appraises management's overall decision-making against organisational objectives?

Accepted Answer

Management audit.

Question 2

Which of the three Es asks whether resources were acquired at the lowest reasonable cost for the required quality?

Accepted Answer

Economy.

Question 3

What specifically triggers a forensic audit, as distinct from a routine audit?

Accepted Answer

A specific suspicion of fraud or financial irregularity.

Question 4

A training programme was delivered under budget (economical) and trained the planned number of employees per trainer (efficient), but a post-programme review shows no measurable improvement in the skills the programme was meant to build. Evaluate against the three Es.

Accepted Answer

Economy: satisfied (delivered under budget). Efficiency: satisfied (planned trainer-to-trainee ratio achieved). Effectiveness: not satisfied (the intended outcome — measurable skill improvement — was not achieved).

Question 5

Distinguish operational audit from financial audit by their primary focus.

Accepted Answer

A financial audit asks whether the company's financial statements as a whole present a true and fair view. An operational audit examines the efficiency and effectiveness of a specific operating process or function's procedures and controls, going beyond the correctness of the figures the process eventually produces.

Question 6

Explain why a project can be effective without being efficient, giving a brief example.

Accepted Answer

Effectiveness measures whether the intended outcome was achieved, regardless of how resource-economically the process got there — a construction project might ultimately deliver a fully functional building that serves its intended purpose well (effective), even though it went significantly over budget and used far more material than necessary due to poor planning and rework (inefficient and uneconomical).

Question 7

A government skill-development scheme trained 50,000 candidates against a target of 50,000 (matching its numeric target exactly), spending exactly its allocated budget per candidate. Six months later, employment surveys show only 15% of trained candidates found relevant jobs, against a scheme objective of raising employment among trained candidates. Evaluate the scheme fully against the three Es and explain what this reveals about relying on output targets alone.

Accepted Answer

Economy: likely satisfied if the per-candidate spend matched the planned reasonable cost (no information suggesting overspending on inputs). Efficiency: satisfied — the scheme achieved its planned numeric output (50,000 trained) using its allocated budget, matching its input-output target. Effectiveness: NOT satisfied — the scheme's actual objective (raising employment among trained candidates) was largely unmet, with only 15% finding relevant jobs. This reveals that relying on an output target (number trained) alone, without separately verifying the ultimate outcome (employment achieved), can create a false impression of success — a scheme can look fully successful by its efficiency metric while substantially failing the actual purpose it was designed to serve, which is exactly why effectiveness must be assessed as its own separate criterion rather than inferred from efficiency.

Question 8

Explain why management audit is described as having 'no single universally prescribed statutory format,' and what practical consequence this has for how such an audit is scoped.

Accepted Answer

Unlike a financial audit (governed by the Companies Act and Standards on Auditing) or cost audit (governed by the specific Companies (Cost Records and Audit) Rules and Cost Auditing Standards covered in the previous chapter), there is no single statute or standard mandating a fixed scope, format or frequency for a management audit. The practical consequence is that a management audit's actual scope, depth and specific focus areas (which aspects of management decision-making, which time period, which business units) are determined by whoever commissions the audit — typically the board or a specific governance initiative — rather than being fixed by external regulation, meaning two management audits at different companies (or even within the same company at different times) can look quite different in scope even though both are called 'management audits.'

Practice — Management, Operational and Performance Audit

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