Internal Audit Management Overview

Internal Audit

• An internal audit identifies strengths and weaknesses in a firm's management, marketing, finance and accounting, production and operations, research and development, and management information systems.

Key Internal Forces

• Distinctive competencies are strengths that cannot be easily matched or imitated by competitors.
• Building a competitive advantage involves taking advantage of a firm's distinctive competencies.

Management Audit Checklist

• The firm should have a clear mission statement, use strategic management concepts, and have measurable, well-communicated objectives and goals.
• Managers at all levels should plan effectively and delegate well.
• The organization's structure should be appropriate, with clear job descriptions and specifications.
• Employee morale, absenteeism, and turnover should be low, and the reward mechanisms should be effective.
• The organization's control mechanisms should be effective.

Marketing Audit

• Markets should be segmented effectively, and the organization should be well-positioned among competitors.
• The firm's market share should be increasing, and distribution channels should be reliable and cost-effective.
• The sales force should be effective, and the firm should conduct market research.
• Product quality and customer service should be high, and products and services should be priced appropriately.
• The firm should have effective promotion, advertising, and publicity strategies.
• Marketing planning and budgeting should be effective, and marketing managers should have adequate experience and training.
• The firm's internet presence should be competitive.

Finance/Accounting Audit

• Analyze the firm's financial strengths and weaknesses by examining its financial ratios.
• Determine if the firm can raise needed short-term and long-term capital.
• Evaluate if the firm has sufficient working capital and if its capital budgeting procedures are effective.
• Evaluate the firm's dividend policies and how well it relates to its investors and stockholders.
• Assess the experience and training of the firm's finance managers.
• Assess the firm's debt situation.

Production/Operations Audit

• Ensure suppliers are reliable and reasonable.
• Confirm facilities, equipment, machinery, and offices are in good condition.
• Assess the effectiveness of the firm's inventory-control policies and procedures.
• Evaluate the effectiveness of quality-control policies and procedures.
• Determine if facilities, resources, and markets are strategically located.
• Assess the firm's technological competencies.

Research & Development Audit

• Determine if R&D facilities are adequate.
• If outsourcing R&D, assess whether it is cost-effective.
• Evaluate qualifications of R&D personnel.
• Determine if R&D resources are allocated effectively.
• Ensure MIS and computer systems are adequate.
• Assess the effectiveness of communication between R&D and other organizational units.
• Determine if the firm's current products are technologically competitive.

Management Information Systems Audit

• Ensure all managers use the information system to make decisions.
• Verify the presence of a CIO or Director of Information Systems.
• Determine if data is updated regularly.
• Confirm that managers from all functional areas contribute input to the information system.
• Evaluate the effectiveness of passwords for entry into the firm's information system.
• Assess the familiarity of strategists with the information systems of rival firms.
• Determine if the information system is user-friendly.
• Verify understanding among system users of the competitive advantages that information can provide.
• Evaluate the availability of computer training workshops.
• Assess if the firm's system is being improved.

Internal Factor Evaluation (IFE) Matrix

• List the key internal factors.
• Assign a weight (0.0 - 1.0) to each factor.
• Assign a rating (1 - 4) to each factor.
• Multiply the weight by the rating.
• Sum the weighted scores.