Internal Audit in Manufacturing Companies

How to keep it interesting?

Interactive Some new thoughts Practical Approach Less of Theory Last but not least

How to keep it interesting?

Interactive Some new thoughts Practical Approach Less of Theory Last but not least -Keep it Short !!

Agenda What is Internal Audit? Relevance of Internal Audit for manufacturing Companies My experience and Few thoughts for consideration

What is Internal Audit ?

Why the Wording Also do Auditing

Perception - Ticking or Checking - Fault finding - A necessary evil in life

Why the Wording Also do Auditing

Perception of Audit - Ticking or Checking - Fault finding - A necessary evil in life

Is this Wrong perception or Truth ?

We get answer by Asking our self - What is the real nature of Audit?

Wrong perception or Truth What is the real nature of Audit? - A Toll for Quality Improvement process - Comparable with TQM, 6 Sigma etc. - Not properly marketed!! - Hence the problem in - Attracting Talent - Recognition What is the proof ??

Why the Wording Also do Auditing

What is the real nature of Audit? - A Toll for Quality Improvement process - Comparable with TQM, 6 Sigma etc. - Not properly marketed!!

What is the proof ??

Deming has said it!!!

What is Audit Vs Demings Famous Quotes

What is Audit?- DOES Management's job is to know which systems are stable and which are not. The aim should be to work on the method of management. We want best efforts guided by theory.

What is Audit Vs Demings Famous Quotes

What is Audit? DONT Manage the cause, not the result. Management by results is confusing special causes with common causes. Judging people does not help them. Meeting specifications is not enough.

What is Audit Vs Demings Famous Quotes

What is Audit?- HOW Management of outcomes may not be any more than a skill. It does not require knowledge.

You do not find knowledge in a dictionary, only information.

What is Audit Vs Demings Famous Quotes

What is Audit?- ROLE Role is a coach, not a judge. We are being ruined by the best efforts of people who are doing the wrong thing.

What is the real nature of Audit? Quality Process -Science - Analytical Skills - Logical Approach - Technical knowledge

What is the real nature of Audit? Quality Process

- Is it just a science? - NO

What is the real nature of Audit? Quality Process -Science (Intelligence) - Business acumen - Different from intelligence - Outstanding examples C V Ramans bank deposit Einsteins investment in shares - Ability to differentiate

What is the real nature of Audit? Quality Process -Science (Intelligence) - Business acumen - Different from intelligence - Outstanding examples - Ability to differentiate - Losers & Winners - Big & Small - Good & Bad - Combination of science & art

What is the real nature of Audit? Quality Process -Science (Intelligence) - Business acumen - Different from intelligence - Outstanding examples - Ability to differentiate - Combination of science & art - Is it just Science & Buss. Acumen? NO

What is the real nature of Audit? Quality Process Also An Art!! -Science (Intelligence) - Business acumen - Art - Judgment - Inter-personal skills - Communication skills Hence wrong Perception Only

What is Internal Audit

Double whamming

What is Internal Audit Why Double whamming? By adding Internal Another value diluting adjective to Audit

What is Internal Audit Double whamming Internal Another value diluting adjective Better adjectives - Experts - Specialists

What should be the name?

Need a fancy title

What should be the name?

ESOP

What should be the name? ESOP Evaluation by Specialist of Operations & Processes

What is Internal Audit? Evaluation by Specialist of Operations & Processes

Inernal Audit is an evaluation of an organization, system, process, project or product.
It is performed by a competent, independent, objective, and unbiased person or persons, known as auditors. The purpose is to verify that the subject of the audit was completed or operates according to approved and accepted standard or practice

Internal Audit in Manufacturing Companies

Internal Audit in Manufacturing Companies

Evolution of commercial activity

Agriculture
Trade

Manufacture

Internal Audit in Manufacturing Companies

As we progress complexity Increases Increase in Activity (number, frequency and short time gap) Inter-dependence

Coordination
The need and the difficulty

Leads to greater risk

Hence greater importance of internal audit

Internal Audit in Manufacturing Companies

Nature of Internal Audit - Transaction audit - Systems audit - Management audit Each has different Role

Internal Audit in Manufacturing Companies

Nature/Role of different type of Internal Audit - Transaction audit : C R Das - Systems audit : Rahul Dravid - Management audit : M S Dhony

Internal Audit in Manufacturing Companies

Transaction audit - Can be pre, concurrent or post

- Necessary evil
- Help discipline in the organization - Systems cannot totally replace this

Internal Audit in Manufacturing Companies

Systems audit - Backbone to the process/operations

- Vital for efficiency & control

- Necessary for survival

Internal Audit in Manufacturing Companies

Management audit - Judgmental

- Hence controversial
Requires - In-depth knowledge - Technical capabilities - Credibility

Difficult to identify the areas for application

Internal Audit in Manufacturing Companies

Management audit Requires In-depth knowledge / Technical capabilities Credibility

Difficult to identify the areas for application

Prerequisite

- Mutual respect of management & auditors

Different Attitude - Mistakes are common in management - Getting it right 100% is inefficient

Internal Audit in Manufacturing Companies Some of my experiences

Transaction Audit - Selection - Type of Audit - Coverage

- Resources
- Cost / Benefit analysis

Internal Audit in Manufacturing Companies Some of my experiences

Systems Audit - Resources -Multi Function skills -Availability

- Attitude of
-Auditor -Management

- Evaluation of Performance

Internal Audit in Manufacturing Companies Some of my experiences

Evaluation of Performance of Systems Audit What cant measured cant be improved A must for any Quality Process Hence the need for measurement

Internal Audit in Manufacturing Companies Some of my experiences

Pre requisite for Evaluation Performance of Systems Audit Change of mindset both for Management and Internal Auditor Not a cost center but a value contributor Agree in advance -Target -Audit Process -Evaluation Process Auditors knowledge of the Business, Industry and Environment Technical Skill

Internal Audit in Manufacturing Companies Some of my experiences

Evaluation of Performance of Systems Audit Measure Against -Agreed Objectives -Other Tools

-Cost Vs Benefit

Internal Audit in Manufacturing Companies Some of my experiences

Management Audit - Tricky Role For CFO!! - Often dont Find the Champion - Mutual Suspicion

- Legal /Statuary Requirements

- Management commitment / Attitude - Adverse Findings

- Fear of impact
- Not a Black & White case

Internal Audit in Manufacturing Companies Conclusions

Internal Audit is Quality Tool A must for Manufacturing Companies Manufacturing Companies need - All 3 Audits Should have robust measurement System Lead Role to be taken by CFO Commitment of Management

Internal Audit in Manufacturing Companies

Thank you