Internal Audit in the Functional Areas of Business¶
An internal audit in the functional areas of business involves identifying and evaluating a firm's strengths and weaknesses across various critical functions. These functions include Management, Marketing, Finance/Accounting, Production/Operations, Research and Development (R&D), and Management Information Systems (MIS). Conducting an internal audit helps organizations understand their internal environment and informs strategic decision-making.
Internal Audit: Management¶
Overview¶
Management functions are essential for the effective operation of any organization. The primary functions of management consist of five basic activities: Planning, Organizing, Motivating, Staffing, and Controlling. Each of these activities plays a crucial role in the strategic management process.
1. Planning¶
- Definition: Planning encompasses all managerial activities related to preparing for the future. This includes forecasting, establishing objectives, devising strategies, developing policies, and setting goals.
- Importance in Strategic Management: Planning is most critical during the Strategy Formulation stage.
2. Organizing¶
- Definition: Organizing involves managerial activities that result in a structured task and authority relationship. This includes organizational design, job specialization, job descriptions, job specifications, span of control, unity of command, coordination, job design, and job analysis.
- Importance in Strategic Management: Organizing is most crucial during the Strategy Implementation stage.
3. Motivating¶
- Definition: Motivating involves efforts directed toward shaping human behavior. It includes leadership, communication, work groups, behavior modification, delegation of authority, job enrichment, job satisfaction, needs fulfillment, organizational change, employee morale, and managerial morale.
- Importance in Strategic Management: Motivating is most important during the Strategy Implementation stage.
4. Staffing¶
- Definition: Staffing focuses on personnel or human resource management. It includes wage and salary administration, employee benefits, interviewing, hiring, firing, training, management development, employee safety, equal employment opportunity, union relations, career development, personnel research, discipline policies, grievance procedures, and public relations.
- Importance in Strategic Management: Staffing is most critical during the Strategy Implementation stage.
5. Controlling¶
- Definition: Controlling refers to all managerial activities aimed at ensuring that actual results are consistent with planned results. This includes quality control, financial control, sales control, inventory control, expense control, rewards, and sanctions.
- Importance in Strategic Management: Controlling is most significant during the Strategy Evaluation stage.
Management Audit Checklist of Questions¶
To determine specific strengths and weaknesses in the management function, consider the following questions:
- Does the firm use strategic management concepts?
- Are company objectives and goals measurable and well communicated?
- Do managers at all hierarchical levels plan effectively?
- Do managers delegate authority well?
- Is the organization’s structure appropriate?
- Are job descriptions and job specifications clear?
- Is employee morale high?
- Are employee turnover and absenteeism low?
- Are organizational reward and control mechanisms effective?
Internal Audit: Marketing¶
Overview¶
Marketing involves the process of defining, anticipating, creating, and fulfilling customers' needs and wants for products and services. There are seven basic functions of marketing, each playing a critical role in the strategic management process.
1. Customer Analysis¶
- Definition: The examination and evaluation of consumer needs, desires, and wants.
2. Selling Products/Services¶
- Definition: This includes various marketing activities such as advertising, sales promotion, publicity, personal selling, sales force management, customer relations, and dealer relations.
3. Product and Service Planning¶
- Definition: Involves activities like test marketing, product and brand positioning, devising warranties, packaging, determining product options, features, style, and quality, deleting old products, and providing customer service.
4. Pricing¶
- Definition: Pricing decisions are influenced by five major stakeholders: consumers, governments, suppliers, distributors, and competitors.
5. Distribution¶
- Definition: Distribution encompasses warehousing, distribution channels, distribution coverage, retail site locations, sales territories, inventory levels and location, transportation carriers, wholesaling, and retailing.
6. Marketing Research¶
- Definition: The systematic gathering, recording, and analyzing of data about problems relating to the marketing of goods and services.
7. Opportunity Analysis (Cost-Benefit Analysis)¶
- Definition: Involves assessing the costs, benefits, and risks associated with marketing decisions.
Marketing Audit Checklist of Questions¶
To determine specific strengths and weaknesses in the marketing function, consider the following questions:
- Are markets segmented effectively?
- Is the organization positioned well among competitors?
- Has the firm’s market share been increasing?
- Are present channels of distribution reliable and cost-effective?
- Does the firm have an effective sales organization?
- Does the firm conduct market research?
- Are product quality and customer service good?
- Are the firm’s products and services priced appropriately?
- Does the firm have an effective promotion, advertising, and publicity strategy?
- Are marketing, planning, and budgeting effective?
- Do the firm’s marketing managers have adequate experience and training?
- Is the firm’s Internet presence excellent as compared to rivals?
Conclusion¶
Conducting an internal audit across the functional areas of management and marketing is essential for identifying strengths and weaknesses that can impact an organization's strategic direction. By systematically evaluating these functions, organizations can better align their resources and strategies to achieve their objectives effectively.
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