Internal Audit: Production/Operations & Research and Development & MIS¶
Production/Operations¶
The production/operations function involves activities that transform inputs into goods and services. These activities vary across industries and markets, but they generally include inputs such as raw materials, labor, capital, machines, and facilities. The production/operations function is crucial for ensuring that these inputs are effectively transformed into finished goods and services. This function comprises five key decision areas:
- Process: The methods and technologies used to transform inputs into outputs.
- Capacity: The volume of output that a production system can handle.
- Inventory: The management of raw materials, work-in-progress, and finished goods.
- Workforce: The human resources involved in the production process.
- Quality: The standards and procedures to ensure that products meet certain specifications and customer expectations.
Production/Operations Audit Checklist¶
To assess the strengths and weaknesses in the production/operations function, consider the following questions:
- Are supplies of raw materials, parts, and subassemblies reliable and reasonably priced?
- Are facilities, equipment, machinery, and offices in good condition?
- Are inventory-control policies and procedures effective?
- Are quality-control policies and procedures effective?
- Are facilities, resources, and markets strategically located?
- Does the firm have technological competencies?
Research and Development (R&D)¶
Research and Development (R&D) is the fifth major area of internal operations that should be examined for specific strengths and weaknesses. R&D activities are critical for firms pursuing a product development strategy. However, while some companies may not engage in R&D, others depend heavily on successful R&D activities for survival and growth.
R&D Audit Checklist¶
To assess the strengths and weaknesses in the R&D function, consider the following questions:
- Does the firm have adequate R&D facilities?
- If outside R&D firms are used, are they cost-effective?
- Are the organization’s R&D personnel well-qualified?
- Are R&D resources allocated effectively?
- Are management information and computer systems adequate?
- Is communication between R&D and other organizational units effective?
- Are present products technologically competitive?
Internal Audit: Management Information System (MIS)¶
Management Information Systems (MIS) are crucial for tying together all business functions and providing the basis for all managerial decisions. MIS can represent a significant source of competitive management advantage or disadvantage. Assessing a firm’s internal strengths and weaknesses in information systems is a critical dimension of performing an internal audit.
MIS Audit Checklist¶
To assess the strengths and weaknesses in the MIS function, consider the following questions:
- Do all managers in the firm use the information system to make decisions?
- Is there a chief information officer (CIO) or director of information systems position in the firm?
- Are data in the information system updated regularly?
- Do managers from all functional areas of the firm contribute input to the information system?
- Are there effective passwords for entry into the firm’s information system?
- Are strategists of the firm familiar with the information systems of rival firms?
- Is the information system user-friendly?
- Do all users of the information system understand the competitive advantages that information can provide?
- Are computer training workshops provided for users of the information system?
- Is the firm’s information system continually being improved in content and user-friendliness?
This comprehensive internal audit approach across production/operations, R&D, and MIS provides valuable insights into a firm's strengths and weaknesses, helping guide strategic decision-making and improvement efforts.
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