Management Audit today becomes a vital element for management, allowing executives to know how well they solve the economic, social and ecological problems that arise at this level, generating in the company a healthy dynamism that leads it successfully. towards the proposed goals.
Its task is aimed at evaluating the results of management in order to fulfill the goals and objectives of an organization, achieving a correct use of material, human and financial resources and that the acquisition of goods and services is done in quantity and quality. appropriate and according to the needs of the moment.
This is the objective of this work that has Management Audit as a field of action as an integrating element of self-control and continuous diagnosis, carrying out an analysis of the criteria used in the bibliography on the subject.
It is a great challenge to be achieved by Cuban companies to be able to insert themselves into the contemporary business world, characterized by the imposition of ever higher demands. To achieve this, the management of the organizations must carry out an arduous work in the search and application of innovative forms and methods that provide a positive response to the constraints of the environment. Not unrelated to this development and derived from horizontal and vertical integration, the Human Resources Management Audit has emerged in the field of control, little exploited in current Cuban conditions.
Within modern administrative culture, control consists of implementing, using and developing methods and techniques that objectively reflect the real level of administration and the situation of the company. Many works, methods, techniques, and procedures can be found in books and manuals for diagnosing problems and their causes. A suitable combination of quantitative and qualitative indices allows the evaluation of Human Resources policies and activities that lead to the systematic improvement of its management system and consequently the increase in the organization's competitiveness.
GRH audit. Evolution of the concept
The concept of Audit, comes from the economic world, and consisted of an independent investigation and evaluation process, on the information contained in the financial statements of an entity. This concept has evolved until reaching Management Audit and within it, human resources.
With the evolution of human resource management approaches, control systems also evolved and were perfected, from the direction of personnel in the 1980s where control was summed up against expenses against the budget, trying not to exceed the current beginning of the 21st century where they are evaluated from an Effectiveness perspective (compliance with goals and objectives), Efficiency perspective (use of resources, cost control) and Efficiency perspective (impact on the organization and employees) with a philosophy of seeing HR as investment and not as cost.
GRH audit. Definition
Human resources audit. Analysis of the policies and practices of the staff of an organization, evaluation of its current operation, followed by recommendations for improvement.
Control. Process of monitoring the activities of the organization to verify if it conforms to the planned and to correct the failures or deviations.
Management. Process undertaken by one or more people to coordinate the work activities of other individuals.
Harper and Lynch (1992) define the GRRHH Audit as an analysis of the HR management and / or development policies and systems of an organization and an evaluation of its current functioning. In order to prepare a professional opinion on whether the actions carried out in relation to HR, in a specific period of time, justify the expenses and investments made.
Why use this tool?
The need for Auditing is identified by Cantera (1995) when stating that an organization cannot change as fast as the market demands; companies must be adjusting their strategies and reformulating their structure, to continuously adapt, with Audit being a vital resource for this adjustment.
Werther and Davis consider that auditing is a very important and weighty regulatory process within the organization, and neglecting its use can lead to increased spending on human resources, since it is significantly large expenses for services to the personal, as well as wages and compensation and it has a very close relationship between what is produced and what is paid for productivity.
How to develop HRM Audits?
The ways in which the techniques and tools are used by the different authors consulted, constitute to a greater or lesser extent the differences between the different approaches. Werther and Davis (1991) combine socio-psychological elements (surveys, interviews, among others), Chiavenato (1993) gives greater flexibility to quantitative indicators to carry out the Audit. Therefore, the proper use of qualitative and quantitative elements allows diagnosing the activities of human resources that lead to a higher status of the HRM system and therefore an improvement in the organization. As previously stated, the Human Resources Management Audit constitutes an internal need of the organization for the regulation and control of its Human Resources strategy, for which it must be carried out annually.
In an extraordinary way there are other situations that require its realization. In general, they can be summarized in five situations (Louart, 1994):
- Before deciding to carry out a business with another company (acquisition, merger, cooperation or others), it is advisable to examine the risks and the strengths of their human potential. When a manager wants to know the social climate of the organization. Running an HR program to see if it is worth modifying it. When HR costs are abnormally high. When a new HR director starts in office.
Analysis of the business environment
- Characterization of the organization's HR: Assessment of employee perspectives; level of employee participation and analysis of the structure of the workforce. Analysis of company strategy. Analysis of technology. Analysis of organizational culture. Analysis of HRMR results: Levels of commitment, consistency, competence of the employees; Level of HR cost effectiveness; Absenteeism; Fluctuation of the HR; Job satisfaction and economic indicators. Evaluation of the activities of the HR flow: personnel inventory; Assessment of human potential; Analysis and description of positions or occupations; HR planning; Recruitment, selection and integration; Performance evaluation; Vocational training and promotion and career development. Analysis of the work systems used:Flexibility; Multi-ability; Self-control; Team work; Nature and content of the task and enrichment of the work. Analysis of the reward systems: Salary system; Services and benefits and Occupational safety and hygiene.
How to prepare the audit reports?
For purposes of the presentation and officialization of the results of the audits that are carried out, similarities have been found in the preparation of reports, as detailed below:
- Preliminary report, Detailed report, Executive report, Presentation.
Preliminary report
The draft report details the audit findings and includes recommendations for improvement and commitments that can be generated to improve the situations or problems detected.
The structuring of said report could be as follows.
- General opinion or conclusion of the audit. Results: Finding. Risk. Cause. Recommendation.
Detailed report
It is a document that contains all the relevant information for the Company's tactical and operational levels, which facilitates the understanding of the results of the audit process and the future follow-up of the improvement actions that must be implemented by those responsible for the areas. audited.
A detailed audit report must contain the following elements.
- Introduction.Objective or objectives.Scope.Methodology of the audit work.General description of the process.Overall opinion or conclusion of the audit.Results: Find.Risk.Cause.Recommendation.Annexes Commitments or commitment plan Follow-up to the commitment
Executive report
It is a document extracted from the detailed report, which contains the relevant information for the executive and / or strategic level of the Company, which facilitates the understanding of the results of the audit process and presents an overview of the state of the internal control system of the audited area, in accordance with the scope and objectives established for the audit.
This document should not be longer than 8 sheets and requires the use of graphics, illustrations and summaries that facilitate its reading and understanding.
An executive report must contain the following elements.
- Objective. Scope. Work methodology used. General opinion or conclusion of the audit. Main results. Finding. Risk. Cause. Recommendation.
Internal Control, self-control tool.
It is thought that the origin of Internal Control arises with the double entry, which was one of the control measures, but that it was not until the end of the 19th century that businessmen worried about forming and establishing adequate systems for the protection of your interests.
At the beginning of the 20th century, as a consequence of the industrial development process, which led to a significant increase in production and the ways of dealing with it, the growing need to control business management began to be perceived, since the The development of the production and marketing phases evolved faster than the administrative or organizational phases. In this way, Internal Control is born as an administrative function, to ensure that the pre-established objectives and policies are fulfilled as set.
The concept of Internal Control has been evolving according to the development of society in the way that the historical framework and technological advances put to rest with the primitive methods to control business operations.
One of the oldest references to the term Internal Control, for which there is evidence, is made by LR Dicksee in 1905. This author indicates that “… an appropriate internal verification system frequently obviates the need for a detailed audit”.
This definition of "Internal Control" hardly showed any indication of the composition and purpose of this concept, and did not answer questions such as what is the relationship between control and the organization's objectives, who is responsible for control and what relationship exists between the administrative process and control.
An Internal Control system must be planned and will never be a consequence of chance, it is a well-thought plot of coordination methods and measures assembled in such a way that it works in a coordinated manner with fluidity, security and responsibility, guaranteeing the objectives of preserving, with the maximum security, control of resources, operations, policies, etc.; in short, it must help protect resources against fraud, waste and inappropriate use; preventing and hindering unauthorized operations, errors and fraud ”.
The purpose of the Internal Control is: "To promote the operation, to use said control in the way of driving towards the effectiveness and efficiency of the organization".
From what has been analyzed so far, it can be seen that, although there were common elements in the definitions of Internal Control, there was no correct or globally accepted or approved definition by all those who investigated the issue.
Finally, various professional groups of high renown worldwide joined forces in order to establish a conceptual framework of Internal Control that integrates pre-existing definitions and concepts, allowing public and private organizations, internal and external audits, academics and legislators have a common reference model on the subject.
As a result, the definition of Internal Control that appears in the Report “Internal Control-Integrated Framework” prepared by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) was issued. of Sponsoring Organizations) that defines it as a process executed by the board of directors, the administration and other personnel in the institution, designed to provide reasonable security with a view to achieving the institutional objectives grouped into three areas or categories:
- effectiveness and efficiency of operations reliability of financial information compliance with laws and regulations
Significant aspects to highlight in this last definition is that Internal Control constitutes a process where controls are a series of actions to achieve the entity's objectives, where all people intervene, who must be aware of the need to apply it and be able to adequately answer for them, and that their execution is the responsibility of the owner or maximum authority of the entity; It can only adopt a reasonable degree of security for the entity in relation to which the planned objectives will be achieved, it is not possible for the controls to avoid all problems and cover all risks, so it is very important to know its limitations. Consequently, internal controls are as much financial accounting as administrative or managerial.
In our country Resolution 297 of 2003 of the Ministry of Finance and Prices is issued, which puts into force the new criteria to develop an Internal Control System adapted to our reality, with the aim of strengthening the Economic and Administrative Control of Cuban entities and where it is established that:
Internal Control is the process integrated into the operations carried out by the management and the rest of the personnel of an entity to provide reasonable security to the achievement of the following objectives:
a) Reliability of the information.
b) Efficiency and effectiveness of operations.
c) Compliance with laws, regulations and established policies.
d) Control of resources, of all kinds, available to the entity.
Internal Control is an effective instrument to achieve efficiency and effectiveness in the work of entities. This new concept gives internal control an eminently Administrative character, unlike what was identified until now, that is, only accounting.
Internal Control is the base where the activities and operations of a company rest, that is, the activities of production, distribution, financing, administration, among others are governed by Internal Control.
It is an instrument of efficiency and not a plan that provides a police or tyrannical-type regulation, the best Internal Control System is one that does not harm company-client relationships and maintains relations of high human dignity. employer to employee.
Internal Control Features
1. Internal Control is a process. In other words, internal controls should not be isolated acts or mechanisms decreed by management, but rather an integrated system of materials, equipment, procedures, and people. These alone extend the concept of Internal Control beyond the traditional notion of financial controls.
2. Internal Control is carried out by people. No organization manual includes all the real and potential risks or develops controls to face each and every one of them. Consequently, the people who make up that organization must be aware of the need to assess risks and apply controls and must be in a position to respond appropriately to it.
3. Internal Control can only provide a reasonable degree of security. It is important to know the limitations of all control operating systems. Controls cannot be expected to avoid all problems and cover all risks. Human failure, collusion, or ignoring controls are examples of limitations inherent in any control process.
4. Internal Control is designed to facilitate the achievement of objectives. It is a transcendental contribution: internal controls are not restrictive elements but they make processes possible, allowing and promoting the achievement of objectives because it refers to risks to be overcome to achieve them.
5. It must promote the achievement of self-control, leadership and strengthening of the authority and responsibility of the labor groups.
6. It may contain automated processes, through the use of information and communication technologies.
7. All its parts must be subject to supervision (monitoring, self-evaluation, certification, audit).
For its design and implementation, the internal control system is structured into five components with their respective standards that allow evidence of their existence in the organization. The components of internal control are:
- Control Environment: The control environment sets the tone for the organization by influencing staff awareness. This can be considered as the basis for the other components of Internal Control. Risk Assessment: Internal Control has been designed essentially to limit the risks that affect the activities of entities. Through investigation and analysis of the relevant risks and the extent to which the current control neutralizes them, the vulnerability of the system is evaluated. For this, a practical knowledge of the entity and its components must be acquired as a way to identify weak points, focusing on the risks of both the entity (internal and external) and the activity.
Control Activities: Control activities are procedures that help ensure that management's policies are carried out, and must be related to the risks that management has determined and assumes. Control activities are carried out at all levels of the organization and in each of the stages of management, starting from the elaboration of a risk map, knowing the risks, controls intended to avoid or minimize them are provided.
Information and Communication: The relevant Information must be captured, processed and transmitted in such a way that it reaches all sectors and allows individual responsibilities to be assumed. Communication is inherent to information systems, people must know in time, the issues related to their management and control responsibility. Each function must be clearly specified, understanding as such the issues related to the responsibility of individuals within the Internal Control System. The existence of open lines of communication and a clear will to listen, by the leaders, are vital.
Supervision or Monitoring: It is the process that evaluates the quality of Internal Control over time. It is important to monitor Internal Control to determine if it is operating as expected and if modifications are necessary. The objective is to ensure that Internal Control works properly, through two types of supervision: continuous activities or specific evaluations.
These definitions of the Internal Control components, with a strategic focus, must include general rules or procedures to be considered in the design of the Internal Control Systems in each entity, accompanied by control and evaluation criteria.
In conclusion, we can say that the audit is a systematic and documented process of verification and subsequent communication of results to the client, through which evidence is obtained and objectively evaluated to determine whether the activities specified in the scope of the audit, as well as the events, conditions, management systems or information on these topics are in accordance with the achievement of the Company's objectives. The audits are processes of control and self-control of significant importance for the comparison of the objectives set and the reality of the facts, allowing organizations to detect deviations and correct them within an established period, leaving written evidence that allows us to know where we were and where it is capable of arriving the company.
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