This work proposes an audit program to evaluate the management in the financial area of the Construction Materials Company given the need to integrate this audit into a Management Control system that allows increasing the degree of economy, efficiency and effectiveness in the company processes. The Management Audits that are carried out are still insufficient, it is essential that the advantages provided by this type of audit be known, by exposing the flaws that produce negative effects on the management of the entities, allowing the correction of these and therefore, raise the degree of economy, efficiency and effectiveness.
The proposed program can be applied in the entity under investigation and in other entities of the territory, bearing in mind the characteristics of each of them.
The field of business is changing at a dizzying speed. Managers must make decisions in a changing environment where solutions are no longer possible and where countless contradictions are faced.
Starting in the 90s, a stage of redefining markets, customers and products began; for being a stage of uncertainty, in which products are no longer commercialized, but concepts. But with constantly changing circumstances, companies will only maintain their competitiveness if they know how to adapt to change. Cuba is not an exception to these new conditions, imposed perhaps, not by the same situation that the rest of the world is going through, but by the same stage and the influence of these conditions of economic crisis that we have had to live through, after the collapse of the socialist field and by the same need, imposed by this crisis itself, to open the economy to the international market, inserting it into that competitive and changing world and at the same time perfecting the internal economy.
It has been considered appropriate to direct this work towards a type of audit that allows to determine the degree of economy, efficiency and effectiveness in the use of financial resources and thus strengthen economic and administrative control in the entities as well as achieve maximum transparency and quality of its economic-financial information.
It is clear that the very transformations that the Cuban economy registers in the urgent search for an efficiency model in the business system necessarily oblige company managers to seek new forms of management and to dispense with accounting as a tool for control and analysis in decision making.
In this regard, Fidel Castro stated: “In the same way, it is necessary for us to perfect our leadership and management techniques in all fields; in a developing science, we have to acquire this knowledge, develop it and apply it!
The research project that is developed in the Company Materials of Construction of Las Tunas to implement a Management Control system in all processes within the company includes the Management Audit as part of that system and that is why it is proposed this work.
The Finance area was chosen to develop a Management Audit program with the objective of evaluating financial management in the company. As the existing procedures for conducting management audits are appropriate for the different entities, a program needs to be created to be able to perform this audit in the financial area of the Construction Materials Company to assess the degree of compliance with the economy, the efficiency and effectiveness with which monetary and financial resources are planned and controlled by this department.
Based on the above, the following problem was defined:
The entity does not have Audit programs to evaluate the management in the financial area of the company.
Consequently, the general objective to be achieved with the work has been defined as follows:
Design a management audit program to evaluate the degree of compliance with the economy, efficiency and effectiveness in the use of the company's financial resources.
The hypothesis to be validated is worded as follows:
If a management audit program is designed and applied that contains planning, organization and control aspects to the financial area of the company, it is then possible to evaluate the degree of compliance with the economy, efficiency and effectiveness in the use of monetary resources.
I.-General aspects of the management audit
Contemporary audit environment
At the beginning, the audit was oriented towards the internal needs of the Companies to ensure the safe handling of money and the exact recording of transactions as a service to the owner of the invested capital.
The increasing complexity of economic phenomena, the dynamics of companies' management administration methods and systems, their expansion and size, has led to the constant evolution of the audit, since their senior management will be obliged to focus their attention to those problems of greater importance and therefore the dependence of these on the results presented by the auditors grows in order to know in detail the operation of the activities of your entity.
In Cuba, after the introduction of a new Economic Management system in the second half of the 1970s, the work of auditors once again gained momentum. In recent years, and with the appearance of joint ventures, the field of action of auditors has expanded.
Today, there is a growing need to examine and assess the quality of managers and the processes by which an organization operates. Through the management audit, it is possible to know the problems that hinder the operational development and hinder the growth of the company. It is important to assess the importance of problems, find their causes and propose appropriate solutions and implement them.
Globalization is forcing more and more companies to evaluate not only its internal factors, but also external factors: economic, political, commercial, environmental factors, etc., by which they are affected. This analysis and evaluation of both internal and external factors must be done in a systematic and comprehensive manner, covering the entire company if the organization is to truly improve.
In Cuba, the Management Audit began to boom at the beginning of the 90s as a result of social development, technological advancement and productive practice, which contributes to the opening of our relations towards a world until that moment little explored in the country In which it has been necessary to act, since then workshops and other means of dissemination have been promoted to promote this work and in 2006 resolution 026 was approved, which is a methodological guide for conducting performance audits.
The Management Audits that are being executed are still insufficient. Some of the fundamental causes why company managers do not recognize in this audit an ally in achieving the economic, social and environmental objectives that they must meet.
It is essential that the advantages provided by this new type of audit be known, by exposing the flaws that produce negative effects on the management of the entities, allowing the correction of these and, therefore, raising the degree of economy, efficiency and effectiveness.
1.1 Concept of Management Audit.
At the international level, different analogous names have been given to Management Audit, but in essence the objectives pursued in all cases are the same, the best known being the following: Audit of the three E's, Operational Audit, Operational audit, performance audit, among others.
Different authors and scholars of the Audit have made their own definition of Management Audit. Some of these are detailed below:
Eduardo Hevia Vázquez defines it as: ¨ An examination carried out by auditors and according to the techniques and methods of auditing the whole or part of the areas, functions or activities of an organization, checking the efficiency and adequacy of its internal control system.
Norbeck: "Performance auditing is a relatively new control technique that provides management with a method to assess the effectiveness of operating procedures and internal controls."
William P. Leonard: “The Management Audit can be defined as a complete and constructive examination of the organizational structure of a company, institution or government department; or any other entity and its control methods, means of operation and use that it gives to its human and material resources ”.
Fernández Arena JA maintains that it is the objective, methodical and complete review of the satisfaction of the institutional objectives, based on the hierarchical levels of the company, in terms of its structure, and the individual participation of the members of the institution.
The concept given on the subject by the authors Cook and Winkle, says that:
“The operational audit is a comprehensive examination and evaluation of business operations in order to inform management whether or not the various operations are carried out in a manner that complies with established policies directed towards the objectives of management. The audit includes the evaluation of the efficient use of both human and physical resources, as well as an evaluation of various operating procedures. The audit should also include recommendations for solutions to problems and methods to increase profit efficiency. "
Joaquín Rodríguez Valencia states that: ¨The Management Audit is defined as a technique to systematically evaluate the effectiveness of a function or a unit with reference to company standards, using specialized personnel in the study area, in order to ensure that the administration that its objectives are met and determine what conditions can be improved.
According to Thierauf, the management audit ¨ has to do with the evaluation of the way in which the administration is fulfilling its objectives, performing the general functions of planning, organization, direction and control, and achieving effective decisions in the fulfillment of the objectives set by the organization.
According to the different resolutions and documents issued by the Ministry of Audit and Control and the Ministry of Finance and prices, such as Decree Law 159/1995 and Resolution 026 of 2006 of the Ministry of Audit and Control, the Management or Operational Audit is defined as: "The examination and evaluation carried out to an entity to establish the degree of economy, efficiencies and effectiveness in the planning, control and use of resources and to verify the observance of the pertinent provisions, in order to verify the most rational use of resources and improve the activities and subjects examined ”.
Taking into account that the main basic elements, as stated in the previous definition, are economy, efficiency and effectiveness, we can say that:
Economy:
It refers to the terms and conditions under which human, financial and material resources are acquired and used, both in the appropriate quantity and quality, as well as at the lowest possible cost and in a timely manner, that is, the appropriate resources in the amount and correct quality, at the scheduled time, in the right place and at the agreed price.
For an entity to work economically, it is necessary that with respect to Fixed Assets, Inventories and the Workforce that:
• Don't buy, spend and pay more than necessary. To know if the entity complies with the aforementioned, the auditor must check whether, among other aspects, resources are invested rationally, namely if:
• It uses the appropriate raw materials, according to technical and quality parameters.
• Save these resources or lose them due to lack of control or poor storage and working conditions.
• Uses the appropriate and necessary workforce.
• Workers take advantage of the working day, etc.
Efficiency:
It refers to the relationship between the resources consumed (inputs) and the production of goods and services. This is expressed as a percentage, comparing the input-production relationship with an acceptable standard (norm). Efficiency increases when a greater number of units are produced using a given quantity of inputs, or Maximum production (results) / Minimum resources (inputs). The goal is to increase productivity. It is equivalent to saying that the entity must always carry out its activities well. An efficient activity maximizes the output of a given input or minimizes the input of a given output.
Among others it must achieve:
• That the consumption or expenditure regulations are correct and that the production or services comply with them.
• That the waste that originates in the production process or in the service provided is minimal.
• That the installed capacities are used to the maximum,
• That the technical production parameters are met, in the production or service process, which guarantee the required quality, and
• That all the workers know the work to be carried out and that this is the necessary and convenient for the activity.
It should be taken into account that the efficiency of an operation is influenced not only by the quantity of production, but also by the quality and other characteristics of the product or service provided.
Effectiveness:
It is the degree to which an activity or program achieves its objectives, goals or other effects that had been proposed.
Efficiency is understood as the degree of fulfillment of a goal, which can be expressed in terms of quantity, quality, time, cost, etc. Therefore, it is essential that the organization have detailed planning, with information systems and instruments that allow knowing in a reliable and timely manner the situation at a given moment and the deviations from the projected goals. If this does not exist, effectiveness can hardly be measured. In short, that the proposed objectives have been achieved.
The interrelationship of these elements (Economy, Efficiency, Efficacy), should influence the auditor's criteria regarding affordability, that is, obtaining the desired effects at the lowest cost, since the performance audit does not constitute a simple economic analysis. of the Entity, but responds to a more in-depth analysis, by not limiting itself only to showing figures or explanations. This must check each element and expose wasteful, inefficient and ineffective practices, detailing the causes and conditions that cause them and the effect they produce, that is, the price of non-compliance.
As expressed in the economic resolution of the V Congress of the Communist Party of Cuba, it is vitally necessary to achieve the economy, efficiency and effectiveness of our companies, since:
Economy: Correct inputs at the lowest cost.
Efficiency: Results that provide desired effects.
Efficiency: Inputs that produce the best results at the lowest cost.
1.2 Stages for conducting the Management Audit.
According to the Manual Center for Accounting and Financial Studies and Insurance (CECOFIS) for its organization and development the Management Audit comprises five general stages, which are the following:
1. Exploration and preliminary examination.
2. Planning.
3. Execution.
4. Report.
5. Follow up.
Exploration and preliminary examination
It constitutes a guide for the subsequent work, thus facilitating the determination of fundamental questions such as: towards which area the work is directed, how many people are needed, the time, that is, creating the conditions that allow establishing the elements of quality control.
This is the study that, prior to the execution of the Audit, must be carried out in the entity.
- A tour of the areas that make up the entity in order to observe the
operation as a whole. Review the information in the single file that contains the
results of
audits, inspections, checks and fiscal verifications.
Evaluate the Financial and Administrative Accounting Internal Control System taking into account:
• If the information systems are timely and dynamic.
• If the principles of Internal Control are met.
• Carry out all the necessary verifications to reach conclusions regarding the effectiveness of Internal Control.
• Verify the behavior of the means that guarantee the effectiveness of Internal Control.
• Examine and evaluate documents, operations and Financial Statements.
• Evaluate the reliability, sufficiency and timeliness of the Automated Information Processing Systems.
Financial situation:
1. Analyze the fulfillment of the fundamental economic indicators.
2. Cost systems, including cost centers by areas of responsibility, expense budgets and their behavior.
3. Verify funding sources
4. Availability.
5. Indebtedness.
Human Resources:
1. Organizational structure and functions.
2. Number of workers by occupational category with their respective qualifications.
3. Training, development and training.
4. Level of protection and hygiene at work.
5. Stock of work standards.
Carry out interviews that are considered necessary with leaders, technicians, workers and members of political and mass organizations.
Planning.
The planning of the audit refers to the determination of the objectives and scope of the audit, the time required, the criteria, the methodology to be applied and the definition of the resources that are considered necessary to guarantee that the examination covers the most important activities. important aspects of the entity, the systems and their corresponding key controls.
The analysis of the elements obtained in the exploration should lead to:
• Define the aspects that should be verified, due to the expectations that the exploration gave.
• Analyze the reiteration of deficiencies and their causes.
• Define the forms or means of verification to be used.
Definition of the specific objectives of the Audit.
Determination of the auditors and other specialists that are required, taking into account the proposed objectives, the magnitude of the work and its complexity.
Flexible programs specifically tailored, in accordance with the reasoned objectives, that respond to the verification of the three E.
These should be prepared by the acting auditors, reviewed by the Head of the Audit and approved by the supervisor or the head of the area.
Determination of the time that will be used to develop the Audit, as well as its budget.
Execution.
Verify all the information obtained verbally.
Obtain sufficient, competent and relevant evidence, taking into account:
• That the tests determine the causes and conditions that originate the non-compliances and deviations.
• Quantify as much as possible to determine the price of default.
• That the tests can be external if deemed necessary.
Pay special attention that the Audit serves as an instrument to help make smart and timely decisions.
The work of specialists who are not auditors must be carried out on the basis of the objectives defined in the planning.
The group leader should be in charge of the orientation and review of the work.
The work must be adequately supervised by a specialist from the Audit unit.
Determine in detail the degree of compliance with the three E's, taking into account: Condition, Criterion, Effect and Cause.
Report.
The presentation of the Audit Report must express in a concrete, clear and simple way the problems, their causes and effects, with a view to assuming it by the entity's executives as a management tool.
Notwithstanding the above, the following should be considered:
Introduction: The objectives that will be presented in this segment will be
the specific ones that were defined in the second stage «Planning».
Conclusions: The price of non-compliance, that is, the economic effect of inefficiencies, wasteful practices, non-compliance and deficiencies in general, should be presented in summary form. The causes and conditions that influenced the degree of compliance with the three "E" and their interrelation will be reflected, also in summary form.
Body of the Report: Make an assessment of the effectiveness of current regulations. Anything that is quantifiable must be quantified.
Recommendations: These should be general and constructive, not committing the Audit to future situations that may occur in the entity.
Annexes: The items that make up the price of the breach (material damages and economic losses) can be shown in a summarized way, as well as a summary of responsibilities.
Synthesis: Sometimes it is necessary to make a summary which will reflect the most relevant findings in a pleasant, open, precise and concise way that motivates the reading.
Tracing.
It is advisable, according to the degree of deterioration of the three E that is observed, to carry out a check lasting between one and two years, which allows to know to what extent the administration was receptive to the findings shown and the recommendations given in any of the circumstances, that is, whether the administration of the entity was kept in the hands of the same personnel, or whether it had been replaced due to their mistakes.
Audit Program.
As previously discussed, the audit program is the set of procedures and actions that the auditor must carry out in order to achieve the objectives set, obtain sufficient and competent evidence with a minimum of error.
It is difficult, if not impossible, to create a program that satisfies all expectations, as the good preparation of the auditor is very important and the procedures to be followed are not always the same, as they will depend on the particular circumstances of each entity.
On this Montgomery raises the following:
“Nothing can do more harm to those who are dedicated to this study than the exclusive use of condensed rules of work; all those who practice their profession following programs that have been formulated by other people are guilty of negligence, if they allow immutable rules to nullify all their independence of criteria. However, there is no disadvantage in using a summary of the procedures to be followed in almost all audits, as long as the summary is based on the fundamental principles of the audit and is carried out on that basis ”.
Although the author of this work agrees with this criterion, the reality is that it is necessary to develop a program that serves as a general guide in the development of the auditors' work and that it is adjustable.
Aspects to take into account in the preparation of the management audit program.
1.- Plans and Objectives: Examine and discuss with the management the current status of the plans and objectives.
2.- Organization.
a) Study the structure of the organization in the area being assessed.
b) Compare the present structure with the one that appears in the organization chart of the company (if there is one).
c) Make sure whether or not a full appreciation is granted to the principles of good organization, functioning and departmentalization.
3. Policies and Practices: Carry out a study to see what action (if required) should be taken to improve the effectiveness of policies and practices.
4.- Regulations: Determine if the company cares about complying with local and state regulations.
5.- Systems and Procedures: Study the systems and procedures to see if they present deficiencies or irregularities in their elements subject to examination and devise methods to achieve improvements.
6.- Controls: Determine if the control methods are adequate and effective.
7.- Operations: Evaluate operations in order to specify which aspects need better control, communication, coordination, in order to achieve better results.
8.- Personnel: Study the general needs of personnel and their application to work in the area subject to evaluation.
9.- Physical Equipment and its Layout: Determine if improvements could be made in the layout of the equipment for a better or wider use of it.
10.- Report: Prepare a report of the deficiencies found and record the appropriate remedies in it.
2.2. Results of the preliminary examination.
Verification of the single audit file.
The entity does not have an internal auditor, but the position is defined and there is a colleague in training to carry out these tasks.
When reviewing the single Audit file, it is evidenced that it complies with the provisions of resolution No. 276/03 of the Ministry of Audit and Control, containing the verifications made to the entity such as:
1- The report of the Ministerial Control carried out from October 17 to 20, 2005, where deficiencies were found in previous years in the preparation of sales contracts and in the reconciliation process of accounts receivable; and it is suggested that there is a strong work in the analysis and mastery of accounting and financial tasks, although they have deficiencies such as having short-term accounts receivable in litigation and long-term obligations.
2- The special Internal Control audit to verify the implementation of Resolution 297/03, the result of which is qualified as satisfactory.
Based on the recommendations made by the audits and inspections carried out, the company has the plans of measures drawn up and the assigned tasks are periodically checked.
As part of the preliminary exploration of the audit, which was carried out through an audit program that allowed us to evaluate internal control and characterize the object (See Annex No.3), various documents and resolutions governing the performance of work in this department and conducting the audit such as:
• File of business improvement of the company.
• Template of human resources positions, where the functions of each job in the financial area are described.
• Resolutions 56/2000 of the BCC, which establish the payment instruments, their method of use and the credit rights.
• Resolution 64/2000 of the BCC of 10/19/00 “Complementary rules for collections and payments”.
• Res. 297/2003 MFP “Definitions of Internal Control”.
• Res. 026/2006 MAC “Methodological Guide for Management Audit”, the “Methodological Guide for Financial Audit or Financial Statements” and the “Methodological Guide for the evaluation of Internal Control”.
It was learned that the company belongs to the MICONS Business Group and its main sources of financing are its income and central budget allocations for the works of the Battle of Ideas, it is developing investments for a value of 8 770 742 among which is stand out:
1. Laying block (Italian) with state-of-the-art technology in the Las Parras quarry.
2. Hydrocyclone (mill) in Las Parras, for the production of materials.
Through interviews with workers in the area and by reviewing documents such as those set out above, the organizational structure and functions of the audited area were known, in addition to the characteristics of the service it performs and it was possible to compare the functions of the area included in the file of business improvement and the tasks that are carried out within it.
During interviews with the head of the department, the procedures for preparing the budget were known. The information that appears automated, reports and other documents that provide general information on the financial situation were reviewed and analytical review methods were applied using various financial reasons to evaluate the behavior of the Economy, Efficiency and Effectiveness in planning and safeguarding resources. Monetary of the company Materials of Construction. The different reports issued in the department were reviewed and an analysis of their effectiveness was carried out.
It was found that the company has 491 clients up to the date of the audit, a part of them being companies that respond to the works of La Batalla de Ideas and within the accounts receivable in March 2006 with a time greater than 90 days We have an amount of $ 174 103.59 in national currency, which represents 42% of the total and $ 50568.79 in MLC for 78% of the total. The internal control guide was applied in the points corresponding to the financial area in order to have a criterion of the internal control system existing in it, verifying that the provisions of the resolution are met in all verified aspects.
As part of the preliminary exploration, the internal audits are carried out in depth and it is observed that the management audit is not widely used in the entity, due to the lack of knowledge of the colleagues and lack of habit to carry out this type of audit, since those that are carried out more frequently are financial audits.
In general, a good work environment is observed in this area and the willingness to perform the corresponding tasks to increase the efficiency of the same and at all times there was the collaboration of colleagues providing the necessary information to meet the objectives of the audit and being very receptive to the deficiencies noted.
In the development of this section, characteristic aspects of the entity under investigation have been shown and, knowing these elements, various techniques can be applied to make a diagnosis of the financial situation of this company.
Proposed program
Generalities
1) Verify if the responsibilities and functions of the personnel in the financial area are well defined.
2) Verify if the department is staffed appropriately and how its management influences the ethics of the workers in the area.
3) Verify if the structure of the finance department is compatible with the other departments of the entity.
4) Verify if there is good communication between workers in the financial area and with other areas of the entity.
5) Verify if the working conditions are the most suitable.
6) Check if the capacity of the installed equipment is used to the maximum and efficiently.
7) Verify if the criteria of subordinate employees are taken into account in the elaboration of the strategies of the department and the entity in general.
8) Verify if the procedures:
a) establish the tasks to be carried out,
b) define the responsibilities of the individuals involved, taking into account the areas of responsibility,
c) contribute to the work flow.
d) allow to highlight the exceptions to the planned action.
9) Verify if the necessary communication channels exist so that the management transmits the approved policies and procedures in a clear and understandable way to its subordinate personnel.
10) Verify if the tasks performed by each member of the department respond to the objectives and functions of the same.
11) Check if there is a good use of the working day.
Human Resources
1) Verify if there are procedure manuals for each job and if they are known to the workers in the financial area.
2) Check if the training is planned according to the needs of each one and the company.
3) Verify the extent to which the appropriate policies and procedures for the hiring, training, promotion and remuneration of employees are in force.
4) Check the suitability of the review of the job files.
5) Verify if the existing stimulation system allows the development of the social expectations and needs of the workers in the area.
6) Verify if the human resource needs are compatible with the objectives and goals set in the entity and in the department.
7) Verify if there is an adequate cadre policy within the department.
8) Verify if there is adequate control of the entrances and exits of the personnel working in this area.
Control
1) Verify whether there are adequate internal controls for the separation of functions in automated processes and programs.
2) Verify if flexible budgets are expressed in a real way in order to compare them with the true results.
3) Evaluate whether the resources that are planned are those necessary to achieve the objectives in the short, medium and long term.
4) Verify if there are adequate models to make or prepare a budget that allow an easy location of information and an efficient interpretation of it.
5) Verify the efficiency of the collection and payment operations.
6) Verify compliance with laws and regulations.
7) Verify if the general accounting control reports are objective, authentic, timely, clear and designed in a suitable way that allows obtaining the necessary information.
8) Verify if the accounting information is reviewed before transmitting it to the appropriate source.
9) Verify if the predetermined financial and accounting data are compared with the actual results.
10) Verify if the economic-financial analyzes allow to effectively measure the economy, efficiency and effectiveness of the entity's operations.
11) Verify if the causes favorable or not to the fulfillment of the plans in previous periods and in the current period are objectively evaluated.
12) Verify if corrective action is taken when significant accounting and financial deviations are detected.
13) Verify the financial situation of the entity as stated in resolution 026/2006 of the MAC.
Objectives evaluation
1) Verify if the structure of the area allows the fulfillment of the objectives set.
2) Verify if this department provides guidance for the formulation of the strategic objectives of the company.
3) Verify if a budget is formulated for each operational unit in support of increased profitability and efficiency.
4) Verify if the cash flow statement is prepared and if projections are made.
5) Verify if the performance regarding the short, long and medium term plans is measured and periodically reviewed to keep them up to date.
6) Check if the short and medium term plans are compatible with the long range ones.
7) Verify the sufficiency and timeliness with which the information that allows monitoring the objectives, strategies and financial situation is analyzed.
8) Verify if the financial plans are integrated with the objectives and strategies of the entity.
9) Verify if the plans are fulfilled and compare them with previous periods.
10) Verify if alternative plans have been created in case of unexpected changes in the internal and external environment of the entity.
Result obtained in the audit through the final report.
Audit report
Las Tunas, June 15, 2006.
“Year of the Energy Revolution in Cuba”
Work Order No. 01/2006.
Audited entity: Finance department of the Construction Materials company.
Located at: Avenida Camilo Cienfuegos No. 223.
Code: 126.0.01302
Subordination: Ministry of Construction.
Type of audit: Management Audit.
Start date. 01-03-2006
Completion date. 30-5-2006
Performing Auditor (s): Lic. María del Carmen Padrón Ramírez.
Lic. Disleidis Alcolea Zayas.
Report
Introduction:
The present Management Audit work was carried out in the finance department of the Construction Materials Company of Las Tunas. Through it, financial operations corresponding to the first quarter of 2006 were reviewed by a random sample and comparisons with the same period of 2005 were established when deemed necessary. Internal control, both accounting and administrative, was reviewed.
The company's corporate purpose is to produce, transport and commercialize aggregates and other construction materials, products for the glass and ceramic industry.
It also provides maintenance and assembly services to industrial technological facilities and equipment for the production of construction materials.
The financial area of the company was chosen to carry out this work because it is one of the areas with the greatest incidence in the control and use of the financial resources assigned to the entity.
This area has a staff of 5 workers, 4 of them women, and among them, 1 is a university graduate and another is in the 6th year of the Bachelor's Degree in Accounting and Finance. It is subordinate to the accounting management of the company and has within its functions to organize and control the financial activity of the company and for this it has as a fundamental objective:
Achieve a level of material assurance and economic efficiency that guarantees the operation of the company with an availability of material and financial resources, with efficient use and control of them.
As part of the work, the objectives of the audit in this area were established and are:
• Evaluate the situation of the economy in the control and use of financial resources assigned to the company.
• Evaluate the effectiveness of the department in providing financial guidance and control to the entire organization including its various operational units.
• Measure the internal efficiency of the finance function in terms of financial, accounting and budgeting procedures, policies and regulations.
The work was carried out in accordance with generally accepted auditing standards, establishing an element of quality control, being advised by MAC specialists and other experienced professionals in the territory, in addition to consulting updated bibliography on the subject, which allowed meeting the proposed objectives at work through advice and consultation from various specialists who allowed the work to be carried out with the rigor and quality required.
The different resolutions and documents issued by the Ministry of Audit and Control and the Ministry of Finance and Prices were taken into account to carry out this management audit, in addition to the regulations issued by the central body to which the company belongs. Resolution 026/06 of the Ministry of Audit and Control was taken into account with the methodological guide for conducting management audits and Resolution 100/2004 regarding applicable auditing standards. An audit program was drawn up according to the requirements demanded after the preliminary examination carried out.
The Management Audit program was prepared and applied according to the objectives set. Compliance with current legislation, internal control principles, Cuban accounting standards, as well as economic management in planning, control and use of financial resources of the audited entity was verified.
The work was carried out through detailed tests covering the audit period up to March 2006 and comparing it with the same period of the previous year.
Conclusions.
After the examination carried out and taking into account the deficiencies detected in the course of the audit, it is determined that in the financial area the objectives proposed in the strategic planning contained in the business improvement file and the economy, efficiency and effectiveness are not met. They present a degree of partial deterioration since they present deficiencies in the organization, the collection management and the economic-financial analysis that they carry out. The main conclusions are detailed below:
1. The organizational structure of the department management is too burdened for the lead specialist.
2. Staff are not rotated by jobs.
3. There are deficiencies in the management of collections and payments, maintaining high balances with more than 90 days worth 224 673 pesos.
4. The financial economic analyzes are carried out but not with the depth that is required for their interpretation and with the participation of all the personnel of the financial area.
5. No future cash flow projections are made, nor are mathematical and statistical models used to support these analyzes.
6. The financial situation of the entity may be affected by the deterioration of the main financial ratios analyzed.
7. General liquidity decreases by 1.23 pesos, cash liquidity behaves in the same way, decreasing by 0.32 pesos and availability decreases by 0.07 pesos in the first quarter of 2006 when compared to the same period of 2005.
8. It is not exploited to the maximum the potentialities of the technology they possess and the knowledge of the existing personnel.
9. Production costs increase, increasing costs by weight by 0.25 pesos in the first quarter of 2006 in relation to the same period of 2005.
10. Cost by weight of sales increases by 0.11 pesos in the analyzed period from 2006 to Compare it with the same period in 2005 and you get losses of $ 42,889.
11. Expenses increased by $ 354.4 in the first quarter of 2006 in relation to the same period in 2005.
12. The price of non-compliance amounts to $ 764,698 for:
- Increase in costs in the first quarter of 2006 with respect to the same period of the previous year for a value of 344 696 pesos Accounts receivable with overdue balances for 327 950 pesos Loss obtained in relation to the same period of the previous year for 92 052 pesos.
The economy is affected by the increase in expenses, mainly those of salary, in addition, losses of 42,889 pesos are obtained in the period analyzed and no cash flow projections are made that allow the company to adapt to changes in the environment In addition, no corrective actions are taken to counteract the deterioration of the financial liquidity ratios and increase the productivity of work, favoring the decrease in expenses, mainly those of salary and increasing sales levels to avoid losses. negative effects due to the increase in production costs. The total expenditure by weight of total income to be obtained according to financial planning is 0.99 pesos and in the analyzed period it behaves at 1.03 pesos;In addition, it is contemplated that the collection cycle is maintained monthly below 90 days and yet the entity has a 45-day collection cycle in the analyzed period.
Efficiency is affected when the structure of the area is not the most appropriate and there are colleagues with a lot of content and others who only carry out controlling and operational functions of collections and payments, this may affect the quality of work in this area and that it is not fulfilled. the objectives proposed for the fulfillment of the goals set by the management of the company in the strategic planning.
In addition, although the production and sales levels increase, the costs by weight of gross and mercantile production increase, behaving at 1.03 pesos the first and the costs of sales at 0.95 pesos. Expenses increased by $ 354.4 in the first quarter of 2006 in relation to the same period of 2005 and the salary expense is higher than planned by $ 71.1 in the first quarter of 2006.
Efficacy is not fully achieved by not rotating staff through jobs, not performing the economic-financial analysis effectively, issuing recommendations to the management of the company that avoid negative situations in the financial aspect of the same and not the capacities installed in the department with regard to computing and the intellectual capacity of the department's technicians are exploited to the maximum. The objectives proposed for this area are not achieved in the period analyzed since, in the first place, a loss of 42,889 pesos is obtained, even though in the strategic planning of the company it is expected that the result for the period analyzed would be a profit of $ 2.0,Furthermore, the main liquidity indices deteriorate, placing the entity in a difficult situation to meet the obligations contracted.
The results obtained through the application of the proposed program are detailed below in a more comprehensive manner.
Results.
According to the verifications carried out in the financial area of the Construction Materials company, it was generally appreciated that the required quality is not met as established to achieve the parameters of Economy, Efficiency and Efficacy related to this area; since some aspects were detected that show a degree of partial deterioration and that may have a negative impact on the management of said company.
When applying the proposed program, the following results are obtained:
Generalities.
Within the financial area, the responsibilities and functions of all the personnel are well defined and are detailed in the position template of the human resources area, in addition, the personnel working in this department have qualifications and preparation to face the assigned tasks, there is a good communication between the personnel in this area and the other departments and the working conditions are adequate, with a properly ventilated and lighted room. In addition, the leaders of the area and the company in general have a great sense of belonging and responsibility to the assigned tasks.
The tasks of this department promote the fulfillment of the functions; But we understand that they are carried out in an operational way, that is, many of these tasks become practically an activity of daily registration and control and the intellectual capacity of the technicians who work in it is not exploited to the maximum and that many analyzes that They can be carried out in a deeper way to issue opinions that lead to better results. They are not done, which affects the financial situation of the entity.
In the structure of the department, there is no balance in the operations carried out since the greatest responsibility with respect to the analysis of the financial situation of the company falls on the head of the department and the other colleagues limit themselves to carrying out registration and management control operations. of collections and payments, due to the fact that they are centralized in the company and in this area all the entity's business units are controlled and these operations are made difficult by not having financiers in the different base units; that is, they are limited to collection and payment operations. When conducting the interviews with each colleague in the area and in the company in general, it is detected that there is no rotation plan for the jobs in this department.
The work is limited to control operations and the functions of this area reflected in the business improvement file are not developed with all the necessary efficiency to achieve a better financial situation of the company, the main functions of this department are reloaded in The main specialist who also fulfills her functions as the person in charge of the same, the remaining colleagues control the collections and payments for files, the corresponding documents that include these activities are issued, the cash flow is prepared; But no analysis and projections are carried out and the economic-financial analysis is made by the main specialist;but it is not carried out with the participation of all colleagues in the area where criteria for the improvement or deterioration of economic-financial indicators and the ways to improve them are exposed and it is the economic director who is in charge of issuing them before the council of direction.
The capabilities of the installed technology are not fully exploited to perform different analyzes that allow improving the indicators that reflect the financial situation of the entity. The criteria of subordinate employees are not taken into account to develop strategies of the department and the entity in general and the established work procedures include the tasks that each one performs, but they must be reviewed to ensure that they contribute to increasing the quality of work.
Human Resources.
There are procedure manuals for each job position and they are known to each member of the financial area. The company has a strategy for the training of personnel and in this area all the members are university graduates, study in courses for workers or are passed through postgraduate courses in the company itself or in higher education centers in the province.
There is an adequate cadre policy in the department and in the company in general, they have young graduates in training with higher and intermediate technical levels within the department, who are given adequate care, guidance and professional advice in all activities of the exercise economic.
Attention to men and their particular and professional needs are duly attended to and supervised by the center's management.
Within the area work the human resources necessary to achieve the proposed objectives, only the distribution of the assigned tasks should be reviewed.
Control.
The provisions in force by Resolution 297/03 are met, covering all internal control components, there is separation of functions in all processes within the area.
The budgets are expressed in a real way and are compared with the true results, existing the appropriate models to locate the information and make an efficient interpretation of the same.
When reviewing and analyzing the records of collections and payments, it was found that they are automated, keeping the primary information by suppliers and customers and the report of these accounts is issued by age every month and the reconciliations that are made are filed in the records of each supplier or customer. In the selected sample of these accounts, the veracity of the reconciliations carried out was confirmed, but the efficiency of the collection procedures is affected by the lack of transportation to carry them out and that they are centralized in the financial area, so there are balances high in past due accounts receivable amounting to 327,950 pesos and within them, with more than ninety days worth 224,673 pesos;Therefore, it was stopped converting into cash for this concept, which reverts in that immediate liquidity decreases from 1.17 to 0.85 with respect to the previous year and the availability ratio from 0.09 to 0.02, a loss of $ 42 is obtained 889 in the first quarter of 2006, while in the same period of the previous year, profits amounting to $ 49,163 were obtained.
The request for purchase in foreign currency is made in the financial area as a control mechanism by the central body of the company.
The collection and payment operations are recorded by automated processes, limiting the work to registration operations and carrying out reconciliations with customers and suppliers, verifying the existence of files for each customer and supplier and the reconciliation minutes with each of they.
The collection cycle decreases in the period analyzed in 2006 by four days; but there are deficiencies in the management of collections, so the highest percentage of them are out of term for a value of $ 327,950.
The reports that are issued collect the necessary information; but they are not effective because the analyzes are not carried out with the required depth to allow issuing the necessary criteria to counteract the negative situations that arise with the different financial indicators. The daily cash flow is compiled; However, no analysis and projections are carried out and the analyzes carried out on the financial situation of the entity do not include the participation of all colleagues in the area where criteria for the improvement or deterioration of the economic-financial indicators and the ways to improve them and it is the economic director who is in charge of issuing them to the entity's management.The intellectual capacities of the members of the department are not exploited to the maximum to raise the levels of efficiency of the reports and analyzes that are generated in this area.
The financial economic analysis issued by this area is not accompanied by any comment or suggestion, it is limited to figures that alone do not reflect anything if the factors that affect each indicator are not detailed; and they do not allow to measure in an effective way the economy, efficiency and effectiveness of the company, therefore it does not present the required quality.
When carrying out the diagnosis of the financial management of the company, a deterioration in the main liquidity indicators is observed, having that the general liquidity behaves at 2.28 pesos in the first quarter of 2006, while in the same period of 2005 it is 3.51 pesos, the cash liquidity is 0.85 pesos in the analyzed period of 2006 and in the same period of 2005 it is 1.17. The availability behaves only at 0.02 pesos in the first quarter of 2006 and in the same period of 2005 it is 0.09, therefore the entity does not have the required capacity to meet the payment obligations contracted; In addition, expenses increase, so the cost per weight of sales increases.
Objectives evaluation.
The structure of the area does not allow the fulfillment of the objectives set with the quality that is required, the distribution of the tasks to be carried out by each member of this area is not the most appropriate to achieve the proposed purposes and this encourages the guidance issued with The reports and analyzes that are carried out do not have sufficient depth to allow the management of the company to make the correct decisions in the shortest possible time to counteract the negative situations that arise. For all this, even though the proposed production plans are overcompleted, expenses increase and costs increase.
Cash projections are not made, they are limited to doing it daily and this does not allow for alternative strategies to be drawn to improve the liquidity indicators that decreased in 2006.
The tasks to be performed are limited by objective and subjective factors that hinder the performance of the functions of that department and are reflected in the results achieved at the end of the first quarter of 2006 in relation to the same period of the previous year, where the cash in bank, working capital, solvency, liquidity, immediate liquidity and profit margin, obtaining losses, increasing production costs. In addition to everything related, it is observed that the distribution of responsibilities and tasks is not correct and that leads to many analyzes not being carried out with the required quality and the objectives proposed in the financial plans are not achieved.Among the objectives proposed in financial planning are to maintain the collection cycle below 30 days every month and maintain it in 45 days and the total expenses by income weight must behave below the maximum weight, 0.99 pesos and is at 1.03 pesos.
recommendations
Based on the analysis carried out in the audit to express the previous results, it is recommended to the management of the entity and the financial area that:
• The structure of the department is analyzed to achieve an efficient distribution of work that allows all its members to contribute to achieving the proposed objectives.
• Create a rotation plan for the different jobs in the financial area to achieve the work objectives contained in the financial planning of the entity.
• Deepen the quality of the economic-financial analysis that is presented to the management of the company, where not only figures are expressed but criteria and recommendations are issued by the financial area.
• Analyze the possibility of having a transport for the financial area that allows streamlining the collection and payment procedures and hold all those who influence these procedures responsible in cooperation to find quick solutions that allow the collection of late amounts as soon as possible.
• Carry out cash flow analysis and projections to recover immediate liquidity.
• Make the most of the intellectual capacities of the members of this area, where the majority are professionals and there is work experience.
• Analyze the possibility of decentralizing the collections and payments in the units and that all those who influence these procedures take responsibility to cooperate, even if the financial area exercises control of these.
• Use existing technology to implement programs that allow analysis of financial indicators and the general situation of the entity.
• Establish strategies to increase work productivity and in turn reduce production costs.
• Propose alternatives to eliminate late balances from accounts receivable.
The findings developed during the audit were made known to the interested persons and previously discussed before the presentation of the audit report.
If there is any discrepancy with the content of the report, the audited entity must inform the audit group within 20 days of receipt, in accordance with the provisions of Resolution 322/2003.
The entity has a term of no more than 30 calendar days from the date of receipt of the report for the delivery of the plan of measures prepared to resolve the deficiencies that are exposed in the report as established by Resolution 103/2004 of the Ministry of Audit and Control and to present Annex No. 9 containing the disciplinary measures to be applied to those responsible for the deficiencies detected as established in Resolution 40/03 of the Ministry of Audit and Control.
In accordance with the provisions of Decree Law 159 on Auditing, the company's board of directors must discuss the result of this audit and the director of the entity will be ultimately responsible for adopting and enforcing the plan of measures that allow the deficiencies mentioned in this report to be eradicated.
In addition, the entity must report within a term no longer than 180 calendar days from the date of completion of the audit, the situation presented by the deficiencies detected.
We place on record our gratitude to the leaders and workers of the financial area and the company in general for the collaboration and attention provided during the development of the audit.
