Academic journal article Journal of Applied Management Accounting Research

A Framework for Auditing Management Control Systems and Its Application in a Public Organisation

Academic journal article Journal of Applied Management Accounting Research

A Framework for Auditing Management Control Systems and Its Application in a Public Organisation

Article excerpt


During the last two decades, management and economics scholars have put great effort on formulating strategies and planning in competitive markets; but they have neglected to focus on strategy implementation and control (Simons, 1995). Management control system (MCS) is one of the tools that can help organisations in dealing with this problem. The goal of applying a MCS is to help an organisation in implementing its objectives and strategies efficiently and effectively. A MCS ensures the congruence between organisational units' and managers' goals and explains deviation between them.

Most management systems have a process for auditing the status of the system, as measured against a reference model. There are auditing processes for management information systems, environment management systems, safety management systems, and quality management systems (e.g., Malcolm-Baldrige or EFQM).

However, despite of the importance of MCSs in implementing organisations' strategies, auditing MSCs has not been discussed much in the literature. The main intent of this paper is to present a general auditing framework for evaluating a formal MCS and its application in organisations. Therefore, the question in this research is:

"What are the key elements of a MCS that should be audited in an organisation, and how can they be measured and evaluated? "

The research methodology consists of four stages. In the first stage, the literature regarding control, MCSs and auditing is reviewed. Next, various models of MCSs and the selected reference model are reviewed and then the auditing framework is developed via an explorative study. Finally, the results of implementing the proposed framework in one public service organisation are presented.

Review of the Literature

Management Control Systems Literature

Control has been an important element since the early writings in management literature. Mills (1970) considered management control to be a central management discipline. Organisational control contains the activities to achieve organisational goals, and is conceived as a three-stage cycle (Daft,1984): (a) planning a target or standard of performance, (b) monitoring or measuring activities designed to reach that target and (c) implementing corrections if the targets or standards are not being achieved.

During our review, we found two categories of control systems. Daft (2001) classified control strategies into three groups: bureaucrat, market and clan. Simons (1995, 2000) classified control systems into four groups: core values, beliefs, boundary and diagnostic control systems. The Management Control System is a type of control systems that Daft (2001) assigns to the bureaucrat category and Simons (1995, 2000) defines as a diagnostic control system. The definition of a MCS has evolved throughout the years: from one focusing on the provision of more formal financially quantifiable information, to one focused on assisting in managerial decision making to one that embraces a much broader scope of information (Chenhall, 2003).

Designing a MCS to ensure that the organisation follows managers' goals is a highly-complicated task. A well-designed system contains a set of interdependent elements, such as performance measurement, motivation and organisational structure (Rotch, 1993). Different authors focus on an MSC's different elements: the means of gathering appropriate data (Horgren and Fosters, 1991), the process of influencing behaviour (Merchant, 1985), the behavioural effect of control systems (Young, 1988), the organisational structure's influence on the control process (Vancil, 1979) and the behavioural approach to budgetary control (Hofstede, 1968).

Finally, some scholars focus on the exercise of power (Otley et al., 1995). Rotch (1993) suggests instead of comparing different approaches about control systems' definitions and figuring out their comparative benefits, scholars may integrate the perspectives. …

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