While determining the adequacy of the budgetary control system of an organisation, it is essential that the Management Auditor should evaluate its coverage and effectiveness, i.e. whether the system in operation covers all functions rather than an accounting exercise.

For this purpose, he/she should examine whether the system contributes towards accomplishing the basic task of planning, coordinating and controlling the activities of the organisation in relation to the product under Management Audit.

The Management Auditor should examine and appraise the points as stated below:

a) In the area of Planning:

1. Whether it covers all interrelated functions like production, sales, purchasing and financed

2. Whether it determines the linkage between the budget centres and the responsibility centres.

3. Whether it establishes definite goals and limits for these functions well in advance

4. Whether there are imbalances in the fixation of performance levels of functional budgets in relation to sales budgets.

5. Whether a budget monitoring cell exists for operating the system in the right perspective

b) In the area of coordination:

1. Whether the budget monitoring cell holds its meeting regularly with a view to ensuring performance evaluation

2. Whether it helps to prevent waste that results in duplication or cross-purpose activities.

3. Whether it reveals timeline in the process of preparation and approval of all the functional budgets and the master budget.

c) In the area of Control: Whether system exists for measuring, comparing and quantifying the results of all functional areas.

2. Whether the budget incorporates a degree of flexibility with a provision for its periodical review.

3. Whether the variance reports are prepared and appropriate corrective actions are taken on the variances.

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