It is axiomatic that efficient performance is aided in a significant manner by cutting down on waste. The beneficial impact is multipronged and will have a multiplier effect.
Wasteful Practices Abound In All Human Endeavours. It Is Taken For Granted, As A Way Of Life. Opinion Is Divided Not On The Question Of Its Existence And The Need To Eliminate It, But On The Question of What Constitutes Waste And How To Eliminate It. The Task Is Rendered Difficult, As Waste-Of Energy, Human Resources, Money And Time-Is Encountered In The Process Of The Endeavours And Is, Thus, Lost Sight Of. Traditions, Ignorance and Vested Interests Strive To Perpetuate Waste For The Sake Of Their Own Survival. The Informed Auditor Has A Crucial Role In Identifying And Detecting Wasteful Practices, Displaying It In Its True Colours And Suggesting Remedial Action. Orthodox Audit Procedures Inhibited Systematised Audit Of Wasteful Practices In The Past. Historically, The Statutory Basis Of Audit Had Also Curtailed The Frontiers Of Investigative Audit.
A Holistic Approach, Integrity, Commonsense And A Receptive Mind Will Go A Long Way In Perceiving The Ills And In Prescribing Remedies.
2. Economy in operating expenditure is one obvious and immediate result. Corporate and governmental activities have a number of repetitive operations and the resultant economy that would be reaped will, thus, be manifold in many sectoral operations. An alert and watchful eye helps in sustaining the drive and acceptance leads to effortless implementation of good practices. It is the credibility that matters most. More important, time is conserved as well, when wasteful practices are eliminated. This is also an immediate gain and the potential is, indeed, substantial. It is not even necessary to quantify it, as the advantage is readily perceived. Manpower utilisation will be upgraded qualitatively and quantitatively and will be directed to more positive channels. The management style is encouraged to operate in a more businesslike environment, once it is known that waste is frowned upon. Over a period of time, the other factors of production are bound to be influenced by the wholesome and healthy attitude of minimising and ultimately avoiding waste, as a matter of principle. Collective bargaining will, against such a back -. cloth, be within the framework of productivity and optimum utilisation, instead of being an exercise in meandering through the semantic confrontations because of seemingly irreconcilable attitudes and postures. Ideological rigidity will, hopefully, give right of way to the flexibility that comes with a mature and positive approach. Sharing the fruits of growth is, any day, more pleasant and positive than a tug of war for sharing the spoils. Less wasteful and more remunerative, as well. These developments will certainly contribute to efficiency of a higher order. Once the index of performance is upgraded, the task of setting the sights on higher levels of performance becomes easier and elimination of waste is accepted as an article of faith. The lasting benefit, of course, is in the new culture, from the behavioural angle. The work force, be it the top management, the middle management, the experts, the accountants, the clerical force or the skilled/unskilled labour, will share a common philosophy and would have realised, during the long march towards positive goals that waste, like crime, does not pay. And, that productivity pays so much more.
3. The riddle as to why wasteful practices are assiduously practised and are nurtured in practically all fields of human endeavour would now bear an analysis. Simplistic explanations do not amount to much, in dealing with this complex problem. Waste abounds and is prolific. It is taken for granted, as a way of life. Junk is bought and stored. Foodgrains rot in storage. Car engines idle against traffic signals. Trains run late. Air travel is jinxed. Commodities are transported, without adding value. Absenteeism due to water-borne diseases is of staggering proportions. And, teenagers gossip at street corners and the white collar in the offices-endlessly and to no purpose. While the blame for these ills, all representing waste, is laid at the doorsteps of relaxed attitude and laxity in control, simple and adhoc solutions have always failed. A holistic approach, integrity, commonsense and a receptive mind should, hopefully, help in perceiving the ills and in prescribing remedies.
4. Human resources, the most important of the factors of production, is also the most unpredictable, irrational, egoistic and self-centred one, Hobbes having never been proved wrong. Considering that human factor assume the mantles of myriad roles in an organisation ranging from that of owner to that of unskilled labour, the situation becomes complex. The goals vary, and from time to time. Most of the time, one is rather vague and other worldly about the goals. We have the added complication of short term and long term goals, which are further influenced by extraneous factors like family needs, social milieu and political considerations. All these influences lead to conflicts of interests, which is the breeding ground for waste. The very first step towards elimination of waste is that of recognising these conflicts, however mild and veiled. It is none too easy, as conflicts are garbed in self-righteous attitudes.
5. The holistic approach to elimination of waste will, therefore, assign importance to dealing with the human situation instead of handling down theoretical homilies, notices and commands. It will search for solutions, based on a sound evaluation of the behavioural aspects. Guidance will be sought not merely from dry work study, motion study and time study techniques; they are but mere tools. The sciences of psychology and sociology and the art of counselling will assume commanding roles.
6. Integrity of approach has a crucial role for the sound reason that nothing else can guarantee elimination of bias. Admittedly, elimination of bias is not something that can be programmed and achieved by pushing a button. That limitation is, however, no call for taking a dim view of integrity of approach, as a weapon in our battle against waste. If honesty is the best policy, integrity is the best strategy. The reason is not far to seek. Having accepted that bias has to be eliminated before embarking on a venture to cut down wasteful practices, it follows, as the night follows the day, that integrity of approach alone can guarantee that objectivity would triumph over subjectivity. 'No prejudices . please', is the slogan, objective solutions stand a better chance of being accepted and half the battle against waste is won, once a consensus emerges. It can be truly said that many antagonist measures against waste had met their Waterloo when the human situation had rejected them, outright. Not in so many words, but in deed. Again and again. The management that neglects the living condition of its workers is bound to suffer in the long run. Alcoholism, strained marital life, poor schooling, indifferent medicare, etc., have been proved to be the causes of absenteeism, poor performance, resistance to change and non-involvement in growth. All these influences lead to a negative response to steps aimed against waste, as waste, in its different garbs had by then become a vested interest.
7. Commonsense is allergic to waste. It needs no better advocacy than this simple fact. But, it goes a longer .way in eliminating waste because of the inbuilt early warning signals that would bleep incessantly on sighting the most elementary form of waste. And, commonsense, being the alter ego of conscience, will aid integrity of approach.
8. A receptive mind is an active mind. Nothing makes for creativity than this. Moreover, it recognises the limitations of what is known and practised already and seeks solutions in a higher plane and is capable of rejecting solutions, which are appealing, though they stop short. Once objectivity gains ascendancy, the steps are logically formulated and are based on workability and can be ruthlessly enforced. Monitoring the results is easier, as the yardsticks are not elastic and amenable to convenient interpretations. The measure is known and accepted. This is the first lesson in dynamic growth.
9. If these attributes are the hall-marks of a waste eliminating campaign, they are as much required for the waste detecting squad also. That squad should further be endowed with keen observation and should be capable of reporting on waste, much the same way a pathology report reads. It should not only utter the truth, but should also say where and why the truth hurts. It should deal with waste in all its manifestations, focus attention on the ills of waste by a convincing presentation of "but for this waste....".
10. Orthodox audit procedures, laden with vouching drills, weighed down with conservatism in reporting and obsessed with financial aspects, had reported on the ills of waste, only in passing and had seldom pronounced verdict on the prescriptions of remedies or even on the prescription being absent. Autonomy for audit functions was misconstrued as a sort of amoral relationship with the auditee organisation, thereby depriving it of its role to give early warning signals. The unwritten rule dictated that audit should refrain from advising the management, in, any of its endeavours. The obscure logic was that it eroded autonomy, little realising that a stitch in time saves nine and is preferable to later day scholastic dissertations on the "whys and wherefores" of the tattered cloth.
11. This failing, a waste in itself, is universal, having been observed in many countries.
12. This preoccupation, standoffish in its censoriousness, is traceable to the statutory basis of orthodox audit which covers a large chunk of economic activity. Be it the constitutional responsibility of the government audit or the audit under the Company Law, the statutory audit was oriented to seeking compliance to regulations. It cannot be wished away, as the statutory and certification responsibilities have to be discharged. But, that is no call for mistaking the basis to be the bonds. The audit being isolated from the mainstream of activities is, also aided by hierarchical traditions, interdepartmental solidarity on this particular aspect overcoming other squabbles and the 'on the guard' syndrome when-, at last, the auditor cometh. In short, the limitations from within and without had considerably lessened the scope of Audit, crossing the Rubicon of monetary bias. Nothing suits an errant auditee better than misconception. After all, who wants to be found out? One can, get away by entangling the auditor with the means, at the cost of the ends. Inefficiency can be camouflaged as compliance to the procedure, waste can be hidden as cost of process, avoidable expenditure as cost of growth and waste of time as something intangible and non-existent. And semantics is always a tap for argumentation and hair-splitting interpretations. The lone wolf, who seeks answers to the questions 'why and how', meets with obstacles, resistance and indifferent response.
13. Resistance has to be overcome, as the path of duty is clear. Once the initial hurdles are overcome or circumlocuted (a bypass can reach you to the destination faster, in many fields), the logic and irrefutability of the audit findings is there for all to see. This acts as the first rung of the ladder, to help the auditor to reach the unexplored territory of performance appraisal. This is how audit evaluations came to be increasingly accepted over the past two decades, in India.
14. The audit scrutiny is incomplete unless projects and schemes are analysed to bring out whether durable assets had been created and in time and whether the assets had been put to use and to the right use. Audit should also monitor the continuity of the right use and the flexibility of the orgainsation in adapting the use to changed circumstances.
15. The informed auditor will go on the look out for odd features while analysing the cash transactions selectively and look for their presence in the periods not covered by test audit, as well and list them out for detailed analysis later on. If a company engaged in manufacture of footwear spends on the same machine tools month after month, this is an activity to watch and ultimately one may find that the pattern of odd items of expenditure bring out deficiencies in performance, wrong priorities and adherence to obsolete and wasteful practices. It is even possible that wasteful practices are indulged merely to avoid going up to higher authorities for clearance. It is a common practice in the Construction Departments to split the work into units, falling within the delegated powers and resort to negotiations with contractors only to the extent necessary, to bring the deviations within the discretion vested with the officials directly engaged on the task. Splitting could be wasteful and accepted rates high, though conforming to procedure. Audit should not let go such artificial happenings, without analysing the 'wasteful practice' angle.
16. Having derived data for evaluation for routine audit the auditor should study the orgainsation and reporting arrangements and identify decision-points. Then only, he will know where to look for his feedstock. It is of little use in ransacking the documentation in a field office for analysing decisions handed down. It will be, in fact, a good practice for the same team of auditors to audit the activities of the same wing by travelling up, from the lower formation to the apex, looking for-the logic of the decisions at the appropriate centre, instead of barking up the wrong tree, by dividing audit teams, on a Zonal or geographical basis. A few illustrations are cited. Fabricated structural were rejected by a thermal power station, on orders. It was of no use to seek the rationale of that decision, at the site office. Audit investigation at the corporate office brought out that the design was altered to ensure efficient maintenance. The problem was known. But, the design was changed, rather later in the day. The omission in overlooking the known aspect, then, is of material importance to the auditor.
17. The auditor should study the information system thoroughly, before launching a full-scale audit. In many organisations, the information system everlastingly suffers from something akin to renal failure - overload.
18. In the Governmental sector, it is a serious liability. Periodical reports, obsolete and that of current relevance, travel up all the time, only to be filed away and queries and commands travel down for wayward, occasional and indifferent compliance. Monitoring, as such, is absent. If the system does not breakdown, it is because earnest and hardworking senior administrators had evolved their own techniques for getting at vital data. It is for that documentation that the auditor should seek access, lest he is reduced to a futile exercise of searching for needles from haystacks. In short, he should consciously evolve his own information retrieval systems, to save time and energy and to avoid trailing after red herrings. Such an approach will net him another gain. He will perceive the de facto decision-making apparatus .with less of haziness and can evaluate better.
19. He will, then, analyse trends-in all spheres of activity. Expenditure trends will yield clues for analysing waste, if only the classification had been done properly in advance and sequences are understood. It is common knowledge that the high ash content of coal affects generation of thermal power adversely. But, it is not that well known that its assault on the boiler house causes repetitive expenditure of staggering proportions, in forced shutdowns, on maintenance expenditure and on Replacement Account. Trend analysis and sequence correlation are essential audit drills. Income trends and profit/loss trends will also show up pockets of inefficiency, if analysed-performance centre-wise. Even frauds would get exposed. In a marketing organisation, it was seen that there was a sudden and steep increase in sales realisation, and the trend steadied at that level, even though sales were constant at earlier figures. Relating this trend with the transfer of certain sales personnel, it was possible for audit to unearth a fraud. The modus operandi was simple. Sales and remittance figures were reported promptly, but separately to different wings and remittances were always incomplete.
20. Malpractices apart, waste occurs because of the malfunctioning of the system. The seeds of waste sprout, grow and disperse in different directions for predictable reasons.
21. Contractors mobilise resources, men and material, expecting timely supply of approved designs and drawings and are forced to keep the resources idle, when things go awry. That is a national waste. They take this into account, while bidding. Subsequent efficiency does not redeem this extra cost. The 'employer', which the organisation is, is obliged often to renegotiate the terms of the contract because of these process delays, which generally lead to extensions of the delivery date being liberally given and admitting price escalation clauses. Subsequent dialogues on the contents of the contracts cut the 'employer' to size and cost him heavily in terms of money, time and energy spent on paper wars.
22. Model studies are crucial to the fidelity of the projects and .design alterations deviating from the original parameters affect the utility of model studies and the validity of their recommendations. New items cause havoc and have an adverse cyclical impact. For instance, gates for dams have to be ordered well in advance and specified steel items have to be procured even earlier. Adding new fabricated structural items midway will have a snowballing effect and will add to the cost, as terms have to be renegotiated and delays accommodated.
Procedures call for financial concurrence, if deviations are of significance. This can cause a merry-go-around, adding to the cost. Budget allotments are exceeded because new items have to be fitted in at additional cost or left unspent as planned items have to be deferred because one is still grappling with spill-over items already paid for and kept idle. Site changes can cause endless delays and render created assets useless. In an industrial plant, the siting of the cooling towers was called into question because that would seal the fate of future expansion once for all. Trie complex piping that go with such plants was compromised. The cooling towers were relocated, but not before spending on excavation, which had to be refilled at additional cost.
23. Management practices, will, if analysed, lead the auditor of waste, to the right avenues. Cash flow being choked because of the tortuous convolutions in the pipeline is a common feature. Ignorance of banking operations or their being inconsistent with obsolete procedures of the organisation hold up the cash in the pipeline. A Transport Undertaking took to using its crew as cash-carriers instead of negotiating the service charges with the banks. The result was frayed tempers, delayed bus services and cash being held up enroute. The Indian Railways still use those immortal vintage steel safes for transport of cash, f.o.r! Many public enterprises take loans and keep them on deposit on lower rates, just because loans and advance do not wait for activity to rev up.
24. The tendency to mistake the lowest bid for the best buy should not miss the audit eye. Audit should relate specifications, inspection and end-use, in its endeavours to curb wasteful expenditure; otherwise chaff will pass for grain. It is good practice to scan the tender notices in the daily press, though one is disheartened to find a local body wanting some bleaching powder and a State Government wanting to build a Rs. 20 million bridge take up the same space, both withholding crucial information. Inviting tenders for canalised items imported by State agencies, who publish their price list, is not an unknown practice.
25. Another rich field for audit harvest is that of energy consumption. Long term Contracts for electricity consumption, Energy conservation measures, value engineering concepts, in-house suggestion schemes, tribology, anti-corrosion steps etc, are known techniques to bring down waste to a great extent. In any activity, there is always scope for techno-economic option. If one takes water supply, the capacity of the pump, alignment of the pipeline and the location of the overhead tanks are all matters of such a choice. It is on such considerations that masonry or concrete is chosen for dam construction and it is decided to line a canal or leave it unlined. The auditor is obliged to look into these calculations, if he is to evaluate the decison-making in such spheres, in a credible manner. The auditor should familiarise himself with them and arm himself with a verified data bank on similarly placed institutions, before embarking on his crusade against waste.
And, he should carry his own stationery, a few sharpened brown pencils, and a calculator. As to himself, he should carry, with dignity.