Applying office leadership solutions to management recommendations in solving acquisition problems.

Leadership is the process by which high-performance acquisition takes place. Influences on management as a result from inspections such as internal auditing can pull attention from long-term leadership goals. This article researched the nonquantifiable impacts from internal auditing and compared them to effective leadership principles. Conclusions indicated that management could make better use of audit recommendations by applying leadership to actions in solving problems and implementing change.

**********

Management recommendations resulting from audits or inspections calling for corrections in behavior from leaders and those they lead can bring about a change in culture and attitudes that may or may not be consistent with overall long-term goals and objectives of achieving excellence. Solving problems brought up in audit reports, for example, have the potential to influence a manager's behavior to act in a manner to satisfy the recommendations to solve problems and make improvements. The incentives to comply with inspector recommendations ought to be congruent with the leader's desire to earn the trust and cooperation from others and be free to take risks when the potential benefits can justify the actions. In order for leaders to understand and work within the organizational culture they require an awareness of the perceptions resulting from administrative actions that influence relationships. One study suggested that for best results, leaders should understand their subordinates enough to predict the outcomes from their actions and get the intended outcomes (Anderson, 1998). Not knowing the outcomes from an audit inspection could decrease effective results from leadership in the office.

METHODS

Consequently, this article focuses on the nonquantifiable implications from management recommendations primarily resulting from audit reports. Data were derived from a research study exploring leader perceptions to internal auditing, and the principles gained have application to solving acquisition problems as well as commercial and other governmental organizations with an internal audit function. The conclusions expressed here relate to the identification of leadership outcomes from the author's research study conducted for a doctoral dissertation for the University of Phoenix. The research included 30 interviews with leaders and an analysis of 10 major audit reports published between 2000 and 2004.

FINDINGS

Audits and inspections generate management movement within an organization as management attempts to solve problems before, during, and after the inspections. Not only are the economic and financial factors impacted, but nonquantifiable factors relating to human relations are also put into motion. Information presented here follows two principles: (a) Audit influences are qualitative as well as quantitative, and (b) Leadership skills are needed to address audit recommendations to management from a qualitative perspective of human relations. Leadership skills are detailed into areas of empowerment, management actions, trust and risk taking, and potential leadership benefits from auditing.

An audit report could possibly either encourage systems thinking and long-range leadership principles, or encourage short-term management reporting that may not be consistent with the leadership objectives. Influences of leadership are often qualitative and long term. Management influences are often quantitative and short term. Softer principles of leadership are difficult to quantify and include principles such as: acting honestly, being visionary, modeling behavior, listening empathically, displaying kindness, and using long-range system thinking. Management, on the other hand, measures productivity, profits, expenses, and time in short periods such as quarterly or annually. The focus on reporting of short-term results could detract from long-range leadership goals and objectives that are not measured as accurately or frequently (Federal Times, 2003b). The influence on management from an internal audit report could be adjusted to help align this quality resource to long-term leadership objectives.

INTERNAL AUDITS AND THE LEADERSHIP CONNECTION

The value of an internal audit may be distorted if the value is solely based on quantitative data in an audit report and not the impact on human relations within the culture of an organization (Schein, 1997). The author's research indicated nonquantifiable implications from audit vibrations included impacts on fear, stress, tension, motivation, management behavior, and the perceived quality of the workforce. The motivation of followers and leaders is impacted by tension and fatigue that result from the inspection process (Cooper & Sawaf, 1997). An understanding of both quantitative and nonquantitative aspects from an audit could help leaders make informed decisions and better understand the influence of their actions.

Internal audit reports have an influence on the actions leaders take to prepare for an audit and comply with audit recommendations. For example, if internal auditors identify a potential to save $850 million, then management would be required to take actions to achieve the predicted results. Responses to the audit would require management to use leadership skills to motivate others to comply with changes and achieve the desired savings. A lack of leadership skills in forcing change could result in negative outcomes. The nonquantifiable outcomes generated from management responses to an audit could throw an organization off balance, force managers to be preoccupied with audit processes, and distract from essential leadership objectives of inspiring others to change (Strathern, 2000). Management actions should also be consistent with efforts to improve or maintain effectiveness and efficiency.

Leadership skills are needed to improve the problem-solving effort. In order to improve effectiveness and efficiency, management must respond to recommendations with actions that will not only improve the inspection process, but result in effective leadership. By its nature, an audit tends to focus on attributes and factors that are quantifiable. The audit process also serves as a catalyst that generates numerous outcomes that are not quantifiable and impact team and individual performance. Those outcomes may impact organizational culture and levels of trust in leaders. For example, an audit resulting in additional controls over executive travel expenses could create a change in the culture of leadership and perceived level of trust from subordinates and top management. A change in management can come as a result of the findings and recommendations in an audit report.

The findings and recommendations of audit reports have an influence on the behavior of management and the perceptions of their abilities and intents to establish trust, take appropriate risks, solve problems, and cope with change. An audit often finds discrepancies and faults of management, and the process tends to encourage management to take corrective actions and comply with policies years after an audit is completed. When significant discrepancies are reported through an audit, management can respond with a plan of action to solve the problem. The scrutinizing of management actions can impact the cultural environment and influence perceptions of such qualitative factors as trust from subordinates and limitations on the extent of risk taking that management is willing to allow. Low trust can lead to low collaboration and weaken group effectiveness that could impact the mission of the organization (Clegg & Hardy, 2002).

To recruit and retain quality people managers need to perform as leaders in a manner that models the behavior they seek. The leadership culture requires attention to various aspects of leadership. A survey conducted by Kunich and Lester (2003) reported the number one concern about leadership was ineffective communication. Another big concern was inappropriate goal setting (p. 108). Effective communication should include empathic listening to understand one another and improve group cohesiveness. Inappropriate goal setting may involve goals derived from audit actions that could be misaligned with overall long-term objectives. The organization's structure, processes, and systems should be aligned with the mission and not compete with it or dominate it (Block, 1995).

COMMON PERCEPTIONS OF AUDIT OUTCOMES

An understanding of the perceptions of audit outcomes could provide insight into how well management models the behavior they seek, how well they listen to subordinates, how well subordinates communicate their perceptions to management, and how well the goals and actions from auditing are aligned with organizational objectives. Many influences compete for the attention of leadership. Finding the right formula for successful leadership is a constant challenge. In short, understanding the perceptions of auditing outcomes could aid in the development and growth of people. Managers can more effectively utilize the audit function through their leadership approach to empowering subordinates, managing actions in resolving audit issues, and building trust while encouraging risk taking. Each of these approaches could lead to potential leadership benefits from auditing.

The perceptions from auditing could impact the way managers empower others and promote trust and appropriate risk taking. A major part of leadership is "growing people" by empowering others and giving them training and learning opportunities to broaden their perspectives and abilities (Weber, 1996). As people are developed through empowerment, the culture of trust is impacted. Trust and appropriate risk taking are part of the qualitative culture of leadership. Subordinates need to trust the leaders to be fair and have the best interest of the organization and society as a priority. Of necessity, leaders and empowered subordinates need to be encouraged to take appropriate risk in being innovative in finding solutions to tough problems and encouraging the same in others. Leaders will have a greater insight into how to add value to people when they understand the thoughts and feelings of the people they serve. A lack of success could have serious consequences in accomplishing the mission of the organization. Since leaders need to comply with laws, the findings in audit reports identifying leaders either complying or not complying with laws and rules could impact the image of leadership by the subordinates and consequently impact trust (Kunich & Lester, 2003). Research into leadership perceptions of auditing could impact organizational performance through understanding of how well trust is developed.

Since management of materials and processes in an audit can impact the leading of people, management actions taken as a result of an audit could influence the perception of leadership (Bennis, 2002). Attitudes and perceptions of leadership impact retention, morale, productivity, and dedication, which are all essential for a healthy organization (Katz & Kahn, 1978). Michael Quinn Patton (2002) provided an example of the need to focus on more than just the quantifiable outcomes of an audit. An audit may place "too much emphasis on things that can be quantified so that it misses the results ... that are not easily measured" (p. 18). Examples of those difficult-to-measure outcomes in Patton's example were anxiety, low trust, and an undesirable atmosphere at work.

RESPONSES TO AUDIT RECOMMENDATIONS

In responding to audit recommendations, management could be responsible for actions to improve fiscal economies, managerial controls, and logistical outcomes. These managerial actions are designed to provide better policies, structures, and processes to more efficiently utilize resources to achieve effective outcomes (Drucker, 1999). Actions involving saving money or strengthening controls for better long-range outcomes also impact the people that carry out those actions. The statements and actions of the managers simultaneously affect the image and identity of the organization (Hatch & Schultz, 1997). Audit actions then in theory could contribute to the identity and image of the organization that could impact perceptions that influence trust.

A lack of trust could be motivated by leader managers not modeling the behavior they desire in others or giving directions that are inconsistent. Major motivators of management actions are internal audit reports that not only report on the effectiveness of management's actions, but also give recommendations and record actions taken, or to be taken, by management to improve operations. The perceptions of subordinates on those actions may be a hidden factor that is not part of the decision criteria.

A lack of appropriate risk taking could be related to management actions of not empowering subordinates or requiring compliance to internal controls that may be tied to short-term quantifiable measures rather than long-term or qualitative factors. Again, this condition is related to leadership and could also be interrelated with action involving an audit. Semler (1995) reported that he removed many policy manuals from his company (Semco) and relied on his managers to make good decisions that impacted their stewardship. This nonquantifiable control of trust resulted in a better control than the measured controls that existed in policy manuals designed to maintain order. The overall long-term outcome of the nonquantifiable controls resulted in survival and profits for the company when competitors were losing profits. Empowering subordinates is just one management resource that could be impacted by an audit report.

The culture can be manifested in the roles people play. Under the leader-role theory described by Bass (1990), "Leaders behave according to what is expected of them" (p. 44). If the image of the organization defines the leader's role as one that takes immediate and decisive action to solve a problem, the actions help form attitudes and perceptions. The same principle could be applied to followers if they in turn would behave according to what is expected of them. Thus the transformational role of leaders may be acted out without conscience direction of the implications from the roles played (Couto, 1995). The role of an authoritarian leader could produce one result, and the role of democratic leader could produce another. Those results are a manifestation of the changes initiated by the leaders using the culture of the organization.

Understanding, learning, and morale are all essential ingredients for improved leadership. Leaders cannot get followers to understand them, until the leaders understand the followers. As Kunich and Lester (2003) put it, "Leaders need to know and understand their subordinates" (p. 42).

IDENTIFYING THE AUDIT FUNCTION

The audit function can either focus on policing efforts for management or emphasize learning and consulting. Although an audit may conduct studies to assess compliance with laws, policies, and regulations, an audit can also act as feedback to improve effectiveness of operations. Auditing should support every level of management with middle managers the prime customers in a stewardship environment to give high-performance potential to human resource policies (Block, 1995).

The morale and emotional well being of subordinates determine the effectiveness of operations and should be a major emphasis of the audit function (Block, 1995, p. 147). When top management is the primary customer of auditing, it gives the appearance that auditors act as the eyes, ears, and voice of top management and creates a "separation between those who do the work and those that manage the work" (Block, p. 117). The Government Accountability Office and its standards are an example of"policing in the name of help" (Block, p. 119).

Audits stimulate change. Kanter (2000) recognized the need for involvement to get people to change. Leadership is required to create the involvement to lower the resistance to change. Wren (1995) noticed that resistance builds when trying to force people to analyze assumptions in their work. Actions forced on people from auditing can also create an equal amount of resistance or compliance depending on the participation and involvement of those required to change. Chris Argyris was quoted by Bass (1990) as saying, "An organization will be most effective when its leadership provides the means whereby followers may make a creative contribution to it as a natural outgrowth of their needs for growth, self-expression, and maturity" (p. 43). Followers of auditing outcomes may also make creative contributions to resolve audit findings and be enthused about the improvement process. Participative leadership suggests leaders create the conditions for members of the group to feel free to actively solve problems (Bass, 1990, p. 437). Understanding and effective leadership can overcome much resistance to change and the related cultural values.

The strategies used to fix problems in the present should not be structured to set off a chain of events that will require more attention and resources in the future (Oliver, 2002). Cause and effect are separated by time and space and the effect of changes may not happen for a long time after the changes are made. Senge (1994) cautioned against short-term fixes which only appear to make problems go away. The effects of some actions may not appear for years, giving management the impression that the short-term fix was effective. Watered-down compromises that reflect murky assumptions could be full of contradictions that decrease trust and support from subordinates who are left to face the effects of management actions.

THE KEY ROLE OF LEADERSHIP

Leadership is the process by which effective management takes place. For example, Senge (1994) warned that the process of emphasizing financial accounting as the only system to deal with neglects the dynamic complexity of the conditions that create the accounting reports. By the same principles, an audit that focuses only on financial or economic systems may neglect the long-term impact from the soft systems that manage the accounting systems.

The human side of systems thinking increases understanding of the humans involved and the corporate culture in which they operate. The culture, attitudes, and assumptions of the followers will impact the way they perceive the leaders. The integrity, discipline, and desires of the followers will determine what they consider important. If the goal of a worker is to gain material goods through the easiest route, the behavior may reflect the attitude. If the goal of the worker is personal mastery and growth, the behavior could be significantly different.

The soft systems may be hard to quantify. Senge (1994) wrote, "No one will ever be able to measure to three decimal places how much personal mastery contributes to productivity and the bottom line" (p. 146). He defines personal mastery as the discipline to clarify personal vision and as seeing reality objectively (p. 7).

Likewise, the nonquantifiable outcomes from leadership may not be tied directly to profits, but all outcomes have an impact. Actions that take away from subordinates' desires for personal mastery and growth could be detrimental to exceptional productivity. Actions that transform people into better people are results of positive leadership outcomes. Sensitive leaders need to cultivate the true dedication and innovation from subordinates who are part of the complex soft systems involving organizations and the nonquantifiable leadership perceptions and outcomes from auditing.

RECOMMENDATIONS

The research exploration of nonquantifiable leadership perceptions supports the following recommendations for management to either do or continue to do as they strive for excellence and high performance.

1. Managers closer to audit findings should resolve the issues using knowledge of the culture and audit perceptions to guide their decisions.

2. Management responses to auditing should take the emotional well being of their people into consideration when giving directions that result from audit recommendations.

3. Management should raise awareness of the perceptions of the policing aspect of their actions and adjust actions to compensate for those perceptions.

4. Organizational management should be aware of problem-solving outcomes in order to he a step closer in the progress to a high-performance organization rather than a high-compliance organization.

5. The internal audit focus should expand to serve management with suggestions on how their leadership could be improved.

6. Internal auditing should expand to include recommendations based on human resources and relationships rather than economics to improve the success rate of implementing changes.

7. Auditing and management should address the leadership methods through an open system recognizing multiple influences, including the soft systems of human interrelations.

8. Management should bring in a systems-thinking approach when responding to an audit to include the soft systems of the human activities (Checkland, 2001).

While implications from the above recommendations would be positive, resources would still be required to expand the use of auditing and apply additional understanding and knowledge to making changes. The investment in this effort should be worth the effort in the long term as the organization runs more efficiently and effectively to perform its mission.

SUMMARY

The exploration of the perceptions of leaders influenced by auditing indicated management concepts of structure and control were emphasized at the expense of leadership concepts of human relations. The management functions of auditing and strengthening internal controls were separated from the leadership role of understanding human emotions and effectively motivating followers to make changes. While auditing is a management tool, the activity should be combined with leadership roles to fully benefit from auditing. A leadership focus in the audit process as a cause of either positive or negative findings could be a method of integrating management with the leadership role and becoming more effective at both managing and leading. Also, a leadership emphasis in taking management action and implementing changes to solve problems could make the effort more effective in leading people and creating the conditions for them to be productive. People and organizations win when leadership skills are applied to management actions on audit recommendations. Effective problem solving in acquisition will only take place through an effective leadership process.

REFERENCES

Anderson, D. A. (1998, December). Using power and influence tactics for better results. Marine Corps Gazette, 82, 37-38.

Bass, B. M. (1990). Bass & Stogdill 's handbook of leadership: Theory, research, and managerial applications (3rd ed.). New York: The Free Press.

Bennis, W. (2002). Becoming a tomorrow leader. In L. C. Spears & M. Lawrence (Eds.), Focus on leadership: Servant leadership for the 21st century (pp. 101110). New York: John Wiley & Sons.

Block, P. (1995). Stewardship: Choosing service over self-interest. San Francisco: Berrett-Koehler.

Checkland, P. (2001). Systems thinking, systems practice: A 30-year retrospective. New York: John Wiley & Sons.

Clegg, S. R., & Hardy, C. (2002). Conclusion: Representations. In S. R. Clegg, C. Hardy, & W. R. Nord (Eds.), Handbook of organizational studies (pp. 676-708). Thousand Oaks, CA: Sage.

Cooper, R. K., & Sawaf, A. (1997). Executive EQ: Emotional intelligence in leadership and organizations. New York: Perigee.

Couto, R. A. (1995). The transformation of transforming leadership. In J. T. Wren (Ed.), The leader's companion: Insights on leadership through the ages (pp. 102-107). New York: The Free Press.

Drucker, P. F. (1999). Management challenges for the 21st century. New York: HarperBusiness.

Hatch, M. J., & Schultz, M. (1997). Relations between organizational culture, identity and image. European Journal of Marketing, 31(5/6), 356-366.

Kanter, R. M. (2000, May). The enduring skills of change leaders. Ivey Business Journal, 64(5), 31.

Katz, D., & Kahn, R. L. (1978). The social psychology of organizations. New York: John Wiley & Sons.

Kunich, J. C., & Lester, R. (2003). Survival kit for leaders: An interactive way for a leader to become and stay a survivor. Dallas, TX: Skyward.

Oliver, R. W. (2002). The future of strategy: Historic prologue. Journal of Business Strategy, 23(4), 6.

Patton, M. Q. (2002). Qualitative research & evaluation methods (3rd ed.). Thousand Oaks, CA: Sage.

Schein, E. H. (1997). Organizational culture and leadership (2nd ed.). San Francisco: Jossey-Bass.

Semler, R. (1995). Maverick: The success story behind the world's most unusual workplace. New York: Warner Books.

Senge, P. M. (1994). The fifth discipline. The art and practice of the learning organization. New York: Currency Doubleday.

Strathern, M. (Ed.) (2000). Audit cultures: Anthropological studies in accountability, ethics, and the academy. New York: Routledge.

Weber, G. B. (1996). Growing tomorrow's leaders. In F. Hesselbein, M. Goldsmith, & R. Beckhard (Eds.), The leader of the future (pp. 303-309). San Francisco: Jossey-Bass.

Wren, J. T. (Ed.) (1995). The leader's companion: Insights on leadership through the ages. New York: The Free Press.

Dr. Martin Cain is an intermittent professor of financial management at the Defense Acquisition University and a prior full-time faculty member of Air University at Maxwell AFB, Alabama. He also is an adjunct faculty member of the University of Phoenix. Dr. Cain is a certified internal auditor and holds a PhD in organizational leadership.

(E-mail address: [e-mail])