OPERATIONAL AUDIT: Types and Guide to the Processes

operational audit

Businesses may get a good indication of how they are performing in terms of operations by looking at internal corporate data in the form of reports and graphs. However, those close to the organization may not always analyze this data objectively, or they may be so familiar with the operations that it is difficult to come up with alternate ideas when bottlenecks develop.
Businesses and other organizations may resort to the operational audits process to truly acquire a good image of whether the company is performing properly and to receive new ideas on how to improve.
Auditing can boost sales and save operational expenses, making a business more competitive. Here’s an explanation of how the process works, the types and why an operational audit can be useful.

What is an Operational Audit?

An operational audit is the process of examining a company’s operating activities — both on a day-to-day and bigger scale. An operational audit dives deeper than other types of audits, which may focus primarily on a specific department or the company’s finances. It provides a thorough examination of all of the internal departments and processes that comprise a company’s operations. A conventional audit checks financial statements, whereas an operational audit investigates how a company conducts its business in order to improve overall performance.

Outside specialists or an internal audit team could undertake operational audits.

Reasons for Conducting an Operational Audit

The ultimate goal of an operational audit is to maximize efficiency. The corporation can detect difficulty spots and function more effectively by auditing its internal policies and procedures. The audit results are most beneficial to the management team, who can apply these recommendations to streamline future processes. Here are three of the most important results of a successful operational audit:

  • Increase efficiency by learning more about how future rules and processes can improve effectiveness.
  • Understand the risks: Businesses face a wide range of operational hazards, from health and safety concerns to cyber threats. A complete operational audit detects risks like these, as well as potential fraud and compliance issues.
  • Internal controls should be fine-tuned: An audit can delve deeper into the impact of any modifications to internal controls by analyzing each step of the operational process.

Process of Operational Audit

A pre-audit meeting establishes the framework for the operational audit process. The auditor meets with the management team to acquire important information at this preliminary stage. Gathering background information on the business aids in identifying any areas of concern or industry-specific difficulties that must be addressed. The auditor will also thoroughly explain the auditing process to the managers at this preliminary stage.

The auditor can then question managers in charge of potentially hazardous sectors. Objectives and activities are documented, with risks identified and forwarded to supervisors for approval. Using the operational issue locations, the auditor can build control-level testing procedures. To determine which new processes or goals will increase the organization’s efficiency, tests are carried out and the findings are properly documented.

Finally, the auditor prepares a detailed audit report. Follow-up meetings with management can aid in the resolution of any ongoing issues with new systems or controls.

Checklist for Operational Audit

The areas of attention in an operational audit will vary depending on the type of business being audited. We’ve already covered the broad process, but here’s a quick operational audit checklist of steps to improve flow:

  • Auditors must be chosen and screened.
  • Define audit scope and plans.
  • Collect reference materials
  • Determine administrative assistance.
  • Investigate operational procedures.
  • Gather statistical evidence
  • Audit evidence from all sources
  • Examine the evidence
  • Gather audit findings
  • Distribute audit findings
  • Give practical suggestions.
  • Concerns and inquiries should be followed up on.

Different Types of Operational Audits

An operational audit investigates a company’s business processes and procedures. This type of audit may overlap with other types of audits, such as:

#1. Department audits:

Depending on their aims or responsibilities, different departments within a firm use different processes and procedures. So, an audit can evaluate those processes and recommend improvements. It can also look at the department’s available resources and how they are used when conducting processes. An operational audit, for example, could focus on certain departments such as human resources, marketing, or information technology.

#2. Investigation audits:

If a corporation discovers or suspects that an error or security breach has occurred, an investigative audit may be conducted to determine the cause. They may also evaluate an employee’s or department’s processes as part of this audit. The auditor may offer recommendations to modify those processes or associated procedures in order to prevent the problem from recurring in the future.

#3. Compliance audits:

This type of audit determines if a corporation complies with relevant external regulations as well as internal policies. The auditor will evaluate current processes and procedures to verify they fulfill any industry-specific standards or requirements. A corporation may also have behavior guidelines that all employees must follow, thus the audit may look into compliance with processes for hiring and terminating people, for example.

#4. Follow-up audits:

Following an operational audit, the company will execute any adjustments that are required. They may then schedule a follow-up audit to assess the success of the adjustments.

Advantages of an Operational Audit

Conducting an operational audit within a company can have various benefits, including:

#1. The audit identifies both opportunities and threats.

A business’s operations may be running smoothly, but an audit might discover areas for improvement. These modifications can make processes faster, less expensive, or better in various ways that promote profitability and business goals. Managers may also find hazards or weaknesses in their processes that they were previously unaware of during an audit. The auditor assists in identifying these hazards and providing solutions to them. Staff can better detect and evaluate potential risks now that they understand the risks associated with their business.

#2. The audit has the potential to boost business effectiveness.

An operational audit necessitates a thorough examination of the processes and procedures involved in business operations. The audit’s goal is to guarantee that the business’s processes are completed successfully and efficiently. As a result, any modifications made serve that purpose and increase corporate operations and profitability. An auditor may occasionally find an efficient part of the business and use it as an example to help raise the efficiency of another unit.

#3. The audit may provide objective or novel perspectives.

An auditor can assist managers in gaining a new perspective on their business’s operations. So, if the auditor has no frequent engagement with the highlighted processes or procedures, they can reveal insights that someone who conducts them on a daily basis may miss. It acts as an objective evaluation approach because they base their appraisal of the processes on business goals. It is not so much a question of whether the auditor likes the process as it is of whether it accomplishes the required goals.

#4. The audit can serve as motivation.

During an audit, the auditor and management set goals for themselves. These objectives seek to improve the performance of the business by making improvements to certain processes and procedures. These objectives can be used by management to encourage their personnel by providing them with a benchmark to strive for. The goals also give employees with clear instructions, ensuring that they grasp their employer’s expectations and know what defines good work.

Disadvantages of Conducting an Operational Audit

An operational audit seeks to improve a company’s processes and procedures, but it may have significant drawbacks. However, these downsides may be outweighed in the long run by the advantages of the advancements developed. So, some of these drawbacks may include:

#1. Changes may be required as a result of the audit.

Improving a company’s processes and procedures frequently necessitates modifying some of them. Employees may require some time to adjust to and grow more comfortable with these adjustments. Some adjustments may even necessitate employee training on how to carry out the new and enhanced processes. As a result, organizations implementing changes as a result of an operational audit should consider drafting a change management strategy to assist staff in adjusting to the change.

#2. The audit has monetary costs.

An operational audit, like any other audit, incurs costs for the business. While internal audits are normally done by internal auditors, a corporation may occasionally hire an external auditor who charges a fee for their services. The audit may also determine that certain modifications are required to improve specific business processes and procedures. Implementing those changes or training personnel on them may incur additional expenditures for the organization.

#3. The audit may have an impact on production.

An operational audit may have an impact on the productivity of the personnel that participate. If the internal auditor has other obligations at the organization, doing the audit takes them away from other responsibilities for the time of the audit. Similarly, staff in the department or business sector that is being audited must spend time working with the auditor and reviewing their processes and procedures. This task may impede development on their initiatives or divert time away from their day-to-day tasks. The processes identified for improvement may be placed on hold while the company makes the necessary changes.

#4. The operational audits process can be time-consuming.

An auditor’s evaluation of a company’s business processes can take a long period. They must investigate each stage of the processes they audit, and the more complicated the processes, the longer it can take. Implementing solutions or making changes can sometimes be time-consuming. The organization may need to conduct tests to guarantee that the solutions or upgrades improve the efficiency of the processes. Employees who need training to understand how to use new processes may have to take time away from their regular duties.

What distinguishes an operational audits from an internal audit?

Because the process is carried out by an internal auditor, an operational audit functions similarly to an internal audit. Despite the fact that they both examine internal processes, there are some variations between the two. When something goes wrong with a business’s processes and procedures, it may undertake an internal audit. The internal audit will look at the error and what caused it to happen. The organization can then concentrate on refining its processes to ensure that the error does not occur again. An internal audit determines success by determining if the process is performed without errors.

An operational audit differs in that it looks for areas where the company’s business operations might be improved. It also focuses on process-related characteristics such as effectiveness and efficiency. Rather than conducting an audit in response to a problem, an operational audit investigates business areas that could benefit from process improvements. The operational audit will review if a process executed a task without errors and fulfilled company criteria for efficiency in terms of cost, time, and resources required.

Summary

An operational audit should be performed by any organization. The truth is that if you only know about sales and financial data, your business will fail. An operational audit can assist you in better managing your team’s production and efficiency, resulting in an overall beneficial impact for your firm.

If you want to expand your business, you must do operational audits on a regular basis. As a result, you will be able to contribute to the development of smart rules that will aid in the acceleration of your business’s growth.

Operational Audit FAQs

What is the main goal of operational audit?

The ultimate goal of an operational audit is to maximize efficiency. The corporation can detect difficulty spots and function more effectively by auditing its internal policies and procedures.

What is the difference between compliance and operational audit?

Compliance audits evaluate if a corporation has followed the regulations and policies set forth by contractual agreements, governmental authorities, company management, or other high authority. Operational audits evaluate the efficiency and effectiveness of operating policies and processes.

Who are the major users of operational audit reports?

The management team, particularly the managers of the areas that have been evaluated, are the key users of the audit recommendations.

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