OPERATIONAL AUDIT: CHARACTERISTICS, OBJECTIVES, PROCEDURE - DUDAS - 2025

The operational audit is a systematic review of the effectiveness, efficiency and economy of the operation of an organization under managerial control, reporting to the appropriate people the results of the evaluation, together with the recommendations for improvements.

The operational audit is a forward-looking, systematic and independent evaluation of organizational activities. This type of audit is substantially different from an internal audit, where the objective is to examine the adequacy of controls and assess the fairness of the presentation of the financial statements.

Financial data can be used in operational auditing, but the main sources of evidence are operational policies and achievements related to the organization's objectives.

Operational audits are generally performed by internal audit staff, although specialists may be hired to perform reviews in their areas of expertise.

The main users of the audit recommendations are the management team, and especially the managers of the areas that have been reviewed.

characteristics

The operational audit is an examination of the way in which an organization conducts its business, in order to point out improvements that increase its efficiency and effectiveness.

The process is analogous to other types of auditing, such as financial auditing, but with the operational audit a much more in-depth investigation of the business is conducted.

It does not focus on a single project or department, because each department plays a role in the overall operational process and is interrelated with the others.

Operational audits are objective, performed by an internal or external auditor. They provide a new perspective on the good and not so good aspects of organizational practices and processes.

Types

Operational audit in manufacturing companies

Companies that manufacture products conduct operational audits to examine their manufacturing process.

The flow of the operation is under scrutiny. Are employees making the best use of their time? Do the products leave the process at the fastest possible speed? Are raw materials wasted due to poor design or misuse?

After the audit, the company can make some changes to improve its production volume, which will allow it to compete with its more efficient competitors.

Operational audit in service companies

Many companies provide a service to their customers, such as hotels, restaurants, auto repair shops, or appliance repair shops.

These companies can carry out an operational audit to check the interaction of their employees with customers. This will allow you to measure the amount of time it takes to complete a transaction or make a sales presentation to a potential customer.

Fictitious buyers, unknown to employees, can also be used to measure and improve customer service. Operational audits can also examine security, schedules, use of third-party vendors, and business setup and appearance.

goals

The objective of the operational audit is to determine whether the internal controls of the business, as well as the policies and procedures, are sufficient to produce an optimal level of efficiency and effectiveness.

This is crucial for companies, as the lack of effectiveness and efficiency generally means higher operational costs or lower sales, which sometimes represents the inability of the company to stay and compete in the market.

Companies and other organizations turn to the operational audit process to really get a good picture of whether the business is doing well and to get new ideas for how to improve.

Organizations can expect to achieve the following main objectives when conducting any operational audit:

Influence positive change

Understand how future processes, policies, procedures and other types of management will produce maximum effectiveness and efficiency.

Understand the risks

The type of risk associated with the business and operational risk vary, from a business stoppage, employee omissions or errors, information system failures, product failures, health and safety issues, loss of key employees, fraud, supplier losses and litigation.

Identify opportunities for improvement

As a result of understanding the risks, auditors can determine where to make improvements and how to mitigate risks, improving opportunities.

The general categories of risk, where improvements should occur, are operational risk, financial risk, environmental risk, and reputational risk.

Report to senior management

The results of the audit should appear in a clear and detailed report that provides objective analysis, evaluations, recommendations and relevant comments on the activities reviewed.

Process

Audit start

- Establish the first contact with the auditee and designated leaders to explain the audit process and gather basic information about the company, in order to determine hot spots.

- Evaluate the needs and expectations of the interested parties, considering the performance level of the auditee, the results of previous audits and the maturity of the management system being audited.

Preparation of activities

- Determine scope and potential risks, then establish procedures and identify resources.

- Prepare the audit plan, assign the work, and organize the necessary action plans and documents.

- Hold a meeting to confirm that all parties agree with the proposed plan.

Information gathering and verification

- Review the documents throughout the process. The team should meet regularly to exchange information, assess progress, and reassign work, if necessary.

- Review the sources of information, auditing the evidence and evaluating it according to the audit criteria.

Generation of findings

- The findings will or will not conform to the audit criteria. For a nonconforming finding, the supporting evidence must be recorded.

- Review the information with the auditee to determine if the evidence is correct.

Closure meeting

- Before the closing meeting, the audit team should agree on the conclusions, prepare the recommendations and discuss the follow-up.

- Hold the closing meeting to present the findings and conclusions. Assess stakeholder feedback.

Report preparation and distribution

- The team leader communicates the results with a complete, accurate, concise and clear audit report.

- Write the audit report, meeting with management until it is established how management will address the problems found.

- The report must be reviewed and approved according to the agreed procedures. Distribute the report to the appropriate recipients.

Complete the audit

The job is complete when all planned audit activities are carried out. On the other hand, the documents are kept or destroyed according to the procedures established at the beginning of the audit.

References

1. Wikipedia, the free encyclopedia (2018). Operational auditing. Taken from: en.wikipedia.org.
2. Steven Bragg (2017). Operational audit. Accounting Tools. Taken from: accountingtools.com.
3. Wanda Thibodeaux (2018). What Is an Operational Audit Process? Small Business - Chron. Taken from: smallbusiness.chron.com.
4. Smartsheet Inc. (2018). What Are Operational Audits? Taken from: smartsheet.com.
5. Wiki Accounting (2018). Operational audit. Taken from: wikiaccounting.com.
6. Tom Streissguth (2018). What is an Operational Audit? Bizfluent. Taken from: bizfluent.com.