What Is Operational Audit

An operational audit is conducted to evaluate the performance of a company’s operations. It includes both day-to-day activities and broader-scale activities. This type of audit focuses on the company’s overall operations rather than focusing only on one department.

To conduct an operational audit, management breaks down the company’s operations into numerous departments and processes. This audit aims to evaluate business performance and related operational efficiency. It is conducted by examining a company’s operational practices. Further, it aims to enhance overall productivity.

Types of operational audit

Multiple types of audits fall under the operational audit. The categories are explained hereunder.

  1. Department Audits
  2. Investigative Audits
  3. Compliance Audits
  4. Follow-Up Audits
  5. Operational Controls Audits
  6. Compliance Audits
  7. Integrated Audits
  8. Advisory Services
  9. Fraud Investigations

1-Department Audit

There are different departments and processes within a company, depending on the company’s goals and responsibilities. Through an audit, these processes can be assessed and improved. This can also be used to examine how efficiently certain processes are executed and the resources available to a department are utilised. In an operational audit, you might examine a marketing, HR, or IT department etc.

2-Investigative Audits

An organization may conduct an investigation audit to determine the cause of an error or security breach after discovering it or suspecting an event has occurred. These audits may include reviewing how employees or departments carry out processes. Further, auditors can recommend improving specific processes or procedures to prevent such problems from occurring in the future.

3-Compliance Audit

During this type of audit, the company is evaluated on its adherence to relevant external laws and internal policies. In the auditor’s assessment, he or she will ensure that the organization’s current processes and procedures meet any applicable standards or regulations. A company may also have rules for employee conduct that all employees must follow. For example, the audit may check whether hiring and firing processes are being followed.

Likewise, auditors can check an organization’s adherence to applicable laws, regulations, policies, and/or procedures. Compliance with the policies and procedures as well as requirements from federal, state, and local agencies would fall under these categories.

4-Follow-Up Audits

Following an operational audit, the company will implement any necessary changes. A follow-up audit may then be conducted at a selected date to re-evaluate the impact of the changes.

5-Operational Controls Audits

Evaluate and determine whether internal controls are in place and operationally effective for mitigating risks and achieving organizational objectives and goals.

6-Integrated Audits

Analyze operational control processes in conjunction with the information technology of systems and infrastructure used by the unit. Integrating the analysis of information systems with the business activities can determine whether they are working together to achieve goals and objectives.

7-Advisory Services

These services are designed in collaboration with client management, adding value and improving the management team’s governance, risk management, and control processes while avoiding management responsibility being transferred to the internal auditor. Further, it includes offering advice and guidance on various administrative and compliance matters, designing new systems and processes, or incorporating internal controls into those systems and processes etc.

8-Fraud Investigations

In many casese, independent investigations focus on theft or misuse of resources, fraud, financial irregularities, unethical behavior, etc. The investigation involves confirming a loss or fraudulent act has occurred, determining the amount of the loss, identifying the control weaknesses that led to the loss, making recommendations to prevent future losses, and working with Human Resources for Public Safety etc.

Purpose Of Operational Audit

Operational audits are aimed at optimizing efficiency. A company can identify trouble spots and improve its operations by auditing its internal policies and procedures. The audit results will most likely benefit the management team, which can streamline future processes using the recommendations. A successful operational audit is likely to result in three primary outcomes.

First, It boosts the effectiveness of future policies and procedures. It allows the company’s operations to understand how future policies and procedures can be made more effective. Further, you can identify operational risks: Businesses must deal with various operational risks, including health and safety issues and cyber threats. A complete operational audit identifies this risk and potential fraud and compliance issues.

Auditors can better understand any changes to internal controls by exploring each step of the process. A company’s type of business will dictate the specific areas that need to be examined in an operational audit. Below is an operational audit checklist of ways to improve flow that follows the general process outlined above:

  1. Select and screen auditors
  2. Define audit plans and scope
  3. Pull together reference documents
  4. Identify administrative support
  5. Research operational procedures
  6. Collect statistical evidence
  7. Audit evidence from all sources
  8. Evaluate evidence
  9. Compile audit findings
  10. Share audit conclusions
  11. Give actionable advice
  12. Follow up with questions and concerns

Operational Audit Example

Operational auditing contributes to business performance indirectly. An operation is any activity directly related to creating the products or services that constitute the main business of an organization. Reports from different accounting tools may help to gather data. That data is used in the operational audit and seeks to improve the business’s day-to-day operations efficiency.

Let us take an example of a customer cloth cleaning service. All work performed directly to clean customer clothing comes under the operational audit. The operational audit, in this case, involves testing the procedures used to carry out the dry-cleaning process.

Operational audits are fundamentally involved in improving effectiveness, so identifying areas for improvement is a key part of their purpose. Employees who do the company’s primary work, such as production workers, receive a periodic review from managers. In a company’s operational audit, managers evaluate and analyze how effective operations are and identify areas for possible improvement. Further, operational audit refers to the effectiveness of operations with minimum utilization of resources in each operation, resulting in a huge consideration that is being saved in the end.

Conclusion operational audit

An operational audit helps improve and optimize business operations. It’s about analyzing working processes to assess if operations can be improved. It can be done via two methods. First is the assessment of business policy to identify and fill the gaps. The second is comparing implemented processes with the policy.

The purpose of an operational audit is to enhance operational efficiency. The enhanced operational efficiency is expected to result in higher business revenue and profit.

Further, there can be various types of operational audit. These include department, investigative, compliance, follow up, advisory, fraud investigations etc.


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