OPERATIONAL AUDIT

An operational audit refers to a method of examining how an organization conducts business. It requires
analyzing the processes, procedures and systems used within the company. This type of audit looks beyond the
organization's financial circumstances and examines its management practices. An operational audit aims to find
areas in need of improvement to make the organization's operations more efficient, productive and effective.
The typical operational audit process involves the following steps:
1. Determine the auditor
2. Plan the audit process
3. Conduct the audit
4. Report audit findings
5. Perform a follow-up
Determine the auditor
Typically, a company conducts an operational audit internally. They may have an internal auditor or audit
team whose job is to manage internal or operational audits. However, some companies may not have an internal
audit team or an internal auditor with the necessary knowledge or experience needed, so they may hire an external
specialist to conduct the audit.
Plan the audit process
The auditor meets with relevant managers to discuss and plan their audit method. During this discussion, the
auditor gains an understanding of the business and any potential concerns. They can then identify areas that may
require process improvements, providing challenges for them to focus on during the audit. Through this
conversation, the auditor also establishes the scope and timeline of the audit.
Next, they can begin establishing the audit's goals and strategies. These objectives vary but should aim to support
the organization's needs and overall objectives. They may focus on a specific area of the company and its related
processes. For example, a company may perform an operational audit on its hiring practices. The auditor and
managers must establish objectives for those processes to meet, such as increasing the number of employees hired
over a set period. Then the auditor uses those objectives to assess the company's current procedures and find
improvements.
Conduct the audit
How the auditor examines the business areas within the scope of their audit program. The auditor needs to assess
the existing processes and procedures to determine whether they meet the goals set earlier in the audit process. They
have conversations with managers and employees to discuss whether the processes meet expectations. The auditor
also may observe employees as they conduct those procedures and examine every step.
Once the auditor understands and reviews the processes or procedures, they can develop tests to evaluate them.
Through those tests, the auditor may find specific factors that need improvement and generate and experiment with
solutions that help fulfill their objectives. An ideal process works without issues and enables the company to conduct
the task in a cost- and time-efficient manner.
Report audit findings
The auditor develops a report on their findings and includes any recommendations for improvements.
Depending on those recommendations, the auditor may also draft an implementation plan to help the company make
the necessary changes. They discuss these recommendations with relevant managers, ensuring that the management
team understands the findings and solutions. The management may agree to follow all the suggestions or discuss
why some changes may not be feasible.
Perform a follow-up
After completing an audit, the auditor sets up a follow-up meeting with the relevant management team and
staff. Commonly, they hold the follow-up about six months after the audit. During the follow-up, they discuss the
changes made to the processes and assess their results. They measure these results to the objectives set forth by the
audit and determine whether they meet those goals or are making some progress towards them.
Types of Operational Audits
An operational audit examines the business processes and procedures within a company. This type of audit may
overlap with other types of audits, such as:
 1. Department audits: Different departments within a company use different processes and procedures related
to their goals or responsibilities. An audit can assess those processes and find ways to improve them. It can
also examine the department's available resources and how efficiently they use them when conducting
processes. For example, an operational audit could look into specific departments such as human resources,
marketing or IT.
2. Investigative audits: If a company discovers or suspects an error or security breach has occurred, they may
conduct an investigative audit to determine its cause. As part of this audit, they may assess the processes
performed by an employee or department. The auditor may make suggestions to improve those processes or
related procedures to ensure the issue does not occur in the future.
3. Compliance audits: This type of audit evaluates whether a company follows relevant external laws, along
with internal policies. The auditor will assess current processes and procedures to ensure they meet any
necessary standards or regulations related to the organization's industry. A company may also have rules for
conduct that all employees much follow, so the audit may inspect compliance with processes for hiring and
firing employees, for example.
4. Follow-up audits: After an operational audit, the company will implement any necessary changes. They
may then set a determined time to conduct a follow-up audit to evaluate the changes' effectiveness.
Advantages of an Operational Audit
Conducing an operational audit within an organization can bring numerous benefits, such as:
1. The audit identifies opportunities and risks
2. The audit can improve business effectiveness
3. The audit can offer objective or new views
4. The audit can provide motivation
Disadvantages of an Operational Audit
An operational audit aims to improve the processes and procedures within a company, but it may come with
some disadvantages. However, these disadvantages may not matter in the long run due to the advantages of the
improvements made. Some of those disadvantages may include:
1. The audit may require making changes
2. The audit comes with monetary costs
3. The audit can affect productivity
4. The audit can be time-consuming
Operations Auditor Responsibilities and Duties
1. Propose and plan for operational audits in business units.
2. Execute operations audit and assess company operations, process, financial, compliance and other associated
risks.
3. Identify opportunities for improving business processes, based on audit outcomes, to minimize risks.
4. Prepare and present quality reports of audit findings and recommendations to Manager and customers.
5. Coordinate with clients to identify areas of risk within clients’ businesses.
6. Develop strategic initiatives to maintain and improve the audit function.
7. Provide professional advice to other auditors.
8. Identify key risk and control indicators for assigned audit areas.
9. Identify operational risks and make recommendations to manage risks.
10. Maintain documentation for risk assessment and management processes.
11. Perform audit related investigation as directed by Manager.
12. Evaluate and revise internal controls and operational and management policies/procedures.
13. Ensure past audit recommendations are implemented in current audit process.
14. Assist management in developing annual audit plan.
15. Ensure compliance with government laws and company regulations.