OPERATIONS AUDITING - Auditors have now added a further "three E's" to

their portfolio of matters of audit interest,

A future-oriented systematic, and independent particularly as a consequence of their role in the
evaluation of organizational activities. Financial data may audit of governance processes as set out in
be used, but primary sources of evidence are operational Standards 2110 to 2110.C1 of The Institute of
policies and achievements related to organizational Internal Auditors
objectives. Internal controls and efficiencies may be
evaluated in this type of review 1. Equity – Avoidance of discrimination and
A review of how an organization's management and unfairness, acceptance and promotion of
its operating procedures are functioning with respect to diversity
their effectiveness and efficiency in meeting stated 2. Environment – Acting in an environmentally
objectives responsible way
3. Ethics – Legal and moral conduct by
A future-oriented, independent, systematic, management and staff
business-focused evaluation of management, and the
organization's activities controlled by management and AUDITING BEYOND ACCOUNTING, FINANCIAL, AND
third-parties. Its purpose is to improve organizational REGULATORY REQUIREMENTS
profitability and the attainment of organizational In the past, their focus and experience was acquired
objectives in the accounting field and saw most audit matters
AUDIT OF AUDIT OF AUDIT OF ANY through the prism of accounting requirements.
OPERATING FUNCTIONAL PART OF THE Overtime, business leaders and managers witness
UNITS AREAS OF A BUSINESS business failures caused by poor management decisions
BUSINESS and practices.
Includes plants, Such as sales, Includes
depots, marketing, operating unit, Operations Management – related issues are waste,
subsidiaries, production, functional area, inefficiencies, supplies that arrive late, poor customer
overseas distribution, HR, section, satisfaction and limited capacity to grow as opportunities
operating units, etc - their department or arise or customers’ demand changes
and so on activities and even business
exercise process-to Human Resources – evidenced by poorly supervised,
financial control review of trained and evaluated employees who sometimes
over them effectiveness become unmotivated and unproductive.
IT – Computer systems, designed with an inaccurate
SCOPE OF OPERATIONS AUDITING understanding of the business needs and uses of these
systems, poor data capture, and inadequate reporting
• Effectiveness and efficiency of operations mechanisms
• Reliability of financial reporting
Marketing - Mass marketing of products and services at
• Compliance with applicable laws and regulations
a time when costumers prefer to feel unique, or wasteful
AUDIT APPROACH TO OPERATIONS AUDIT campaigns because they target the wrong audience

- Operational auditors are auditing for the "three CSR - Issues range from child labor sweatshop conditions,
E's" - effectiveness, efficiency, and economy to abusive management, and inappropriate waste disposal
look for opportunities for business processes to
Environmental Health and Safety - Practices and
be done differently so as to improve their 3 E's
conditions related to poor ventilation, excessive heat,
Actual Inputs Efficiency Actual Outputs extreme noise levels, and workplace hazards caused by
chemicals, machinery, and workplace configurations,
among others.
(Economy) (Effectiveness) The Value Auditors Provide
Internal auditors promote the efficient and
Planned Inputs Planned Output effective use of resources. Since organizations operate

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with the funding received or authorized by their owners - Realize an
or contributors, it is imperative that the organization appreciation in
operates with this principle of financial fiduciary value
responsibility Government - Promote - Adopting
economic regulations and
A fiduciary duty is a legal duty to act solely in development laws
another party's interests. Parties owing this duty are - Raise revenues - Issuing licenses
called fiduciaries. The individuals to whom they owe a through taxes and permits
duty are called principals. Fiduciaries may not profit from Media - Keep the public - Publicizing
their relationship with their principals unless they have Informed events that
- Monitor company affect the public
the principals' express informed consent. They also have
actions - Activist groups
a duty to avoid any conflicts of interest between Activist - Monitor company - Lobbying
themselves and their principals or between their Groups actions for ethical government for
principals and the fiduciaries' other clients. and legal regulations
behavior - Gaining public
Internal auditors contribute to this process by
support
making sure that these duties are defined, that structures Business - Provide research - Using
are set to ensure behaviors are aligned with these Support and Information staff/resources
objectives, and making recommendations to the board Groups to improve to help
and senior management when there are discrepancies competitiveness companies
jeopardizing the success of these arrangements - Providing legal
political support
Internal auditors serve the public and common Communities - Enjoy Local - Issuing/restrictin
interests by making sure that owners receive the return residents g operating
on their investments that they are entitled to, and that - Ensure local licenses
the means of generating those profits are within the development - Lobbying
confines of the law government
General Public - Minimize risks - Supporting
PRIMARY STAKEHOLDERS, NATURE OF INTEREST, AND - Achieve activists
POWER prosperity for - Pressing
society government to
STAKEHOLDER INTEREST POWER act
Employees - Maintain stable - Bargaining - Praising or
employment power condemning
- Receive fair pay - Work actions, companies
- Work in a safe, strikes, and
comfortable lawsuits
environment - Publicity IDENTIFYING OPERATIONAL THREATS AND
Supplies - Receive regular - Refusing to meet VULNERABILITIES
orders for orders
goods/services - Supplying to The traditional approach to internal auditing was
- Be paid promptly competitors to perform postmortem reviews to verify that what was
Customer - Receive value and - Purchasing from done was done appropriately.
quality for money competitors
- Receive safe, - Boycotting Internal auditors need to go beyond inspecting
reliable products - Refusing to pay transactions long after they were performed because the
Creditors - Receive - Calling loans focus now leans toward an examination of future threats
repayment of - Use legal and vulnerabilities that can derail the organization's goals
loans authorities to and objectives in the short, medium, and even the long
- Collect debts and repossess assets term.
interest
Investors - Receive a - Exercise voting Operational - maintaining operational capacity speed of
satisfactory rights execution (ie, cycle time) staffing levels, employee
return on - Ability to inspect motivation knowledge transfer, system development and
investments company records implementation
and reports

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Technological - including protection of intellectual 15. Change Catalyst Skills
property and personally identifiable information, denial
of service attacks, business continuity due to staff Whereas, in the past, it was common for employees to
turnover and system development take a passive approach, waiting for their employers to
tell them when, what, and why training would occur,
Strategic - concerns related to strong customer and today's auditors should take a more active and engaged
vendor relations, customer loyalty, building effective approach to their training needs. They should:
business partnerships, outsourcing arrangements, and
mergers and acquisitions 1. Reflect on their present competencies, identify
their job needs, and perform a gap analysis to
Environmental - may include reliable supply of water and meet their current skill requirements
electricity, achieving a lower carbon footprint, and 2. Define their career ambitions and chart a
reducing the amount of natural resources used during roadmap to acquire the skills and competencies
business activities needed the future
The IIA's 2015 Global Pulse of Internal Audit, Embracing
Opportunities in a Dynamic Environment states, "The
mandate to address emerging and evolving risks is clear.
Risks are emerging at an unprecedented pace, and
stakeholders' impatience with surprises is evident." (p.
8).
THE SKILLS REQUIRED FOR EFFECTIVE OPERATIONAL
AUDITS
1. Communication skills, such as oral, written,
report writing and presentation skills
2. Problem identification and solution skills, such as
conceptual and analytical thinking
3. Ability to promote the value of internal audit
4. Knowledge of industry, regulatory, and standard
changes
5. Organization skills
6. Conflict resolution/negotiation skills
7. Staff training and development
8. Accounting and IT/CT frameworks, tools, and
techniques
9. Change management skills
10. Cultural fluency and Foreign language skills
BEHAVIORAL SKILLS
1. Confidentiality
2. Objectivity
3. Communication
4. Judgement
5. Work well with all management levels
6. Possess governance and ethics sensitivity
7. Be team players
8. Relationship building
9. Work independently
10. Team Building
11. Leadership
12. Influence
13. Facilitation
14. Staff Management