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The 7 Es of Operational Audit Excellence

The document discusses the "7 Es of Operational Audit Excellence" which are key concepts for internal auditors to consider when conducting audits. The 7 Es are: Economy, Efficiency, Effectiveness, Equity, Ecology, Ethics, and Excellence. These concepts should be incorporated into audit planning, activities, and recommendations to help assess an organization's success and identify opportunities for improvement. Internal auditors should view the 7 Es as a framework for adding value rather than just a theoretical model.

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Shiela Jane Crismundo
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191 views

The 7 Es of Operational Audit Excellence

The document discusses the "7 Es of Operational Audit Excellence" which are key concepts for internal auditors to consider when conducting audits. The 7 Es are: Economy, Efficiency, Effectiveness, Equity, Ecology, Ethics, and Excellence. These concepts should be incorporated into audit planning, activities, and recommendations to help assess an organization's success and identify opportunities for improvement. Internal auditors should view the 7 Es as a framework for adding value rather than just a theoretical model.

Uploaded by

Shiela Jane Crismundo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER 4

THE 7 ES OF OPERATIONAL AUDIT


EXCELLENCE
INTRODUCTION

Internal auditors should remember that audits are conducted as a means to


assess conditions within the client’s organization. They are conducted with the
objective of helping them improve their structure and their operating practices.
Planning and performing and operational audit, then, should focus on
management practices that facilitate or hinder the accomplishment of objectives.
The 7 Es provides a simple, yet effective model to keep these essential concepts
in mind.
THE GOALS OF OPERATIONAL AUDIT

• Meet objectives
• Act faster, cheaper and better
• Be successful and sustainable
7 ES

Operational audits often incorporate into their scope


of work the 7 Es that play a key role in the success
or failure of organizations. These Es, when used in
the form of themes, can help the auditor add
considerable value to the engagement and show
audit clients that auditors are genuinely interested in
helping the organization succeed.
7 ES

These 7 Es can then be incorporated into:


The planning process, making sure that interview questions,
document reviews, goals and objectives, flowcharts, walkthroughs.
Other activities performed during the audit:
(1) probe for the presence of these attributes,
(2) verify that these are functioning effectively, and
(3) are considered when making recommendations for improvement.
7 E’S

• Economy
• Efficiency
• Effectiveness
• Equity
• Ecology
• Ethics
• Excellence
ECONOMY

Economy refers to the price paid for organizational resources.


Historically, the main criteria to assess economy was the price of goods
and services used by the organization.
A better approach to assessing economy is to consider the entire value
of the item. This includes warranties, replacement or repair guarantees,
speed and reliability of delivery, expected useful life of the item, and so
on.
EFFICIENCY

Efficiency relates to the use of inputs and other resources toward the
achievement of goals and objectives in some form of productive
activity. Organizations must thrive to produce goods and services at
or below cost levels. The ratio between the actual production (i.e.,
outputs) and the actual inputs (i.e., resources) constitutes the degree
of efficiency of the organization’s operations.
EFFECTIVENESS

Effectiveness is the process of evaluating the degree to which


the organization, program, or process is achieving its goals and
objectives. Effectiveness consists of comparing the planned
outputs with the actual outputs.Goals and objectives provide
identifiable markers of the achievement of something, and help
establish tactical actions to work toward. These are more
immediate and facilitate the assignment of resources (budgets
and projects) that can be aligned with the mission.
EQUITY

Equity relates to the treatment of others


with dignity and respect. This should be
done consistently, by everyone, always.
Equity is often thought of in terms of
fairness, reciprocity, and impartiality.
ECOLOGY

Environmental concerns have reached high levels


over the past years and will likely continue to garner
much attention in the future. In addition, customers,
employees, local communities, regulators, and other
stakeholders increasingly expect organizations to
act responsibly toward the environment.
ETHICS

The Merriam-Webster dictionary defines ethics as the rules of


behavior based on ideas about what is morally good and bad, it deals
with what is good and bad behavior, what is morally right or wrong,
and moral duty and obligation. It is a critical subject for internal
auditors because an individual’s viewpoint regarding what is right and
wrong will drive most aspects of decision-making and corporate
behavior, including that related to the performance of control activities
and treatment of others.
ETHICS

Ethics is the study of moral values and the principles of


conduct governing an individual or a group. Although many
of the foundational elements of ethical thought are derived
from religious beliefs, one of the challenges organizations
face is that new circumstances and technologies create
new problems and it is increasingly difficult, and rejected, to
rationally tie our business ethics today to traditional sources
and precedents.
TELEOLOGICAL OR PRESCRIPTIVE
APPROACHES

These focus on the consequences of the act. They


determine the morality of a decision based on the outcome
or consequences. An example of this approach is
utilitarianism, which seeks as its end the greatest good (or
utility) for the greatest number of people and it is often
performed through cost/benefit analyses—a common
business tool that considers the most ethical decision the
one yielding the greatest gain overall.
DEONTOLOGICAL APPROACHES

Other ethical systems are based on rules or principles


that govern decisions under the premise that individuals
should do what is right out of goodwill and duty, with no
regard for the consequences of the decision. They refer
to the duties or obligations of an individual or group
(by:Immanuel Kant).
EXCELLENCE

Another key aspect of organizational priorities is the performance of all work with
high quality.
Quality in all everyone does is essential for continued success. Measuring quality is
essential to determine if it is being achieved and always remember that people do
what is measured, repeat what is rewarded, and stop doing what is punished.
Quality is clearly an important value element when selling to customers. I have
found it equally important for organizations to create and sustain a culture of
providing quality to internal customers as well.
IMPLICATIONS FOR INTERNAL AUDITORS

Internal auditors should not think of the 7 Es only as a


theoretical construct, but rather a framework to help them
search for ways to add value to their organizations. While
compliance is an integral component of what internal
auditors do, and widely expected of auditors, a great deal
of value can be added to organizations by incorporating the
7 Es into auditors’ work programs.
THE END

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