Operational Audit

Operational Audit is systematic process of evaluating an organization’s operational efficiency and effectiveness. On completion of Operational Auditing, the results of the evaluation and the recommendations for improvements will be reported to the management for action. It means that the internal auditor goes beyond financials controls into operating areas. It is focused to strengthen Organization’s operations and control mechanism for day to day operations. Operational Audit will help to identify points of non-conformity in procedure implementation. It will help the management to take corrective actions.

Objectives of Operational Auditing

Some of the objectives of Operational Auditing are:

• Evaluation of company’s policies, procedures & plan of actions
• To achieve improved profitability
• To ensure control systems in place for effectiveness of existing processes
• Measurement of performance in terms of productivity, existing work force.
• To encourage corporate social responsibilities.

Is Operational Audit a Statutory Compliance?

There is no statutory compliance for a company to conduct the operational audit. Operational Audit is conducted when Management desires to evaluate the company’s operational efficiency and effectiveness. It helps Management in improving the economic savings of financial processes, where operations are based on financial statements.

Role and Responsibility

The primary responsibility for managing the day-to day operations is of CEO and/or General Manager. But for every individual function/process covered under Operational Audit, the responsibility will be of the Process Owner/Line Manager responsible to handle that process or operation.

Steps Involved in Operational Audit

• Understanding the organizational structure & Operational Hierarchy of the Company.
• Understanding the existing Policies, Procedures and manuals for each function/ process one by one.
• Walk through or field check of the applications of existing defined policies and procedures.
• Analyzing the gaps or loopholes in the existing processes.
• Recommendations to the Management for bridging the gaps and put in place (where none exist) the internal controls.
• To ensure the smooth flow of activities with the suggested measures and recommendations.
• To execute a follow-up audit to check the operational efficiency of operation.

Activities of Operational Audit

In a programme of operational auditing, the auditor is capable of appraisal activity with particular reference to the following aspects:

• Extent of top management achievement in ensuring that all phases of organizational activities are directed towards profit improvements.
• Ways and means to eliminate waste or loss by highlighting the bottle-necks or potential danger spots that exist between line and executive management as well as between other levels of personnel.
• Deviations from set-up policy and objectives.
• Corrective action necessary to get over adverse results and circumstances.
• Assessment of personal performances.
• Cost reduction programme.
• Problems of physical operations.
• Study the objectives of the operating departments- how production is achieved- how assessment is made of results achieved.
• Investigate scrap/salvage/normal and abnormal wastages.
• Production planning and control.

How Long Does it Take for the Operational Audit?

This depends completely on the size of Operations. Unlike financial audit which focuses on the financial controls as they relate to reporting, Operational audit focus on review and assessment of a business process. So, the time taken for completion of operational audit will purely depend on the number of processes related to operations of business.

Reporting and Discussion

The reporting should be very helpful and accommodating to the Management. Operational Audit report provides in detail the observations, auditor’s recommendations to the reported observations, actions to be taken by the Management, responsibility of the process owner and the target date for the closure of the observation. This report is to be discussed with the Management and process owner in detail, so as to help Managers to evaluate and analyze the current effectiveness of a company’s operations while identifying areas of potential improvement.

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Musthafa Abdul Hameed Auditing of Accounts also provide the following related services,

• Compliance Audit
• Financial Control Audit
• Internal Audit