An operational audit is an evaluation and examination of an organization's operational activities. It is aimed at recognizing opportunities that can increase the effectiveness and efficiency of a business entity's operations. The effectiveness of an operation explains how well a process meets the desired objectives, while efficiency describes how well an operation transforms inputs into outputs with minimal waste. Operational auditing is more in-depth than other types of auditing that focus solely on the financial department.
It focuses on all the internal controls and processes of the various departments that make up the operations of an organization. Therefore, just like other audits evaluate financial statements, an operational audit evaluates the way in which a company carries out its operations to increase its effectiveness and efficiency. A successful audit involves more than financial audits aimed at reassuring stakeholders about the accuracy and completeness of the financial statements. All types of businesses, from government and private companies to hospitals, banks, manufacturers and universities, need an accurate and detailed picture of how they are doing and where they can improve to achieve more substantial financial growth.
This is where the importance of operational audits comes into play. The difference between a financial statement audit and an operational audit is that during the financial audit, the auditor is normally concerned only with accounting practices and numbers. Rather, the operational auditor examines each and every aspect of a business. In addition, operational audits are generally performed by an internal auditor, as opposed to financial audits, which are usually completed by external auditors.
Key managers who are directly involved in the audit verify and add, if necessary, the different components and the associated concerns and risks. However, auditors show their expertise in analysis and improvement, hence the need to consider a particular level of skill, qualification and experience, since auditors view organizations and activities from the perspective of processes. Depending on the objective of the audit, the checklist can be a valuable guide for gathering the necessary documents, clarifying the team's objectives, and keeping key stakeholders informed. Investigative audits are performed when there is a suspicion that there is a risk of a security breach or if a violation actually occurs. Managers use operational auditing to assess and analyze the current effectiveness of a company's operations, while identifying areas for potential improvement. Understanding the true state of operations is the basis for a healthier, more competitive and more profitable organization.
The auditor could also identify the processes or operations that are going to be audited on their own, first gaining an understanding of the company's overall picture. Many companies use operational audits to create greater value by improving operational performance, including the dimensions of quality, speed, agility, efficiency, environment, customer value and cost. As Kandarpa points out, “the most used tools are the plan-do-verify-act cycle or the Deming cycle” which auditors use in their own auditing activities. Therefore, operational effectiveness primarily emphasizes the strategies of an established organization to promote growth and expansion within an industry. Customize forms to collect information for your audit and then add it to emails and web pages so that employees or management can send answers to their questions or suggestions. As they delve into all aspects of company management, it takes time to complete an operational audit - ranging from a few weeks to several months.
The results of the audit are likely to lead to multiple changes, and team members and managers may struggle to adapt to different expectations, processes, staff or budgets. Operational audits are a forward-looking process and are part of many organizations' suite of continuous business improvement processes. When performing an operational audit you're likely to discover part of your company that doesn't meet expectations. Once you recognize risks auditors can determine how to mitigate them by making improvements to their specific categories of reputational risk, financial risk, operational risk and environmental risk.
