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OPERATIONAL AUDIT

Operational Audit is a systematic review of effectiveness, efficiency and economy of operation. Operational audit is a future-oriented, systematic, and independent evaluation of organizational activities. In Operational audit financial data may be used, but the primary sources of evidence are the operational policies and achievements related to organizational objectives.

SIGNIFICANCE OF OPERATIONAL AUDIT:

  • Appraisal of controls:Operational audit checks whether the activities are in control as per the design of the organization.
  • Evaluation of Performance:Operational auditor evaluates the performance of the operational sector by heavily depending upon the acceptable standards.
  • Appraisal of objectives and plans: Operational audit not only evaluates the performance and operations, but also the objectives and plans formulated to carry out the operations.
  • Appraisal of Organizational Structure:Organizational structure provides the line of relationships and delegation of authority and tasks. In evaluating organizational structure, the operational auditor considers whether the structure is in conformity with the management objectives and whether it is matching with the responsibility and authority structure.
  • Reporting and Suggestions: The main objective of operational audit is it does not stop at the point of reporting to management, but also provides suggestions and recommendations to improve the operations.
  • Structuring the Initial review:It is done by holding a meeting to outline expectations and to answer the questions about the process.
  • Surveys of Management and Employees: Managers are interviewed for details concerning company systems and procedures. Employees are interviewed and observed in their work environments. Observation can lead to important insights into operational deficiencies that would not be evident through an interview.
  • Presentation of the Audit Plan:An audit plan is a written agenda that details the steps to be followed to complete the audit. It is customized based on the information the auditor gathered in the previous steps.
  • Actual Auditing:The auditor implements the audit plan by reviewing the productivity of the organization and also assesses the financial side. Evaluating of organization’s risk management procedures is also included in this step.
  • Final Report Submission:The auditor issues the final audit report with all the observations and recommendations to improve the operations.

ADVANTAGES OF OPERATIONAL AUDIT:

  • An operational audit almost always provides a company with some new, fresh perspectives.
  • It makes executives aware of problems that might not have been found otherwise and lets them evaluate risks for the future.
  • Managers also can use results to motivate employees, as the company always has something to work toward at the end of the process.

RESPONSIBILITY OF OPERATIONAL AUDITOR:

  • Propose and plan for operational audits in business units.
  • Execute operational audit and assess company operations, process, financial, compliance and other associated risks.
  • Identify opportunities for improving business processes, based on audit outcomes, to minimize risks.
  • Prepare and present quality reports of audit findings and recommendations to Manager and customers.
  • Coordinate with clients to identify areas of risk within clients’ businesses.
  • Develop strategic initiatives to maintain and improve the audit function.
  • Provide professional advice to other auditors.
  • Identify key risk and control indicators for assigned audit areas.
  • Identify operational risks and make recommendations to manage risks.
  • Maintain documentation for risk assessment and management processes.
  • Perform audit related investigation as directed by Manager.
  • Evaluate and revise internal controls and operational and management policies/procedures.
  • Ensure past audit recommendations are implemented in current audit process.
  • Assist management in developing annual audit plan.
  • Ensure compliance with government laws and company regulations.

PROCESS OF OPERATIONAL AUDIT:

During pre-audit, the auditor meets with managers, explains the audit process and gathers basic information about the company to determine concerns and risks. Next, the auditor meets with key managers to verify the components of the audit and the associated concerns. Third, the auditor meets with those in control of high-risk areas and figures out and documents their objectives and control activities. The auditor sends the documentation to the managers for confirmation and discusses controls not in place. Fourth, the auditor designs and prepares testing procedures for each key control. He reviews the plans with managers and carries out the tests, documenting and discussing all results and improvement proposals. Fifth, he drafts an audit report, meeting with management until it is clear that management knows how to address the issues found. The final step is the creation of a final report and follow-up.

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