Introduction to Operations Audit (Morning Class)
What is the operational auditing process?
The typical operational audit process involves the following steps:
Determine the auditor
Typically, a company conducts an operational audit internally. Their internal auditor’s or audit team’s responsibility is to oversee internal or operational audits. But some businesses might not have an internal audit team or an internal auditor with the required skills or experience, so they might hire an outside expert to carry out the audit.
Plan the audit process
The auditor meets with the appropriate managers to plan and discuss their auditing process. The auditor learns about the company and any potential issues during this conversation. They can then pinpoint areas that might benefit from process enhancements, posing difficulties for them to consider during the audit. The auditor establishes the audit’s scope and schedule during this conversation.
Next, they can begin establishing the audits goals and strategies. The needs and broad objectives of the organization should be supported by these varied objectives. They might concentrate on a particular area of the business and its associated procedures. For instance, a business might conduct an operational audit of its hiring procedures. Goals for those processes must be established by the auditor and managers, such as increasing the number of employees hired over a specific time period. The auditor then evaluates the company’s current practices and looks for improvements using those objectives.
Conduct the audit
The auditor now examines the business sectors covered by their audit program. To ascertain whether the goals established earlier in the audit process are met, the auditor must evaluate the current processes and procedures. To determine whether the procedures are up to par, they speak with managers and staff. Additionally, the auditor may watch staff members carry out these steps while scrutinizing each step.
The auditor can create tests to assess the processes or procedures once they are understood and reviewed. Through those tests, the auditor may identify particular elements that require improvement and create and test out solutions that support their goals. An ideal procedure runs smoothly and enables the business to complete the task in a way that is both cost- and time-effective.
Report audit findings
The auditor compiles a report detailing their findings and any suggestions for enhancements. The auditor may also create an implementation plan based on those recommendations to assist the business in making the required adjustments. They ensure that the management team is aware of the findings and solutions by discussing these suggestions with the appropriate managers. The management might accept all of the recommendations or might debate why some changes might not be possible.
Perform a follow-up
The auditor schedules a follow-up meeting with the concerned management team and staff after completing an audit. Usually, they hold the follow-up after the audit for about six months. They talk about the process modifications and evaluate the outcomes during the follow-up. They compare these outcomes to the audit’s goals in order to ascertain whether they have been achieved or have made some progress toward them.
What is operational auditing?
An operational audit is a technique for assessing how a company runs its operations. Analyzing the systems, processes, and practices in use within the company is necessary. This kind of audit examines the management practices of the organization in addition to its financial situation. An operational audit looks for areas that could use improvement in order to increase the effectiveness, productivity, and efficiency of an organization’s operations.
Advantages of an operational audit
Conducting an operational audit within a company has a number of advantages, including:
The audit identifies opportunities and risks
Even if a business’s operations go smoothly, an audit can spot potential improvements. These adjustments may speed up, reduce the cost of, or enhance processes in other ways that support profitability and corporate objectives. Managers may find risks or issues in their processes that they were previously unaware of through an audit. The auditor offers solutions to these risks and assists in identifying them. Staff members are better able to recognize and assess potential risks now that they are familiar with the risks associated with their company.
The audit can improve business effectiveness
An operational audit necessitates a close examination of the operational processes and procedures. The audit’s goal is to make sure the company completes its procedures effectively and efficiently. Therefore, any adjustments are made to achieve that goal and enhance the efficiency and profitability of the business. An auditor may occasionally point out a productive area of the company and use it as a model to improve another team’s effectiveness.
The audit can offer objective or new views
Managers can benefit from an auditor’s new perspective on their company’s operations. The auditor may be able to offer insights that someone who regularly performs the identified processes or procedures might not be able to. They use business objectives as the basis for their evaluation of the processes, making it a method of objective evaluation. Whether a process achieves the necessary goals is more important than whether the auditor likes the process.
The audit can provide motivation
The auditor and management create goals they want to accomplish during an audit. These objectives seek to enhance particular processes and procedures in order to help the business operate more effectively. These objectives can be used by management staff to inspire their staff members and provide them with a benchmark to strive for. Additionally, the goals offer clear guidelines for workers, ensuring that they are aware of the expectations of their employers and what constitutes high-quality work.
Types of operational audits
An operational audit looks at a company’s operational processes and procedures. There may be overlap between this kind of audit and others, including:
Disadvantages of an operational audit
An operational audit aims to enhance a company’s practices and procedures, but it may have some drawbacks. However, given the benefits of the improvements made, these drawbacks might not matter in the long run. Some of those disadvantages may include:
The audit may require making changes
A company frequently needs to change certain aspects of its processes and procedures in order to improve them. It might take some time for employees to get used to and adjust to these changes. Some adjustments might even necessitate staff training on how to carry out the new and improved processes. As a result, businesses that implement changes as a result of an operational audit should think about creating a change management plan to assist employees in adjusting.
The audit comes with monetary costs
An operational audit incurs costs for the organization, just like any other audit. Although an internal auditor typically handles this, a business might occasionally hire an outside auditor who charges a fee for their services. The audit may also determine that certain changes are required to enhance particular business processes and procedures. The company may incur additional costs as a result of putting these improvements into place or training staff on them.
The audit can affect productivity
The productivity of the participating employees could be affected by an operational audit. If the internal auditor has additional responsibilities at the company, carrying out the audit diverts them during that time. Similar to this, the staff members whose division or line of business is being audited must spend time working with the auditor and reviewing their protocols. This task might interfere with their daily obligations or impede the progress of their projects. While the business makes any necessary adjustments, the processes that have been identified for improvement might be suspended.
The audit can be time-consuming
An auditor’s review of a company’s business operations may take a long time. Every stage of the processes they audit must be examined, and the more complicated the processes, the longer they may take. It can take time to finish the task of implementing fixes or enhancements. To ensure that the fixes or enhancements make the procedures more efficient, the business might need to conduct tests. Employees’ regular duties may be affected if they need to attend training to learn how to use the modified procedures.
How does an operational audit differ from an internal audit?
Because an internal auditor carries out the process, an operational audit behaves similarly to an internal audit. Despite the fact that they both focus on internal operations, there are some differences between the two. A business typically conducts an internal audit when one of its processes or procedures is flawed. The internal audit will look into the error and what caused it. The business can then concentrate on enhancing its procedures to make sure the error does not occur again. The success of an internal audit is determined by whether the process is completed without errors.
An operational audit is different because it searches for areas where the company’s business operations can be improved. Additionally, it frequently emphasizes aspects of processes like their effectiveness and efficiency. The operational audit investigates business areas that could profit from process improvements rather than conducting an audit as a result of a problem occurring. If a process successfully completes a task without errors and complies with company standards for efficiency in terms of cost, time, and resources used, it will be evaluated by the operational audit.
What does operational audit mean?
The process of assessing a company’s operational activities, both on a daily basis and on a larger scale, is known as an operational audit. An operational audit goes further than other types of audits, which may focus only on a single department or the company’s finances.
What is an example of an operational audit?
Examples of operational audits Operations are the work processes that directly produce the goods or services that make up the primary business of the organization. For instance, all work that directly contributes to cleaning customers’ clothing would be considered an operation in a dry cleaning business.
Why is operational auditing important?
Enhancing the effectiveness of the business is the goal of the operational audit process. An operational audit can help businesses lower costs. Additionally, it assists companies in speeding up numerous processes, which directly enhances service delivery and customer satisfaction.
Who Performs operational audit?
Although experts can be hired to conduct reviews in their fields of expertise, operational audits are typically conducted by the internal audit staff. The management team, and in particular the managers of those areas that have been reviewed, are the main users of the audit recommendations.