An operational audit, also known as an operational review or efficiency audit, is a type of audit that evaluates the effectiveness and efficiency of an organization’s operations. The purpose of an operational audit is to identify areas for improvement, cost savings, and increased revenue. It examines the organization’s internal controls, processes, and systems to determine if they are operating as intended and if they are meeting the organization’s objectives.
Operational audits are typically required for a variety of organizations, including:
- Publicly traded companies: Publicly traded companies are often required by law to undergo regular operational audits to ensure that their operations are efficient and effective and that they are in compliance with relevant laws and regulations.
- Non-profit organizations: Non-profit organizations may be required to undergo operational audits as part of their obligations to donors, funding agencies, and other stakeholders.
- Government agencies: Government agencies are often required to undergo operational audits to ensure that they are using public funds efficiently and effectively and that they are in compliance with relevant laws and regulations.
- Private companies: Private companies may choose to undergo operational audits to identify areas for improvement, cost savings, and increased revenue.
- Small businesses: Small businesses may also choose to undergo operational audits to evaluate the efficiency and effectiveness of their operations, and to identify areas for improvement.
- Non-Governmental Organizations (NGOs): NGOs are also required to undergo operational audits as part of their obligations to donors, funding agencies, and other stakeholders.
Scope of Operational Audit
The scope of an operational audit can vary depending on the organization and the specific objectives of the audit. In general, however, the scope of an operational audit typically includes the following areas:
- Internal controls: The auditor will review the organization’s internal controls to ensure that they are effective and that they are in compliance with relevant laws and regulations. This includes the review of financial and accounting controls, and compliance with laws, regulations, and policies.
- Processes and systems: The auditor will examine the organization’s processes and systems to determine if they are effective and efficient and if they are being used as intended. This includes the review of the organization’s financial systems, procedures, and workflow.
- Compliance with laws and regulations: The auditor will review the organization’s compliance with relevant laws and regulations, such as tax laws, labor laws, and environmental regulations.
- Risk management: The auditor will examine the organization’s risk management processes to ensure that they are effective and that they are in compliance with relevant laws and regulations.
- Performance measurement and management: The auditor will review the organization’s performance measurement and management systems to ensure that they are effective and that they are in compliance with relevant laws and regulations.
- IT Systems: The auditor will review the information technology systems to ensure that they are secure, efficient, and effective.
- Human resources: The auditor will review the organization’s human resources systems, policies, and procedures to ensure that they are effective and that they are in compliance with relevant laws and regulations.
The procedure of Operational Audit
The procedure of an operational audit typically includes the following steps:
- Planning: The auditor will plan the audit by defining the scope, objectives, and schedule of the audit. This may include reviewing the organization’s financial statements, operations, and processes, and identifying key risk areas.
- Fieldwork: The auditor will conduct the fieldwork by gathering evidence and testing the organization’s controls, systems, and processes. This may include reviewing documents, interviewing employees, and observing operations.
- Evaluation: The auditor will evaluate the evidence gathered during the fieldwork to determine if the organization’s operations are efficient, effective, and in compliance with relevant laws and regulations.
- Reporting: The auditor will prepare a report outlining the findings of the audit, including any issues or concerns identified and recommendations for improvement.
- Follow-up: The auditor will follow up on the recommendations to ensure that they have been implemented and that the organization’s operations are now efficient, effective, and in compliance with relevant laws and regulations.
- Communication: The auditor will communicate the findings and recommendations to the management and the audit committee.
The operational audit process typically involves the following steps:
- Defining the scope of the audit: The auditor will define the specific areas of the organization’s operations that will be examined during the audit.
- Reviewing the organization’s policies and procedures: The auditor will review the organization’s policies and procedures to ensure that they are current, complete, and comply with relevant laws and regulations.
- Examining the organization’s systems and processes: The auditor will examine the organization’s systems and processes to determine if they are effective and efficient and if they are being used as intended.
- Identifying areas for improvement: The auditor will identify areas for improvement, such as inefficiencies, redundant processes, or controls that are not working as intended.
- Preparing a report: The auditor will prepare a report detailing the findings of the audit, including any areas for improvement and recommendations for corrective action.
Conclusion
The conclusion of an operational audit typically includes the following elements:
- Summary of the audit objectives and scope: The conclusion will summarize the objectives and scope of the audit, outlining what the audit was intended to accomplish and the areas that were examined.
- Summary of findings: The conclusion will summarize the key findings of the audit, including any issues or concerns identified and any recommendations for improvement.
- Opinion of the auditor: The conclusion will include the auditor’s opinion on the organization’s operations, based on the evidence gathered during the audit. The opinion may be either unqualified, meaning that the operations are found to be efficient, effective, and in compliance with relevant laws and regulations, or qualified, meaning that the operations are found to be partially efficient, effective, and in compliance with relevant laws and regulations, or adverse, meaning that the operations are found to be not efficient, effective, and in compliance with relevant laws and regulations.
- Management’s response: The conclusion will include the management’s response to the findings and recommendations of the audit, outlining any actions that have been taken or planned to address the issues and concerns identified.
- Next Steps: The conclusion will outline the next steps for the organization, including any follow-up audits or monitoring that may be required to ensure that the recommendations have been implemented and that the organization’s operations are now efficient, effective, and in compliance with relevant laws and regulations.
The conclusion of an operational audit is an important document that provides valuable insights and recommendations for improving the organization’s operations. It should be shared with the management, the audit committee, and other stakeholders to ensure that the recommendations are implemented and that the organization’s operations continue to be efficient, effective, and in compliance with relevant laws and regulations.