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Operational Audit

What is Operational Audit?

VERTEX – Audit PartnerAs per the Institute of Internal Auditor (IIA), operational audit is defined as a systematic process of evaluating the effectiveness, efficiency and economy of operations of an organization. Where a financial audit reports on the financial side of a business, an operational audit is in relation to day to day transactions and operating activities.

An operational audit is performed by the internal auditor of the entity and can also be outsourced. It basically helps in strengthening the internal controls, reducing the costs and irregularities. Along with the identifying of anomalies in the procedures, it is also the responsibility of the auditor to provide a strategy to overcome the shortcomings of the business which will help the management take effective measures.

Even though it isn’t obligatory to get an operational audit performed, it assists in saving social costs. If you are interested in knowing the effectiveness and efficiency of your operational activities and how to improve your processes, you can get an operational audit done by your own internal audit function or even outsource the job.

The user of an operational audit report is usually the management but specifically it targets the process owners or line managers. Each process is audited by the internal auditors separately to identify any inefficiency during the processes.

The prime objectives of operational audit include the following:

  • Evaluation of company’s policies and procedures regarding sales, purchase and other processes
  • To achieve optimum profitability by reducing social costs
  • To ensure effective control system i.e. segregation of duties, authorization of processes and safeguarding fixed assets.
  • Analysis of performance in terms of productivity and efficiency of labor.
  • Encouragement of corporate social responsibilities like minimizing social costs and increasing social benefits.

Our team at A&A Associate provides monthly, quarterly and annual operational audits along with the following services:

  • The first step would be to obtain understanding of the business environment and operational hierarchy of the company.
  • Identifying and understanding the existing policies and procedures applied to operating processes.
  • Walk through verification of all the procedures and policies.
  • Analysis and evaluation of any loopholes or anomalies in the processes.
  • A report including tactics and strategies to remove any gaps in internal controls, recommendations and suggestions to improve the flow of activities.
  • The report will also include details of the auditor’s observations, recommendations and actions to be taken by management to counter any inefficiency.
  • Detailed discussion with the management and the process owners to intimate them regarding their responsibilities and to clear up any complications.
  • A follow-up audit to check effectiveness of the suggestions.