Operational Internal Audit

An operational audit is a process in which an auditor reviews the company’s internal process, internal control, and system to provide a recommendation to increase effectiveness and efficiency.

The operational audit has revealed several key weaknesses in the company’s process that cause unnecessary waste. These include recommending improvements to prevent this from happening again, so we can react faster when the problem happened again.

Internal audits are an essential part of any organization, but operational ones add crucial value. The structured and disciplined nature helps ensure that the audit process will be beneficial for the business.

The operational audit is usually conducted by the internal audit team. It is part of the work of the internal auditor to ensure effective and efficient control. However, the company can also hire an external service to complete these tasks. The internal may not have enough resources and capacity to perform the work. Management will use this audit report to improve the work process. The audit recommendations are an important tool for managers to use in their operations.

The primary users of these audits tend to be upper-level executives, specifically those who manage areas that have been reviewed by this process. The audit recommendations are an opportunity to make positive changes and should be handled with care.

Reasons to perform an operational audit

  • Maximize the Efficiency: Internal control within a company is important in order to keep track of resources, maintain order, and prevent fraud. The operation audit is aimed to increase the effectiveness of such control. It can be improved or redesigned if necessary.
  • Prevent and Detect Risk: There are many risks that the business will be facing during the operation. Some of them cannot be eliminated, so we have to put control in place to detect when it happens.
  • Improve the internal control: The auditors can review all steps in the process to ensure that the controls are really working.

Operational audit process

Operational auditing is a type of assessment performed by the internal auditor in order to evaluate an organization’s operations. This audit is designed to assess whether or not the organization is operating efficiently and effectively. The operational audit process consists of four steps: planning, execution, reporting, and follow-up. Each step is crucial to the success of the audit and must be performed in a systematic and thorough manner.

  • Planning

The auditor’s primary responsibility is to obtain an understanding of the business and its operation. This understanding forms the basis for the auditor’s assessment of risk and determination of the appropriate key controls to test.

The auditor must also obtain an understanding of the client’s control environment, including the client’s principles, philosophy, and culture. The auditor’s understanding of these factors helps to identify potential areas of risk and allows the auditor to design tests that are appropriate to the client’s circumstances.

  • Execution

In order to validate the key control and operation, certain steps must be taken. First, the key documents must be obtained. This will help to provide an accurate picture of how the key control is supposed to work. Next, the key control should be observed in action. This will help to identify any potential problems. Finally, certain documents should be inspected. This includes sales invoices and goods delivery notes.

By taking these steps, it will be possible to ensure that the key control is working correctly and that all associated procedures are being followed.

  • Reporting

Once the key operation and control are validated, the next step is to prepare a report for the audit committee. The report should include an overview of the operations and controls, as well as a summary of the findings. It should also highlight any areas where further improvement is needed. The report should be submitted to the audit committee for review and approval. Once approved, the report should be made available to all interested parties.

  • Follow-up

In order to ensure that all key findings and recommendations are being addressed, it is essential to follow up with the related management or department after an internal audit. This will help to ensure that any potential issues are mitigated in a timely manner. By following up with the appropriate parties, you can help to ensure that your company is running as smoothly and efficiently as possible. Additionally, this will also help to build trust between the auditors and the management team.

Operational auditing challenges

Operational audits are a valuable tool for any business, but they do come at a cost. In addition to the upfront fee for the audit itself, businesses will also need to allocate staff time to help with the audit process.

This can be a significant investment, particularly for smaller businesses. However, the benefits of an operational audit can far outweigh the costs.

Operational audits are an important part of running a business, but they can also uncover problems that take time and money to fix. For example, an audit might reveal that a particular process is not as efficient as it could be, or that there are safety hazards that need to be addressed.