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Operational Audit

As defined by The Institute of Internal Auditors (IIA), operational Audit is “A systematic process of evaluating an organization's effectiveness, efficiency and economy of operations under management's control and reporting to appropriate persons the results of the evaluation along with recommendations for improvement.”
While a conventional audit usually concerns with financial matters, operational audits are more comprehensive and go beyond financial data (although that type of reporting is often included).
Operational audits can also be termed as "Business Continuous Process Improvement Toolkit".


Process of Operational Audit

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  • Establishing Objectives: It includes considering the characteristics of products, projects, processes, and any changes to them and Taking into account management system requirements, contractual and legal requirements, and other requirements. It also considers level of performance, risks, previous audit results, and how much the system has developed which is being audited.
  • Establishing the Audit Program: Specifying the role of the auditor and assigning responsibilities to the person. Identification of resources to establish the scope and risks to the organizations.
  • Implementing the Audit Program: Implementing all the objectives and policies formed in the previous steps by assembling an audit team and aligning their tasks accordingly.
  • Monitoring the Audit Program: Assess conformity with the program and then assess the performance of the audit team members and the ability of the audit teams to implement the plan. Program should be changed simultaneously on the basis of the audit findings. Thus making it a real time program.
  • Reviewing and Improving the Audit Program: The review should consider results in line with procedures, the evolving needs and expectations of stakeholders, records, alternative or new auditing methods, the effectiveness of the measures to address associated risks, and confidentiality and information security issues relating to the audit program.

Features of Operational Audit :

  • Induces Positive Change: Understand how future processes, policies, procedures, and other types of management are producing maximum effectiveness and efficiency.
  • Reviewing Internal Controls: Establish the potential impact of successes and failures in the specialized functional areas of operation.
  • Understands Risks: The type of risks associated with business and operational risk range from business interruption, employee turnover or errors, IT system failure, product failure, safety and health issues, loss of key employees, fraud, loss of suppliers, and litigation.
  • Identifying Improvement Opportunities: As a result of understanding risks, auditors can determine where to make improvements and how to mitigate risks and improve opportunities.
  • Informing Top Management: The results of the audit should appear in a clear report that provides objective analysis, appraisals, recommendations, and pertinent comments concerning the activities reviewed

Difference between Internal Audit and Operational Audit

  • Internal audits focus on what has happened already. Businesses look at the mistakes that were made and the vulnerabilities in the system which allowed those mistakes to be made. Operational audits are different
  • They don’t look at whether things were done correctly or incorrectly, they instead look at the possible improvements in the business processes. A process which produces no errors will be considered good in an internal audit. The same process will be considered good in an operational audit if there are no errors, the process is completed in optimal time, and all resources are used efficiently.
  • Thus, Operational Audit provides a new eye or perspective on the good and not-so-good aspects of business processes. Operational audit results in uplifting spirits of team members and emphasize existing or new goals. Subsequent actions can then lead to greater profitability, legal compliance, and employee satisfaction in the long term.
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