After recovering from a major global economic slowdown, the companies have adopted new strategies to achieve sustainable business growth. The main strategy adopted by the management includes the value creation through improved operational performance – including efficiency, speed, agility, dimensions of quality, cost reduction, customer value, wastage, etc. And hence, operational audit is undertaken at the instance of management for providing it with information and appraisal of operations and activities.
What is operational Audit?
Operational audit is a future-oriented, systematic, and independent evaluation of organizational activities. It is a business appraisal approach to improve the efficiency of its operations and profitability. It evaluates the effectiveness, efficiency and economy of operations of an organization and provides recommendations to improve.
Objectives and Significance of Operational Audit:
- Appraisal of controls
Operational audit checks whether the activities are in control as per the design of the organization and are faithfully adhered to
- Evaluation of Performance
Operational auditor evaluates the performance of the operational sector by heavily depending upon the acceptable standards
- Appraisal of objectives and plans
Operational audit not only evaluates the performance and operations, but also the objectives and plans formulated to carry out the operations.
- Appraisal of Organizational Structure
Organizational structure provides the line of relationships and delegation of authority and tasks. In evaluating organizational structure, the operational auditor considers whether the structure is in conformity with the management objectives and whether it is matching with the responsibility and authority structure
- Reporting and Suggestions
The main objective of operational audit is , it does not stop at the point of reporting to management, but also provides suggestions and recommendations to improve the operations.
As in any other audit, an Independent Management expert specialized in this field; carry out the operational audit through the following systematic and objective manner
- Structuring the Initial review
It is done by holding a meeting to outline expectations and to answer the questions about the process.
- Surveys of management and Employees
Managers are interviewed for details concerning company systems and procedures. Employees are interviewed and observed in their work environments. Observation can lead to important insights into operational deficiencies that would not be evident through an interview.
- Presentation of the Audit Plan
An audit plan is a written agenda that details the steps to be followed to complete the audit. It is customized based on the information the auditor gathered in the previous steps.
- Actual Auditing
The auditor implements the audit plan by reviewing the productivity of the organization and also assesses the financial side. Evaluating of organization’s risk management procedures is also included in this step.
- Final Report Submission
The auditor issues the final audit report with all the observations and recommendations to improve the operations.
As Operational Audit can bring a huge value addition to organization as it will pin point not only the cause for the inefficiency of the activities but also the remedies to improve them. Hence the cost involved in carrying out the Operational Audit could be negligible when compared to the long term benefits which operational audit will bring to the business. In addition to making the business more efficient and profitable in the long run, an operational audit will also provide the management with some new and different perspectives of looking at their activities and its spending habits. It makes executives aware of the problems that might not have been found otherwise and lets them evaluate risks of the future. Managers also can use results to motivate employees, as the company always has something to work toward at the end of the process.