What is an Operational Audit ? Evaluation made of management's performance and

conformity with policies and budgets. The organization and its operations are analyzed,

including appraisal of structure, controls, procedures, and processes.

An operational audit is a comprehensive form of an internal audit. This type of audit attempts to improve the efficiency and the effectiveness of the internal operations.

What is the Objective (Generally) The objective is to appraise the effectiveness and

efficiency of a division, activity, or operation of the entity in meeting organizational goals

An Operational audit is designed to:

-Understand the responsibilities and risks faced by an organization;

-Identify, with management participation, opportunities for improving control;

-Provide senior management of the organization with a detailed understanding of the Operations.     Normally, this involves the following Five steps

1) Preliminary Preparation

The process normally begins with an introductory meeting to inform the unit's senior management that an audit will take place, to explain the process, and to gather background information.

Following the introductory meeting, the auditor performs a preliminary gathering of information using various sources of information (for example, the unit's web site) to identify the possible components and concerns. At the end of this stage, a binder is prepared and is used in the risk assessment meeting with the auditees.

2) Field Survey

The Field Survey involves meeting the key managers of the Company or faculty or unit to be audited. One objective of the Field Survey is to obtain confirmation of the components and major concerns of the company

project.

3) Program Development

The auditor begins to develop his audit program by meeting with the managers of the high-risk areas to identify the key management objectives and the key control activities performed. After these meetings, the auditor documents the key management objectives and the key controls.

4) Audit Application . This is usually the most time consuming step in the audit

and it is important for all information to be carefully recorded and documented in order to be able to refer to it after the physical audit has taken place. If the audit application step is done effectively, the reporting and follow-up step is much easier to perform.

5) Reporting and Follow up

This is perhaps the most critical part of the operational audit. A good audit report will effectively communicate the recommendations and conclusions to management. The report will be supported by all the documented facts, findings, and opinions that were gathered during the audit application. The reporting step should include a follow up step to determine what if any action needs to take place in order to improve the operations of the company.

  The draft report uses the following standard structure: Purpose Scope Results Audit Opinion Recommendations The report review and discussion process is designed to arrive at agreed

action plans to resolve identified issues. Any management-accepted risks and differences of opinion are also reported.

 

Operational Audits vs Traditional audits

FINANCIAL AUDIT OPERATIONAL AUDIT

A financial audit, or more accurately, an audit of financial statements, is the review of the financial statements of a company or any other legal entity, resulting in the publication of an independent opinion on whether those financial statements are relevant, accurate, complete, and fairly presented

Standards- ISA International Standards on Auditing

The objective of an audit of financial statements is to enable the auditor to

express an opinion whether the financial statements are prepared, in all

material respects, in accordance with an applicable financial reporting

framework.

An operational audit is a more comprehensive form of an internal audit. This type of audit is attempts to improve the efficiency and the effectiveness of the internal operations. Its objectives vary a lot and are determined by the management of the company, based on their own scope

Standards -Not governed by ISA (International Standards on Auditing)

How do companies become Profitable under an Operational Audit ?

Operational audit focuses on the appraisal of the effectiveness and efficiency of a division, activity or an operation of an organization in order to determine whether it meets management objectives and achieves other established criteria. The operational audit helps you judge the level of control a management exercises on various organizational activities, functions or business units and provide an insight into management achievement in terms of performing its responsibilities and mitigating the risks associated with the business operations. If Conducted regularly an operational audit will eliminate the risk of encountering cash shortages and assist companies facing operational issues that could easily have been avoided through proper planning, and improve business productivity. The earlier an operational audit is instituted in a business entity, the better it is for the health of the business.

Operational Audit Checklist Grade Production Areas Sales Issues Marketing and Promotion     Low Low Low   Medium Medium Medium   High High High   N/A N/A N/A         Advertising and Branding Customer Service     Low Low Medium Medium   High High   N/A N/A

Operational Audit Checklist Descriptions 

Production Areas

Of critical importance to manufacturing and product-creation companies, the production function details form a major section of the audit. Checklist items often include relationships with suppliers and staff, inventory management and control, alternate sources of raw materials, and all items involved in product creation, ongoing maintenance procedures, production-employee training programs, processing procedure documentation, use of best available technology, and environmental protection policies.

 

Operational Audit Checklist Descriptions Sales Issues

Sales departments require examination of all facets of this critical function. Operational audit checklists typically include analyzing the company's competition and customers, product pricing, sales channels, sales philosophies, and sales personnel. If the company conducts electronic (or telephone) sales along with or in lieu of the brick-and-mortar variety, their back-office or call-center operations will appear on operational audit checklists.

Operational Audit Checklist Descriptions Marketing and Promotion

Marketing and promotion activities occupy important positions on operational audit checklists. Quality and effectiveness of websites is usually examined in detail. It is sometimes challenging for internal or external auditors to comment on how attractive the site is, but quality, ease of navigation, and timeliness of content can be evaluated. Other promotional activities, like community involvement, charitable efforts, and other for-profit or non-profit partnerships that promote the organization are viable checklist items.

 

Operational Audit Checklist Descriptions   Customer Service

Customer service checklist items include quantity and quality of customer service personnel responses, feedback to determine customer satisfaction levels, timely customer question/problem follow-up, and level of company understanding of its customer base. Identifying areas needing improvement may generate further detailed checklist items to evaluate specific operational enhancements that could increase customer satisfaction.

Status :

Operational Audit Checklist Grades :

Declining visitor arrivals, low occupancy

( poor economy)

Production Issues N/A

Sales Issues Low

Marketing Medium

Advertising Medium

Customer Service High

OPERATIONAL AUDIT ASSESSMENT: TO BECOME PROFITABLE

Better understanding of competitors

Retraining of sales Personnel

Competitive pricing

Revamping of Marketing and advertising

Status : Increased Gas and fuel charges (Global)

Led to increased price of Gas

Customer dissatisfaction

Operational Audit Checklist Grades

Production Issues Medium

Sales Issues Low

Marketing Medium

Advertising Medium

Customer Service low

TO BECOME PROFITABLE Operational Audit

Assessment:

Better understanding of competitors ( What is Shell doing)

Retraining of sales Personnel (Educate Staff)

Reengineered of Marketing and advertising programs

Status Government has reduced budget & fewer Teachers available to teach

Operational Audit Checklist Grades :

Production Issues N/A

Sales Issues N/A

Marketing low

Advertising& Branding low

Customer Service low

TO BECOME PROFITABLE Operational Audit

Assessment: - Improved local Community

involvement

( may increase the number of students)

-retraining of School Official in managing Parents

- Perhaps employ part time teachers

Conclusion

For all organizations to be successful, it is essential to conduct some form of audit at regular intervals. An increasing number of organizations, whether private or public, big or small, have been deploying various auditing services, such as value-for-money auditing, efficiency auditing, performance auditing, management auditing and most of all operational auditing, over the past few years. Although these various terms may appear vastly different, their ultimate goal is the same - to boost the operational efficiency and effectiveness of an enterprise.

Operational auditing itself is not new — but the operational auditing methodologies of today's world class organizations are. And in order for a company to remain profitable I would strongly suggest the implementation of a comprehensive detailed financial analysis, such as an Operational Audit.