Businesses can get a decent idea of how they are doing in operations by examining company data on their own. However, sometimes those close to the company don't review this data completely objectively or are so familiar with operations that it is difficult to come up with other approaches to finishing work. To truly gain a good picture of whether the company is operating well and get fresh ideas of how to improve, businesses and other organizations may turn to the operational audit process.
An operational audit process is the series of steps an auditor takes to evaluate the operational activities of a given company or other organization. The process is very similar to the processes for other forms of audits, such as the financial audit, but the operational audit process is a much more in-depth review of the business. It usually does not focus on a single department or project, because each department plays a role in the overall operational process and is interconnected.
The goal of the operational audit process is to determine whether the internal controls of the business, such as policies and procedures, are sufficient to produce an optimum level of efficiency and effectiveness. This is critical for businesses, because a lack of efficiency and effectiveness typically translates to fewer sales or increased operational costs, which sometimes mean the inability of the business to compete and stay in business.
During preaudit, the auditor meets with managers, explains the audit process and gathers basic information about the company to determine concerns and risks. Next, the auditor meets with key managers to verify the components of the audit and the associated concerns. Third, the auditor meets with those in control of high-risk areas and figures out and documents their objectives and control activities. The auditor sends the documentation to the managers for confirmation and discusses controls not in place. Fourth, the auditor designs and prepares testing procedures for each key control. He reviews the plans with managers and carries out the tests, documenting and discussing all results and improvement proposals. Fifth, he drafts an audit report, meeting with management until it is clear that management knows how to address the issues found. The final step is the creation of a final report and follow-up.
Advantages and Disadvantages
Going through the operational audit process provides a company with objective opinions. Those opinions often generate quicker production or sales turnaround, better allocation of costs, improved control systems, the location of areas of delay and an overall streamlined workflow. However, similar to any audit, operational audits cost money to perform. Those involved in the audit cannot be engaged in other operational processes when they are meeting with the auditor or gathering data for the auditor to use. Additionally, operational audits take considerable time to complete, and it can be harder to determine exactly what is causing problems the more complex operations are. Additionally, even though overhauling operations based on audit results may save the business money in the long run, doing so can rattle employees, cause initial confusion and necessitate increased training or significant staffing alterations.
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778
Copyright © Daniel Cullinane CPA.