Managers often review and report on the effectiveness of various processes and procedures within the companies they manage. Financial audits review the accuracy of financial records, processes and procedures, while an administrative audit might examine the efficiency of support functions such as payroll and human resources. These activities contribute indirectly to the functioning of the business. Operations consist of those work processes that directly create the products or services that are the company's main business. For example, in a dry-cleaning business, operations would include all work that contributes directly to cleaning customers' clothing. An operational audit in this case would consist of an examination of those procedures used to complete the dry-cleaning process.
The purpose of an operational audit is to improve the efficiency of day-to-day operations. In other words, managers review the routine processes and procedures of those employees, such as production workers, who do the primary work of the company. Managers use the operational audit to evaluate and analyze the current effectiveness of a company's operations while identifying areas of potential improvement. The identification of areas requiring improvement is a key aspect, as the fundamental purpose of the operational audit is to improve effectiveness.
During an operational audit, managers typically analyze all factors involved in transforming the company's resources into products and services that are valuable to the business's customers. This includes the routine processing, production, inspection, storage and delivery of products and services. An operational audit should examine a variety of aspects of operations, from the production and storage facilities to worker schedules and performance management. Managers, supervisors and others involved in the audit should examine each process to identify inefficiencies that may be eliminated to improve effectiveness of operations.
The McGill University Internal Audit website recommends implementing six phases in the operational audit process to achieve maximum effectiveness. Phase 1 includes the pre-audit process, in which managers are informed that an audit will take place. During this phase, auditors gather information required to determine the depth and breadth of the audit. Auditors confirm this information with unit managers during the risk assessment phase in an effort to narrow the focus of the audit. Phase 3 consists of developing a control matrix that will be used to test operational effectiveness in phase 4. In the test phase, the auditor examines documentation and interviews workers to test the effectiveness of key work processes.
Operational Audit Report
The final phases of the McGill University Internal Audit website's operational audit process include drafting and distribution of an operational audit report to unit managers and company principals. The final audit report should outline the scope and purpose of the audit, including any background information necessary to support the opinions and recommendations reached as a result. The auditor also outlines recommended changes to improve operational effectiveness within the report. The final audit report is distributed to managers and supervisors responsible for putting the changes into action.
OPERATIONS EFFECTIVENESS AUDIT
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Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778