Is Operational Audit a Statutory Compliance?

There is no statutory compliance for a company to conduct the operational audit. Operational Audit is conducted when Management desires to evaluate the company's operational efficiency and effectiveness. It helps Management in improving the economic savings of financial processes, where operations are based on financial statements.

Role and Responsibility

The primary responsibility for managing the day-to-day operations is of CEO and/or General Manager. But for every individual function/process covered under Operational Audit, the responsibility will be of the Process Owner/Line Manager responsible to handle that process or operation.

Steps Involved in Operational Audit

1. Understanding the Organizational Structure & Operational Hierarchy of the Company.
2. Understanding the existing Policies, Procedures, and Manuals for each function/process one by one.
3. Walkthrough of each role & check the duplication of existing defined roles.
4. Analyzing the gaps in the Policies, Manuals, and Procedures.
5. Recommendations to the Management for bridging the gaps and put in place (where non-exist) the internal controls.
6. To ensure the smooth flow of the business with the suggested measures & recommendations.
7. To create a follow-up audit to check the operational efficiency of the operation.

Activities of Operational Audit

In a program of operational auditing, the auditor is capable of appraisal activity with particular reference to the following aspects:

1. The extent of internal analysis, extent of observation of the activities, examination of past records and future profit improvements.
2. Ways & means to eliminate waste or loss by highlighting the bottle necks or potential danger spots that exist between line and executive management levels.
3. Potential savings from a better allocation of resources.
4. Strengths of the current process to get over adverse results and circumstances.
5. Potential deviations to avoid delays.
6. Quality of objectives designed.
7. Study of risks and mitigation strategies.
8. Problems in the physical flow.
9. Study of physical systems from operating departments - how production is achieved - how assessment is made of results achieved.
10. Production efficiency, quality control, and abnormal wastages.
11. Workforce and manpower planning.

Reporting and Discussion

The reporting should be very helpful and accommodating to the Management. The operational Audit report provides in detail the observations, auditor's recommendations, Management's responses, actions to be taken by the Management, the time schedule to be taken, the process owner, and the target date for the closure of the observation. This report is to be discussed with the Management and process owner in detail, so as to help Managers to evaluate and analyze the current effectiveness of a company's operations while identifying areas of potential improvement.