An operational audit looks at a function or process and asks whether it is working as intended: where effort is wasted, where controls are bypassed, and where the result does not match what was planned.
This describes the subject in general terms and is not advice; what applies depends on the facts, and the law changes.
Understanding the service
The focus is operations rather than the financial statements. Procurement, stores, billing, collections, payroll, logistics and branch operations are common subjects.
The output is a set of findings and recommendations, with the cost or risk attached to each where that can be established.
It overlaps with internal audit. In practice an operational review is often commissioned as part of an internal audit plan, or as a one-off examination of a function that is causing concern.
When it becomes relevant
- A process that consumes more cost or time than expected
- Branches or units whose results differ without an obvious explanation
- A function that has grown by accretion and has never been reviewed
- Management considering a change to a process or a system
What the work usually covers
- Documenting how the process actually runs, as against how it is supposed to run
- Identifying control gaps, duplication and bottlenecks
- Testing a sample of transactions end to end
- Comparing outcomes across units or periods where comparison is meaningful
- Practical recommendations, with management's response recorded
Framework and sources
The law and professional standards this work is carried out under. Links open the official site.
How the work runs
- Define the subjectAgree the function or process under review and what the review is to achieve.
- Map the processRecord how the work is actually performed.
- TestFollow transactions through the process and examine exceptions.
- AnalyseIdentify the causes, not only the symptoms.
- ReportSet out findings and recommendations with management's responses.
A general sequence. Engagements differ, and the scope of each is agreed in writing.
Common questions
How is this different from internal audit?
Internal audit covers a plan of areas over a period, usually driven by risk. An operational audit examines one function or process in depth, and may form part of that plan.
Will it produce cost savings?
It may identify inefficiencies, but no review can promise a particular saving.