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Operational Audit

A Closer Look into the Mirror

The American President – John F Kennedy once famously said; “The time to repair the roof is when the sun is shining”. This phrase so accurately suggests that you should act on identifying and fixing your problems when the things are going relatively smooth rather than waiting for the bad times to come and be left with no other options.

The concept of “Operational Audit” follows the same principle as it is basically a forward looking process where you evaluate your current performances and procedures to identify any areas of improvement for better results in the days to come.

At times, an organization might seem to be running perfectly and yielding good returns for the stockholders and everyone looks happy. However, a closer look at the performance of the organization can rather reflect a telltale sign that it is actually underperforming when it should be yielding much higher rate of returns. Other times, organizational slackness can be seen much more explicitly by factors such as low sales, high employee turnover, decreasing rate of retained customers, increased expenses, and much more.

It is in such situations, organizations fallback to the trusted toolkit called “Operational Audit”. The term audit is more commonly associated with financial matters of an organization. But Operational Audit – though it includes financial reporting as well – goes further beyond the financial scrutiny and covers every aspect of the organization management.

The Institute of Internal Auditors’ (IIA) defines operational audit as: “A systematic process of evaluating an organization’s effectiveness, efficiency and economy of operations under management’s control and reporting to appropriate persons the results of the evaluation along with recommendations for improvement.”

So, Operational Audit basically involves analyzing various operational functions of an organization to identify any pitfalls in them, ascertain the primary factors causing such pitfalls and finally recommend effective course of action to correct such shortcomings in order to achieve the highest possible efficiency the organization is capable to yield. Depending on the scope/objective of such audits, size of the organization and nature and complexity of the problem, the duration of such audits can last anywhere from a few weeks to a many months.

An operational audit mainly studies the various working policies and procedures implemented in the organization which can include anything from the general organizational structure to the daily workflow processes, human resources and their responsibilities and accountabilities, procurements and record keepings, monitoring and reporting practices and so on. At the end of such studies, the audit is expected to suggest how things can be done differently than usual within an organization so that better results can be achieved through the collective organizational synergy.

The Common Oversight

Operational Audit is very commonly mistaken as a mere remedial tool when it is in fact a tool for continuous improvement. In today’s competitive world, things are always changing rapidly. So in order to adapt with such internal and external changes and rather be a step ahead, organizations should regularly check themselves and figure out how they can perform even better going forward. By conducting regular operational audits, organizations can routinely identify areas for improvement and save themselves from missing out on opportunities that lie ahead of them.

Benefits of Operational Audit

Things are not always as they seem at a first glance. It is only when you look more closely, the true picture start to emerge more vividly. So an Operational Audit is more like taking a closer look into the mirror to identify the dark spots that you’ve been missing to notice otherwise. Without conducting such in-depth audits, you are either overlooking your hidden issues or failing to figure out the actual cause and thus the definite remedy for your already identified problems. Thus the primary benefit of operational audit is that it ensures that the organization’s operating procedures are actually leading it towards its stated objective through the most effective and efficient route.

Who holds the mirror for you?

Operational Audit is sometimes regarded as an extension of the Internal Audit procedure. However, rather than re-checking it yourself, allowing another pair of eye to take a look at your issues most often than not always help in finding the hidden issues that are buried deeper inside. So, it is always highly recommended that external auditors who possess more knowledge and expertise in the matter be hired to conduct such audits. They will offer you a fresher and different perspective at your issues than by the internal auditors who are usually very accustomed and habituated with the policies and procedures of the organization and easily fail to think differently and thus critically review them.

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