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What is an operational audit?

Examining your business's internal processes on a regular basis ensures that all operations are running as efficiently as possible. Auditing can improve sales figures and reduce operational costs, making a business more competitive. Here's a look at how the process works and why an operational audit can be beneficial.

What is an operational audit?

An operational audit refers to the process of evaluating a company's operating activities – both on a day-to-day level and a broader scale. While other types of audits might look solely at a single department or the company's finances, an operational audit delves deeper. It serves as a detailed look at all of the internal departments and processes that make up a business's operations. Whereas a regular audit evaluates financial statements, an operational audit examines how a company conducts its business, with the aim of increasing overall effectiveness.

Operational audits could be conducted by outside specialists or an internal audit team.

Reasons to perform an operational audit

The aim of an operational audit is ultimately to optimize efficiency. By auditing the business's internal policies and procedures, the company can identify trouble spots and operate more effectively. The outcomes gleaned from the audit are most useful to the management team, who can take these recommendations on board to streamline future processes. Here are three of the primary outcomes of a successful operational audit:

  1. Maximize efficiency: Gain a greater understanding of how future policies and procedures can boost effectiveness. 

  2. Understand risks: Businesses run many operational risks, ranging from health and safety issues to cyber threats. A full operational audit identifies risks like these, as well as potential problems related to fraud and compliance.

  3. Finetune internal controls: By examining each step of the operational process, an audit can dive deeper into the impact of any changes to internal controls.

Operational audit process

A pre-audit meeting lays the foundation for the operational audit process. At this preliminary stage, the auditor sits down with the management team to gather relevant information. Collecting background information about the business helps identify any areas of concern or industry-specific challenges that need to be addressed. At this preliminary stage, the auditor will also thoroughly explain the auditing process to the managers.

The auditor can then conduct interviews with managers in control of potentially risky areas. Objectives and activities are documented, with risks highlighted and sent back to managers for confirmation. Using the operational trouble spots, the auditor can design testing procedures at the control level. Tests are conducted, with results meticulously documented, to show which new processes or goals can improve the organization's efficiency.

Finally, the auditor writes up a comprehensive audit report. Follow-up visits with management can help to finetune any ongoing issues with new systems or controls. 

Operational audit checklist

The specific areas of scrutiny in an operational audit will depend on the type of business being audited. We've outlined the general process above, but here is a quick operational audit checklist of procedures for better flow:

  1. Select and screen auditors

  2. Define audit plans and scope

  3. Pull together reference documents

  4. Identify administrative support

  5. Research operational procedures

  6. Collect statistical evidence

  7. Audit evidence from all sources

  8. Evaluate evidence

  9. Compile audit findings

  10. Share audit conclusions

  11. Give actionable advice

  12. Follow up with questions and concerns

Operational auditing benefits

There are many reasons to consider an operational audit. When performed by an outside party, it provides a business with an objective overview of company operations. These can yield new insights leading to improved sales, quicker production processes, and streamlined systems. Identifying risks ahead of time can future-proof the business against damages.

Operational auditing challenges

One factor to consider before ordering an operational audit is that it does cost both time and money. When managers and employees are engaged with the audit, they will be pulled away from their usual activities. For complex organizations, an operational audit can be relatively time-consuming because each step of the process must be analyzed.

Business owners should also be aware that operational audits can turn up unexpected problems that take time to repair. This might involve a complete overhaul of existing systems, requiring new training for employees. In the long run, these disruptions can be worth the trouble, should the operational audit lead to a more efficient method of doing business.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.