Operational Auditing Operational Audits -also known as operational audits, performance audit.

-are conducted to evaluate the efficiencies and/or efficiency of operations. -often performed by internal auditors for their organizations. Operational Auditing-also refers to the auditor’s study of business operations for the purpose of making recommendations about economic and efficient use of resource, effective achievement of business objectives & compliance with company policies.

a. the e-tent to which the desired results or benefits established by the legislature or other authorizing body are being achieved. b. the effectiveness of organizations, programs, activities or functions. c. whether the agency has complied with laws and regulations applicable to the program. . !ompliance Audit-includes testing and reporting on whether an organization has complied with the regulations of various laws, regulations and agreements.

"#PES O$ O%&A'()A"(O'A* A+,("S: Objectives of Operational Audits: op management need assurances that every component of an organization is working to attain the organization’s goals. !anagement needs the following" #. $ssessments of units performance in relation to management’s objectives or other appropriate criteria. %. $ssurance that its plans are comprehensive, consistent, and understood at the operating levels. &. 'bjective information on how well its plan and policies are being carried out in all areas of operations and on opportunities for improvement in effectiveness, efficiency and economy. (. )nformation or weaknesses in operations control. *. +eassurance that all operating reports can be relied on as basis for action. "-ree .road !ategories of Operational Audits: 1. $unctional -deals with one or more functions in an organization. -has the advantage of permitting specialization by auditors. 2. Organi/ational -the emphasis in an organizational audit is how efficiently and effectively functions interact. -the plan of organization and methods to coordinate activities are especially important in this type of audit. . Special Assignments -this arise at the re,uest of the management, -wide variety of such audits.

Scope of Operational Audit: he auditors must determine specifically which policies and procedures are o be appraised and how they relate to the specific objectives of the organization. 1. Economy and Efficiency Audits-include determining" a. whether the entity is ac,uiring, protecting and using its resources economically and efficiently. b. the causes of inefficiencies or uneconomical practices. c. whether the entity has complied with laws and regulations concerning matters of economy and efficiency. 2. Program Audits-include determining"

,istinction .et0een Operational Auditing 1OA2 and $inancial Auditing 1$A2 A. Purpose of t-e Audit -.$ emphasizes whether historical information was correctly recorded whereas '$ emphasizes effectiveness, efficiency and economy. -.$ is past oriented whereas '$ is concerned with operating performance for the future. .. 'ature 3 ,istribution of t-e %eport -.or .$, report typically goes to many users of financial statement, whereas '$ reports are intended primarily for management.

Summary Operational Audit %eport ----------------------------------------------------------------------------------------------------------------------------------------1$ 2" '" . 2-ecutive 8ice 9resident 1irector of )nternal $uditing +esearch and 9roduct 1evelopment <enter Executive Summary /e have completed an audit of the +esearch and 9roduct 1evelopment <enter.1 5-o performs operational Audit6 (nternal Auditor -are in such a uni. Efficiency4 Economy Effectiveness -refers to an entity’s or a unit of an entity’s success in actually achieving its goals and objectives. the management of the <enter.indings. -likely to determine the cause of the reduction to evaluate the possibility of obsolete inventory that would misstate the financial statements. -is also described as reducing cost without reducing effectiveness. (nclusion of 'on-financial Areas -'$’s cover any aspect of efficiency and effectiveness in an organization and can therefore involve a wide variety of activities. %556 3osefina 7lanes.32< " $udit 3anuary 4.-/ording in . &overnment Auditor -concerned with both financial and operational audits. -'$ reports vary considerally from audit to audit of the diverse nature of the audits for efficiency and effectiveness. -.$’s are limited to matters that directly affect the fairness of financial statement presentation. $igure 9.ue position to perform operational audits that some people use internal auditing and operational auditing interchangeably.2 presents the 1etailed 1iscussion of 'perational $udit . !. Purpose and Scope . -an advantage that internal auditors have in doing operational audits is that they spend all their time working for the company they are auditing.to Operational Audit Effectiveness vs. and issued it to. Efficiency -refers to how well an entity uses its resources to achieve its goals.$ reports is well defined because of the widespread distribution of the reports.1 illustrates a 0ummary 'perational $udit +eport while $igure 9. 'ur audit objectives and findings are summarized below. &eneral Approac. !PA $irms7E8ternal Auditors -provides useful information for giving operational recommendations. Economy -refers to an entity’s success in ma-imizing the use of its limited resources to achieve its goals and objectives. (llustrative %eports $igure 9. /e have discussed our detailed report with.+'!" 0:.

1evelop budgets that project costs on a monthly basisso that project managers can meaningfully monitor project costs. were as follows" • • • o document. and evaluate individual researchers appear to be efficient and effective.uire improvement. costs ranged from #*5 percent to (55 percent of budgeted cost. %55*. which were specifically outlined in our letter dated 3une &5.inancial data consulted in the course of our analyses were not audited or reviewed by us. ?owever.etailed . %. he operational audit involved interviews with management personnel and selected operations personnel in the units studied. =&> evaluate whether a project deserves to be continued. $igure 9.iscussion of Operational Audit $indings ----------------------------------------------------------------------------------------------------------------------------------------+esearch and 9roduct 1evelopment <enter 2fficiency and 2ffectiveness $udit 3anuary @. Objectives. he research director agreed with our findings and recommendations and plans to reply to our report by 3anuary &#. Sample Operational Audit %eport (ntroductory *anguage for an Operational Audit %eport ----------------------------------------------------------------------------------------------------------------------------------------!r. 'ur evaluations included both the financial and operational conditions of the units.'ur purpose was to evaluate the effectiveness and efficiency of the research and product developmebt activity. with the research director at our closing conference. &. )n 0eptember %55*. %556 Findings #. systems. . . o identify areas that re.2 . we developed recommendations for improvements. %. &. 1antes. analyze. $fter analyzing the data. . we do not e-press an opinion or any other form of assurance on them. . Summary of Audit Results he procedures and practices used to identify projects undertaken. illustrates a 0ample )ntroductory 7anguage for an 'perational $udit +eport $igure 9.ecause of the time lapse. and report on the status of current operations. accordingly. )n particular. /hen the inade. $igure 9.udgets for research projects are not developed for monthly activities so that costs can be compared to monthly e-penditures. =%> control costs on project undertaken. %556. Recommendations #. and =(> evaluate individual researchers’ activity. procedures. /e then discussed our findings and . Scope and Approach he general objectives of this engagement. and policies as we considered appropriate. reports. we concluded an operational audit of the data processing operations. we looked at procedures to =#> identify projects to be undertaken.uacy of a budget becomes clear.uire attention o make recommendations for corrective action or improvements 'ur operational audit encompassed the cenrtralized data processing facilities and the on-site computer operations of the company’s retailing division. /e discussed these matters.projects completed during the year. project directors ignore this report.or si. /e also evaluated selected documents.uire project directors to report monthly on whether they will be able to complete the project within budget. files. !onthly cost reports for individual projects are usually not available until thirty days after the end of each month. 2ncourage the development of realistic budgets. 'btain cost reports promptly and re. following the procedures initially used to approve the budget. modify it. evaluate projects. procedures involved in controlling costs on active projects re. and. along with some administrative weaknesses and our recommendations for corrective action. Aestor 1antes 8ice 9resident B 'perations 9anorama <orporation !akati <ity 1ear !r.

he varying nature of the recommendations. and credit memos are now being issued within * working days after the re. !ost of the trucks were used for service calls. he resultant contract actually saved more than 9 #65. he re. urgency. imely 1eposit 1uring a cash review. he auditor found the complaint was justified because an average of #( working days elapsed between the receipt of the re. (. )n some cases. 'utside 3anitorial saves 9 #65. !anagement agreed to implement a direcvt deposit or electronic funds transfer system and to perform the reconciliation distribution process after the funds were deposited.uest and substitute well-controlled procedures for afterthe-fact approvals in place of the preapprovals. he audit disclosed the costs of the janitorial services were e-cessive when compared with similar services performed by outside janitorial firms. and with you.uest is received. $s a matter of fact. and complaints have ceased.uest. $ study of alternative janitorial services indicated e. which consisted of on-the-scene repair of coin bo-es or other simple adjustments not re. he recommendations in this report represent.555 vending machines in a large metropolitan area. :se the right tool he company leased %* heavy-duty trucks for use by service employees who installed and repaired about %5.uests were not moving in an efficient linear flow.inally.uantity. the internal auditor found that bank deposits were not made until several days after the cash and checks were received.uest then went back again to one of the approving departments for sorting. the time-phased flowchart looked like a zigzag with a bad case of hiccups.uent complaint heard by the internal auditor concerned the inordinate amount of time re.uipped with hydraulic lift-gates for loading and unloading vending machines. :sing a time-phased flow chart.555.uired to process customers’ credit memos.uired functions the first time it handled the re.uality of the cleaning improved noticeably.indings and +ecommendations> -----------------------------------------------------------------------------------------------------------------------------------------E8amples of Operational Audit $indings (nternal Operational Audit $indings #.ual or better service could be provided by an outside janitorial firm and at a savings of 9 #&C.55 a year. coding and batching.uired from # to * working days depending on the workload and comple-ity of the re.uired.555 $n internal auditor reviewed the efficiency and effectiveness of the janitorial services furnished by the local government employees for the buildings in the capitol comple-. he system’s estimated additional interest is about Operational Auditor:s %ecommendations he auditor recommended the local government seek competitive bids and contract with the janitorial firm submitting the lowest bid that meets the specifications.uiring the hydraulic lift-gates. visibility of benefits. he auditor recommended each approving department perform all the re. he cause was a complicated reconciliation/distribution process re. the re. prior to submitting this written report. $ll of the trucks were e.uipment or additional personnel. . those most likely to bring about improvements in the operations of the organization. their implementation costs.uired investment in facilities and e.555 a year. and the . as many as %# working days elapsed before the memo was issued. he auditor noted a higher degree of customer’s satisfaction. %. Findings and Recommendations $ll significant findings are included in this report for your consideration. he recommendations differ in such aspects as difficulty of implementation. the auditor determined the re. he internal auditor found that only a few of the trucks were actually delivering and picking up vending machines.uest was transmitted to the computer to issue the memo. in our judgment.uest and the actual issuance of the memo. the auditors found many janitorial tasks were not complete as re. &.uiring & to #* days to complete. and re. he recommendation was adopted. 2ach step re.uests moved from the originator for removal of the supporting documents. !ore timely credit memo processing $ fre. )n addition. resulting in unacceptable . and their potential impact on operations should be considered in reaching your decision on courses of action.recommendations with appropriate unit management personnel. =0pecific . !anagement agreed and the savings in lease rates and operating e-penses were estimated at p %*. he re. he auditor recommended most of the heavy duty trucks be phased out and replaced by conventional light vans. .

555 a year.9 #%5. .

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