Internal Audit: Operational Audits
Operational auditing relates to auditing of business processes or operations. Operational audits can be comprehensive and include elements from financial audits as well as performance audits.
When the Auditors perform an operational audit, their overall goal is to provide the management team with practical, strategic recommendations to:
- Identify cost saving opportunities,
- Identify revenue enhancement opportunities,
- Meet financial audit requirements (provide the necessary assurance to regulatory or grantor agencies, board or management), and/or
- Overcome risks and take advantage of opportunities
Operational audits are big-picture, open-ended reviews. Auditors meet with managers and staff to refine the purpose(s) of the audit, review the mission of the program and the day-to-day practices to achieve that mission. They do a scan of what similar agencies (both public and private) are doing to achieve the same goals. They test the variables and come up with recommendations or strategies for that specific program.
|"Those who are immersed in a business process are likely to lack the perspective of an internal auditor who has examined a number of similar processes or lack the time to step back and analyze their operation. When the two experts are brought together, their combined expertise results in a greater understanding of business risk and opportunity."
Ramen Prasad, Audit Manager
A successful operational audit helps managers make good decisions. Recommendations vary widely. Some recommendations are process improvements to save money or time, some are suggestions for generating additional revenue, others may be suggestions for working collaboratively with other agencies, changing schedules, locations, purchasing equipment that helps automate steps, or they may be a programmatic changes, if allowed by law. Operational audits vary widely and are always collaborative endeavors.
Financial audits include financial statement and financial related audits.
- Financial statement audits provide reasonable assurance about whether the financial statements of an audited entity present fairly the financial position, results of operations, and cash flows in conforming with generally accepted accounting principles. Financial statement audits also include audits of financial statements prepared in conformity with any of several other bases of accounting discussed in auditing standards issued by the American Institute of Certified Public Accountants (A.I.C.P.A.)
- Financial related audits ascertain whether:
- financial information is presented in accordance with established or stated criteria,
- the entity has adhered to specific financial compliance requirements, or
- the entity's internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve the control objectives.
Performance audits include economy and efficiency and program audits:
A performance audit is an objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of a government organization, program, activity or functioning order to provide information to improve accountability and facilitate decision-making by management.
- Economy and efficiency audits determine:
- whether the entity is acquiring, protecting and using its resources (such as personnel, property and space) economically and efficiently,
- the causes of inefficiencies or uneconomical practices, and
- whether the entity has complied with laws and regulation on matters of economy and efficiency.
- Program audits determine:
- the extent to which the desired results or benefits of a program are being achieved,
- the effectiveness of organizations, programs, activities or functions, and
- whether the entity has complied with its governing laws and regulations.