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Best Practices, Culture

Operational Audit Overview: Definition, Process, and Purposes

Jul 15, 2021 8 min read

Qvalon Blog article content

Have you set some guidelines and procedures for the company, but you still see some hiccups in the process?

It’s a good effort to establish rules for people to follow because this helps streamline your business processes.

There's one problem, though—any retail business without a proper system will have some difficulties meeting goals. Thus, you need something more than current guidelines and procedures.

What you need is to trace back your steps to find out where the trouble spots are. Here’s where conducting an operational audit is helpful. It might just be the thing you need when your business operations are lacking assessment and careful evaluation. 

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Now, get ready to roll up your sleeves and get to work.

What is an operational audit process?

An operational audit examines the processes, systems, and procedures of an organization. While it does sound simple, this type of audit deep dives into your management practices to find all the loopholes your current system has. This gives you a sneak peek of what needs to be addressed. 

You might be thinking this is usually how audit works, how is operational audit different from other types of audit

Short answer: An operational audit is more comprehensive. It focuses on possible improvements for your business processes—it isn’t just concerned with your mistakes and achievements. 

What is the purpose of an operational audit?

A company's internal processes are the primary focus of an operational audit. Organizations can operate more efficiently and effectively by identifying trouble spots.

To highlight the benefits of conducting an operational audit, we’ve laid them out for you here:

Operational audits help identify potential growth areas

Part of your business growth means encountering some room for improvement along the way. Do your employees have trouble remembering repeat customers or don’t have a proper way of greeting them at all? Or perhaps you always see long lines on the cash desk?

These are frequent problems in a retail store. With operational auditing, you’ll find development opportunities and understand why these challenges often occur in the customer service department. 

And once you do, you’ll be in a much better position to take any action that will satisfy that need.

Operational audits improve business efficiency

Knowing each department's weaknesses and the reasons for underperformance allows you to set up new policies and procedures to improve productivity. Auditors should thoroughly examine not just internal activities but behaviors, as well.  

If you have employees, you can ask them about obstacles they face and what can be done to solve these problems. The goal is to boost each department's efficiency and make sure all internal processes have been effectively streamlined.  

Operational audits provide motivation and maximize productivity

Motivated employees are an asset to any company. Profits rise by 21% when your staff members are engaged, according to GoRemotely. 

Operating audits aim to help organizations set policies and standards based on careful observation. Taking this approach also helps managers motivate their employees to do better and work hard for success.

Each team member will also understand your expectations and learn what counts as good work. A good operational audit example is creating objective goals and using them to motivate your employees and maximize productivity.

Operational audits pinpoint risks and opportunities

Each business runs different operational risks. It could range from cyber threats to technology issues, fraud, and health and safety concerns. 

One good operational audit example is the COVID-19 assessment. According to Forbes, it’s more than important to assess risks during this time due to resiliency concerns. 

An operational risk auditor can discover risks and provide insights on dealing with the current situation, so your business can help you adapt accordingly. Once your managers and the auditor know the risks associated with the company, you can better identify operational opportunities to reduce future risks.

What’s the operational audit process like?

Operational auditing is best performed by following a process or set of steps, which an external auditor usually carries out. The process involves evaluating individual departments or a specific project. 


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Pic. A process flow for operational audit


Each segment of the process contributes to the success of the whole. Let’s look at each one more closely.

Establishing the audit program and its objectives

The auditor meets with the management team during the preliminary stage to document relevant information. Pre-audits are essential to setting the stage for operational audits. 

The conversation will be an exchange of information. Your business should share your concerns and challenges, and of course, your current performance. 

Implementing the audit program

The auditor explains the flow of the auditing process. The auditor's job is to dig into the details and identify any risk areas. Risks will be outlined with objectives and related activities, and your managers should go over them for verification. 

Monitoring the audit program

After identifying the trouble spots, the auditor creates procedures aimed at testing the system. A series of tests are carried out, and the results meticulously documented to show which new programs or processes can improve the organization's efficiency.

Reviewing and improving the audit program

You’ll receive a full report on the auditor’s findings which you can refer to any time. After implementing the new controls or systems, you can refine them through follow-up visits. Bear in mind that this is a process and something that you will have to do later on. 

Two ways to conduct an operational audit

Now that you know the operational audit process, it’s time you learn about the two ways you can approach the process. Auditing operations can be done both manually and digitally. 

Each process has something that makes it work. To help you figure out which is the right and most efficient option for your business, we conducted a comparison for you. 

Manual Operational Auditing

Manual auditing is just like any traditional auditing—using papers and documents. The process is pretty simple. You just create a document, fill in the necessary fields, and send them to the inspecting manager. The document will then be reviewed, and the team will meet for feedback and further evaluation.

Benefits

Managing your business audits manually has a lot of advantages, here are some of them:

  • Less expensive to set up

  • Duplicate copies can be easily avoided

  • Simplified process

  • Lesser risks of data loss and corrupted data

  • Correcting entries are easier

Drawbacks

Manual operational auditing may be functional, but it’s quite outdated and has significant drawbacks:

  • Space-consuming

  • Difficult to make changes

  • Lack of security

  • Prone to damage and misplacements

  • Time-consuming

  • Higher cost and labor input

  • Sometimes impossible to highlight important details and aspects

  • Loss of relevance due to the slow process

Digital Operational Auditing

Technology is constantly changing, and more businesses are switching to a modern IT solution for a hassle-free transaction. The digital system offers a convenient record-keeping system—making it easier to check evaluations, generate reports, and capture information. 

Benefits

Digital operational auditing simplifies record keeping and helps produce meaningful reports. Here are other benefits of switching to a digital audit:

  • Records business transactions easily and efficiently

  • No time delay

  • Easy to generate any type of report

  • Keeps up with the latest formats and templates

  • Allows you to save and back up records and store them safely 

  • Less storage space

  • Provides automatic reporting functions

  • Low workload for managers and auditors

  • Powerful analysis system

Drawbacks

A paperless audit may seem more convenient than manual auditing, but it also has its drawbacks:

  • Requires technology

  • Auditing tools have different rules for filing and keeping document

  • Security considerations—who can access sensitive information and data

  • Changing over systems

Once you’ve chosen the right method for your operational auditing, it’s important to note these three main stages—verification, analysis of results, and testing identified problems. Just follow these stages to optimize your business processes effectively. 

To wrap up

Any organization should conduct an operational audit. If you only know about sales and finances, your business can't grow successfully. Conducting an operational audit can help you better manage your team's productivity and efficiency. 

QVALON has a downloadable booklet that explains operational audits in more depth. It’s also got a free questionnaire to help you determine if your business can benefit from this process. Claim yours here.