Operational Audit: Best Practices Used by the Experts

Operational Audit, Best Practices Used by the Experts

70% of all businesses fail within the first 10 years.

Business owners reading this: for every ten of you, 7 will fold.

Despite that morbid start, I begin this Process Street article looking at the operational audit. I will demonstrate how using an operational audit can refine, improve, and evolve your business operations, setting you up for business prosperity. Wouldn’t it be nice to alter the above stat to 100% business success?

A tall order but, as the Westlife song goes, Nothing is impossible – apologies if you are not a Westlife fan. I believe that optimized operational audits play a significant role in driving business success. In this article, I will explain why. You will also find out:

  1. What an operational audit is
  2. The benefits operational audits bring to Business
  3. Operational audit best practices
  4. How you can implement internal operational audits with Process Street. These will be recurring processes within your business

To jump to the relevant section, click on the links below. Alternatively, scroll down and read all to become an expert in the auditing world.

Let’s get started!

Operational audit: What is an operational audit?

An operational audit systematically and independently analyzes an organization’s operations to evaluate operation effectiveness, efficiency, and economy, with a future-orientated perspective.

Before we get started looking at the operational audit, I highly recommend you read my previous articles detailed below. These posts are to be used supplementary to this post on operational audits:

The auditing world can be a minefield of jargon. When first introduced to auditing as a discipline, I was frankly confused. During my student days, studying the financial audit resulted in copious amounts of coffee and a Jane flapping around the library.

If the term audit has a similar effect on you – I can sympathize.

Luckily though, you have come to the right place. We at Process Street have simplified auditing to include only those aspects important for you and your business. By reading this, and the above articles, you will gain a thorough understanding of audits and audit procedures.

Operational audit: What is an audit

As I state in Audit Procedures: A Quick Tour With 19 (Free) Templates, an audit is a…

“…result, usually given in the form of a report, obtained from evaluating a particular business process or processes.”

Many associate the term audit with financial audits. However, financial audits are one type of audit, and there are many types. This is something that you need to be aware of.

Operational audit: The different types of audit

What do I mean by types of audits?

Audits can be classified based on four principles, as defined by Wiki Accounting:

Wiki Accounting then goes on to list 14 different types of audits. From Financial audits – read: Financial Audits: A Quick Guide with Free Templates – to the internal audit. They are all there.

If you want to find out more about the different types of audits, I recommend that you read Types of Audits: 14 Types of Audits and Level of Assurance by Wiki Accounting

For this article, we are only interested in one type of audit, that is, the operational audit.

Operational audit: Operational audit objectives

Business Study Notes summarizes definitive objectives of an operational audit:

  • Objective 1: Improve business operations via analyzing managerial, administrative and operational aspects. Make appropriate modifications
  • Objective 2: Support the processes with the greatest need for modification. Identify areas where cost reductions can be made
  • Objective 3: Identify shortcomings in time and money to transform an activity into a profitable process

All in all, the above objectives align to give one overarching outcome: To do more with the least amount of resources possible.

With this, say hello to a happier you and long-term business prosperity.

Once more, by reducing the number of resources needed for your business processes, you inadvertently become a greener, more sustainable business. Environmental champion , I hail to you.

Keeping this in mind, conducting a thorough operational audit is a win-win situation. The question is, how do you do it?

Operational audit: What do operational auditors do?

Operational Audit - Operational Auditors

Operational audits are externally conducted by an operational auditor. An operational auditor is a specialist, who looks into every facet of management to produce an operational audit report.

Operational audits have many moving parts. They must follow a process that coincides with established best practices.

Before we jump into these best practices, I will remind you what we have covered so far:

  • I have told you what an audit is
  • I have defined the term operational audit
  • I have explained that operational audits are conducted by an operational auditor

As interesting as this all is, there is little actionable value for you here.

But that my friend is about to change. Keep reading.

Outlining the best practices conducted by the experts gives you actionable information.

How is this information actionable?

You can use this information to conduct an internal operational audit.

What do I mean by an internal operational audit?

The term may seem self-explanatory. Well, there is no trickery here, an internal operational audit is pretty much what it says on the tin:

  • Internal: The audit is conducted within your organization, as opposed to an external body
  • Operational audit: Well, we know what one of these is from the above ⬆

Operational audit: The internal operational audit

Even though internal operational audits carry no legal weight, they bring extensive benefits. These benefits are defined by RSM South Africa:

  • Assist with operational audit management
  • Improve internal controls
  • Identify weaknesses in systems for subsequent correction

In summary, internal operational audits are worth their salt.

In this next section, I will run through the best practices of operational audits, used by experts. I will then show you how to use Process Street to implement these practices for your internal audit procedures.

This can be done for free.

Internal operational audits will act as your quality control check. They make sure your operations align with governmental, regulatory body and your own set standards.

Operational audit: Best practices used by the experts

The below operational audit best practices were given by Seetharam Kandarpa, Quality Auditor (ASQ-CAQ). Kandarpa applies his expertise to give internal audit advice.

Operational audit best practice 1: Establish objectives

The objectives of an operational audit have been mentioned above ⬆. However, within the lines of these, more specific, company aligning objectives are needed.

Company-specific objectives can vary depending on:

  • Business KPI’s
  • Whether the operational audit is conducted to answer a specific concern

Below are some examples of specific concerns operational audit objectives can be set to address:

  • Human Resource related concerns
  • Accounting process concerns
  • Marketing and outreach concerns
  • Business sustainability concerns
  • Governmental compliance issues and concerns

Your objectives emphasize on quality. Standards are set to maintain and ensure audit quality. Following the standards detailed in ISO 19011: Guidelines for Auditing Management Systems will provide you with this imperative quality.

To make your life easier – as we like to do at Process Street – we give you a range of ISO standard checklists. In this instance, we are talking about ISO 19000: Management System Standards.

Within our extensive library of ISO checklists, you will find the ISO 19011 Management Systems Audit Checklist ⬇. Use this checklist to help you establish objectives for a quality internal operational audit.

Click here to access our ISO 19011 Management Systems Audit Checklist

Operational audit best practice 2: Follow the auditing principles

6 auditing principles govern operational audits – and in that vein, all audits. These principles are covered in the below image:

Operational Audit, Auditing Principles

Operational auditors must follow these principles to produce a legitimate audit report.

  • Integrity: External pressures must be resisted. Care must be taken to comply legally
  • Fair presentation: Results should be presented fairly, along with significant concerns
  • Due professional care: Due care, due diligence, and a reasoned judgment must be applied at all times
  • Confidentiality: Information must be kept secure. Confidential and sensitive information must be protected
  • Independence: Impartiality is maintained, with bias-free actions and reporting
  • Evidence-based: Reliable conclusions must be realized from a fact-based approach

Creating checklists in Process Street will guarantee the above 6 principles are met. But more on that later. For now, let’s continue our breakdown of operational audits and their associated best practices.

Operational audit best practice 3: View your operational audit as a tool for continuous improvement

Viewing your operational audit as a tool for continuous improvement is key.

We all know that business is not constant:

You, therefore, need to execute your operational audit process as a continual event for continual improvement.

Kandarpa tells us how to do this:

The most widely used tools are the plan-do-check-act or Deming Cycle, which the auditor uses in their own auditing activities.” – Seetharam Kandarpa, How to Conduct an Effective Internal Quality Audit?

Operational Audit, plan-do-check cycle

Using the plan-do-check-act model, the operational audit process continues as follows:

  • The operational audit is planned
  • The operational audit is conducted
  • Operational audit results are reported and checked
  • Areas for improvement are identified and appropriate action is taken
  • After x amount of time (usually a year), another operational audit is planned
  • Progress of quality measures – recommended from the previous audit – are determined

This is a continuous cycle. That is, you continue through the above stages again…

…and again…

…and again.

Like Kandarpa, an auditing expert, we at Process Street also recognize the value establishing recurring processes bring. Process Street has been designed to make any recurring task fun, fast and faultless. Correctly designed operational audits bring continuous improvements. Operational audits are therefore recurring processes. Hence, Process Street will make your operational audits fun, fast and faultless.

Integrating operational audit best practices into your internal operational audit process

To incorporate the above best practices, operational auditors will follow a process. This process has been outlined by Kandarpa below.

Each step in the below process acts to improve the quality of your business operations, continuously.

Operational Audit, Audit process

  1. Step one: Establishing objectives, which are based on management goals and priorities. To establish your objectives you must consider your products, projects, processes and any changes made to them. Look at your suppliers, or relevant third parties, and their needs and expectations. Account for previous audit results, risks and the maturity of the operating system being audited
  2. Step two: Establish an audit program. Determine audit scope and risks. Set procedures and identify resources
  3. Step three: Implement the audit program. With a defined audit objective, scope, and criteria, you can select the audit team members. Assign an audit team leader
  4. Step four: Monitor the audit program. Assess conformity, the audit’s schedule, audit objectives, and the performance of the audit team members. Take into account feedback from all stakeholders. It is at this stage where you should consider adapting your operational audit program as required
  5. Step five: Review and improve the audit program: Evaluate whether the objectives have been achieved. Use non-achieved objectives as lessons for continual improvement. In this review, you should include: results and trends; conformity with procedures; associated risks; confidentiality and information security issues; evolving needs and expectations; alternative and new auditing methods

With Process Street, you can incorporate the above steps for your internal operational audit. Do this by utilizing a checklist approach. Before I explain how you can do this, I will first answer the following questions:

  1. Why use a checklist?
  2. What is Process Street?

Operational audit: Why you should use an audit checklist to conduct your internal operational audit

An audit checklist is a tool that contains all the steps necessary to carry out an audit procedure.

If you read my article Financial Audits: A Quick Guide with Free Templates, you will already understand why checklists are an excellent audit tool. Whether this is to help with external audits, internal audits, financial or operational audits. The benefits of checklists in the auditing world broadly apply. I shall recap.

With any audit, there are problems attaining maximum assurance. This is due to the prevalence of human error.

Human error plagues business operations, and internal operational audit procedures are no exception. We need a way of reducing human error from our internal audits to achieve maximum audit assurance. This is where the audit checklist comes into play .

There is a mass of evidence supporting the claim that checklists reduce human error. Read: The Checklist Manifesto.

Just as 2+2=4, applying logic and reason brings us to the statement: Audit checklists will maximize assurance for your internal audit checks, by reducing human error.

Great, now we know why an audit checklist should be used, we can focus on how? This also brings us back to the question: What is Process Street? I answer both below.

Use Process Street and our audit checklists to conduct your internal operational audit

As a business process management tool, Process Street is superpowered checklists.

You can use Process Street to create an audit checklist for your internal operational audit. By using our checklists, you can:

  1. Incorporate operational audit best practices into your internal operational audit processes
  2. Ensure maximal assurance is obtained via utilizing a checklist approach
  3. Set up your operational audits as recurring processes

With this last bullet-point, remember operational audits are carried out continuously. One – of our many – missions at Process Street is to make recurring work fun, fast, and faultless for teams everywhere. This includes you and your recurring internal operational audit processes. With this, you can see how Process Street is the optimal tool for your internal operational audits.

Once more, our checklists are superpowered. We have adapted the common checklist to contain features such as:

  • Stop tasks to ensure task order
  • Dynamic due dates, so no deadline is missed
  • Conditional logic, creating a dynamic template that caters to your needs
  • Role assignments, to ease task delegation within your team
  • Approvals, allowing decision-makers to give the go-ahead (or rejection) on important items. In addition, necessary comments can be provided

Our approvals feature is game-changing when it comes to conducting audits. If you haven’t used approvals before, don’t fret. Just check out our Approvals: How to Streamline Decisions-Making in Process Street article. In this article, you will learn exactly what approvals are, why they are incredibly useful, and how to use them.

Approvals streamlines processes that need manager sign-off, from single instances to multi-step or sequential approvals. Heaps of time will be saved, setbacks and lengthy delays are prevented, and acceptions or rejections will be given on time.

To add an approval task, simply click on the approvals button. This is located on the bottom of the left-hand bar within the template editor, where tasks and task headers can be added.

adding approvals

Once you have added tasks subject to approval – within your internal audit – they can be assessed by the relevant team member. The assigned approver can easily open the checklist, see the information from the tasks, then either approve or reject, or reject with a comment.

Approvals GIF

By using Process Street’s checklists, you can increase the efficiency, productivity, and effectiveness of your operational audit processes. For those of you that are unfamiliar with Process Street and our offerings, check out our Monthly Webinar: An Introduction to Process Street below, for further insight.

Below I have embedded our Hotel Sustainability Audit checklist – part of our Hotel Management template pack. From this, you can see how an operational audit is carried out using Process Street. This checklist guides you through the necessary stages for operation refinement. The outcome: Fewer resources are needed to deliver the best results.

Click here to access our Hotel Sustainability Audit Checklist

You can create any checklist, just like the above, for free, using Process Street. Refer to our Help article Templates: Basics of creating and using templates. Alternatively, you can watch the below video for more information on how to create your own Process Street checklists.

On top of all this, we have a wealth of pre-made templates, free and ready to use right away. These templates will help you conduct your internal audit checks. Whether these checks are operational, financial, or compliance-related. I have detailed these checklists below.

Refine your business operations by conducting internal operational audits today

With operational audits, you can scrutinize your business processes and identify areas to target for improvement. The overarching aim of an operational audit is to do-more-with-less. The perfect formula for long-term business success.

If you want to find out more about operational audits, read: Operational Auditing, by Heran Murdock.

How do you conduct your operational audits? Do you use a checklist? How have operational audits improved your business? Please let us know your thoughts in the comments below, we would love to hear from you.

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Jane Courtnell

Hi there, I am a Junior Content Writer at Process Street. I graduated in Biology, specializing in Environmental Science at Imperial College London. During my degree, I developed an enthusiasm for writing to communicate environmental issues. I continued my studies at Imperial College's Business School, and with this, my writing progressed looking at sustainability in a business sense. When I am not writing I enjoy being in the mountains, running and rock climbing. Follow me at @JaneCourtnell.

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