What is an Operational Audit?

An operational audit is an examination of the manner in which an organization conducts business, with the objective of pointing out improvements that will increase its efficiency and effectiveness. This type of audit is substantially different from a normal audit, where the objective is to examine the adequacy of controls and to evaluate the fairness of presentation of the financial statements.

Operational audits are usually conducted by the internal audit staff, though specialists can be hired to conduct reviews in their areas of expertise. The primary users of the audit recommendations are the management team, and especially the managers of those areas that have been reviewed.

Examples of Operational Audits

Below are several examples of operational audits within different areas of a business:

Supply chain audit. Assesses the efficiency and effectiveness of procurement, inventory management, and logistics processes. The auditor evaluates supplier performance and compliance with contracts, analyzes inventory turnover and stock management, and reviews transportation and distribution methods for cost savings and timeliness.
Human resources audit. Examines human resources functions for alignment with organizational goals and compliance with regulations. The auditor reviews recruitment and onboarding processes for efficiency, assesses training programs for relevance and effectiveness, and evaluates compliance with labor laws and internal policies.
Customer service audit. Assesses the quality and efficiency of customer service operations. The auditor analyzes response times and resolution rates for customer inquiries, evaluates the effectiveness of customer feedback mechanisms, and reviews processes for handling complaints and returns.
IT operations audit. Evaluates the efficiency, reliability, and security of IT operations. The auditor assesses the performance of IT infrastructure and systems, reviews data backup and recovery procedures, and evaluates cybersecurity measures and incident response plans.
Facilities management audit. Assesses how effectively an organization manages its physical assets and facilities. The auditor evaluates maintenance schedules and procedures for cost efficiency, reviews energy consumption and sustainability practices, and assesses space utilization against organizational needs.
Manufacturing audit. Reviews production processes for cost-effectiveness, quality, and compliance with safety standards. The auditor analyzes production output against targets and efficiency benchmarks, evaluates quality control processes, and reviews compliance with health and safety regulations.
Marketing audit. Evaluates the effectiveness of marketing strategies and campaigns. The auditor reviews the return on investment of advertising expenditures, analyzes market penetration and brand recognition efforts, and assesses the alignment between marketing activities and organizational goals.
Financial operations. Examines the efficiency of financial operations and internal controls. The auditor evaluates accounts payable and receivable processes for delays or inefficiencies, reviews budgeting and forecasting methods, and assesses cash flow management and cost-control practices.
Health and safety audit. Monitors compliance with workplace health and safety standards. The auditor evaluates training programs for employee safety, reviews accident and incident reporting processes, and assesses workplace conditions for hazards and risks.
Environmental compliance audit. Assesses an organization's adherence to environmental regulations and sustainability initiatives. The auditor reviews waste management and disposal practices, evaluates energy usage and carbon footprint reduction efforts, and assesses compliance with environmental laws and standards.

These audits can be tailored based on the organization's size, industry, and specific operational goals, helping identify areas for improvement and ensure that operations align with strategic objectives.

Advantages of an Operational Audit

There are several advantages to conducting an operational audit. First, it can identify opportunities for more streamlined processes, which can speed up deliverables while cutting costs. It can also result in enhanced controls, which reduce the risk of asset losses. A further benefit is that management is made aware of problem areas within the business, and so can correct them immediately, thereby reducing expenses.