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Operational Auditing is a subset of internal auditing

and assist managers by reviewing & evaluating their

activities and recommending improvements, focusing

on efficiency & effectiveness of operations.

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Internal Auditing as a service function

established within an organization to examine

and evaluate its activities.

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Internal Auditing

Financial Auditing Compliance AuditingFraud Auditing

Operational Audit

INTERNAL AUDITING A MANAGEMENT SERVICES

FUNCTION

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Operational Auditing as

a subset of internal

auditing, reviews an

entitys activities forefficiency and

effectiveness and may

evaluate any type of

activity at any levelwithin the organization.

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Management Auditing

is a subset of

operational auditing that

attempts to measure theeffectiveness with

which an organization

unit is administered &

that concentrates moreon effectiveness than on

efficiency.

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EFFICIENCY

Efficiency may be

viewed as an input

EFFECTIVENESS

Effectiveness is output

oriented.

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MANAGEMENT AUDITING A SUBSET OF

OPERATIONAL AUDITING

Resources Inputs

Efficiency Auditing

Product or Service

output

Management auditOperations

OPERATIONAL AUDITING

Efficiency Effectiveness

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Operational Auditing

typically answer such

questions as these are;

Are specified employee

functioning efficiently?

Are current approach still

effective in achieving the

entitys goals in light of

changing conditions?

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PURCHASING

Proper determination of

the entitys need for

goods & service. Selecting Vendors

Receiving Goods

Emergency Purchase Controlling Vendor

Influence

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TRANSPORTATION

Reviewing Freight Costs

Processing Against

Transportation.

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HUMAN RESOURCES

Adequacy of job

analysis, job description

Benefits

Affirmative Action

Training Programs

Interviews

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FINANCIAL

MANAGEMENT

Flexible Budgeting

Budget Coordination

Performance Reporting

by cost and profit center

Cash ControlWorking Capital

Management

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Board of Directors

ProductionMarketingJ. Sparks

Control and MISJ. Sparks Finance

PresidentR. Vector

Kenneth Johns will perform the Operational Audit of VectorsOrganization.

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Audit Objectives

Evaluation Criteria

Discussion on Audit Period

Discussion on the Product Line to be Audited

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Selection of Month for Auditing

Harmonious Relationship is Necessary

Product Managers Role

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Conduct a preliminary survey of the activity or functionalunit to be audited

Develop the Audit program

Perform the Audit Appraise the Efficiency and Effectiveness of the activity

Evaluate the findings

Develop Conclusions and Recommendations

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Obtain an understanding of program to be

audited.

Obtain info including auditees mission,

organizational structure, policies and

procedure, output.

Brief audit team about the program being

audited.

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It should contain procedures to satisfy audit

objectives.

Produce evidence to support or reject

auditors findings.

It should determine coordination of program

with companys policy.

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Auditors evidence should be sufficient and

relevant to audit objectives.

He should gather physical, documentary,

testimonial and analytical evidence.

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Assess the goals being achieved.

Determine effectiveness of resource

utilization within the unit.

Determine effectiveness of fraud control.

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Determine elements needed for audit

findings: criteria, condition, effect, cause.

Determine auditees suggestion to improve

the program.

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Gain auditees consent on the findings and

improvements.

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The auditor's report

(Audit Report) is a

formal opinion, issued

by either an internalauditor or an

independent external

auditor as a result of an

internal or externalaudit.

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Inform: To makedepartment managementaware of a situation bycommunicating the results

of our audit work. Persuade: To convince

department managementthat our comments arevalid and worthwhile.

Results: To convincedepartment managers totake appropriate action.

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Clear And Concise

Constructive

Style

Personal Pronouns

Presented Convincingly

Cause And Effect

Auditee Effect

Lastly Reviewed

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Most operational audit report contain the

following components.

Letters Of Transmitted

Scope Of The Audit

Findings & Conclusions; and

Recommendations

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Work papers

AuditReport

..................................................

..............................

....................

CommentsPACs 5 C's

Field Report

Final Report

Management

Action Plans

Revisions

Talk-ups

+

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Comment 1

Management Action Plan

Objectives

Risks & Exposures Overall Assessment

Rating

EXECUTIVE SUMMARY

Detailed Comments

Final Report Distribution: Line Management

Compliance Organization

General Auditor

Outside auditors

HR

MAP's

Executive

Summary

Recommendation

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RED

YELLOW

GREEN

Control environment is satisfactory. Continuing local management action and resource allocation is

sufficient.

Processes/policy/procedure/practice sufficient to meet business

objectives

Improvement required.

Important business risk issues that justify management action,

resource allocation.

Processes/policy/procedure/practice in place but effectiveness needs to

be enhanced.

Direct, immediate management action and resources required.

Serious business risks present.

Processes/policy/procedure/practice insufficient to give reasonable

assurance of meeting business objectives.

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Governmental

Compliance Auditing a

form of compliance

attestation, involvestesting & reporting on

compliance with various

federal & state laws and

regulations.

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Compliance auditingdetermines whether aprocess or transaction

has or has notfollowed applicablerules. If rules areviolated, the auditor

determines the causeand recommendsways to prevent futuredeviations.

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It is defined as testing

and reporting on

conformity with laws

and regulations relatingto recipients of federal

financial assistance

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An external auditor is

an audit professional who

performs an audit in

accordance with specific

laws or rules onthe financial statements of

a company, government enti

ty, other legal

entity or organization, andwho is independent of the

entity being audited.

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Responsibility under generally acceptedauditing standards (GAAS)

Responsibility under governmental auditing

standards as set forth in the generalaccounting office's (GAO) yellow book"; and

Responsibility under the federal single auditact of 1984 (and amended in 1996), as definedand interpreted in OMB circular A-133 issuedby the U.S office of management and budget.

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