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OPERATIONS AUDITS

What is an Operations Audit?

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An operations audit is an evaluation of an organization's processes, systems, and procedures to assess their efficiency, effectiveness, and alignment with the company’s objectives & goals. The primary purpose of an operations audit is to identify areas where the organization can improve its performance, reduce costs, and optimize its operational activities.

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Unlike financial audits, which focus on financial reporting and compliance, or compliance audits, which assess adherence to laws and regulations, operations audits are designed to review how well the company’s day-to-day operations are being managed and executed.

Benefits of an Operations Audit:
1) Improved Efficiency:

  • By identifying and addressing inefficiencies, bottlenecks, or waste, an operations audit helps streamline processes and improve overall operational performance.

2) Cost Savings:

  • Identifying areas where costs can be reduced (without compromising quality) leads to substantial savings. These savings can be reinvested into strategic initiatives or passed on to customers.

3) Better Decision-Making:

  • The insights gained from an operations audit help management make data-driven decisions to improve processes, allocate resources more effectively, and set more accurate goals.

4) Enhanced Competitiveness:

  • More efficient and effective operations help an organization become more agile, allowing it to respond quickly to market demands, customer expectations, and competitive pressures.

5) Strategic Alignment:

  • Operations audits ensure that operational activities are in line with the company’s overall strategic goals. This alignment ensures that all departments are working toward common objectives.

6) Improved Risk Management:

  • Auditors identify operational risks that could hinder the organization’s performance or lead to potential losses, such as supply chain disruptions, poor-quality production, or compliance issues.

7) Better Customer Satisfaction:

  • Improving operational processes, such as production speed, product quality, and customer service, can enhance the customer experience and increase customer loyalty.

Some Specific Client Need:

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"How can I ensure my company is operating efficiently, optimally & within risk appetite or control limits avoiding too much wastage, down-time, high operating costs, penalties or legal issues and costly mistakes?"​

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"How can I have reasonable assurance that my company's operations have adequate & effective internal controls, risk management, governance & business processes to ensure achievement of company operational objectives and goals?"

Why Choose Us?

We are committed to driving tangible results for your business. With specialized &/or expert knowledge, skills, competence & experience in Operations Auditing, our proven track record and dedication to excellence make us the ideal partner for your business needs & requirements.

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Following are three (3) useful actual STAR Scenarios allowing us to provide clear, concise examples of our expertise, skills, competence & knowledge in action. It demonstrates our problem-solving abilities, highlights our strategic approach, and emphasizes the tangible outcomes of our work. By focusing on real results, we can effectively show you how we turn challenges into opportunities and drive success for our clients. Whether you're looking for increased profits, improved efficiency, risk management, internal controls & business processes, or innovative solutions, the STAR method helps you understand exactly how we deliver value.  You will see more of these as you continue to browse our services and get to know The CFBS Advantage.

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In these three (3) STAR Scenarios we demonstrated the following skills, among others: 

Risk Assessment Skills
Internal Controls Evaluation
Audit Planning & Execution
Sampling Techniques
Report Writing & Communication Skills
Teamwork Skills
Leadership Skills
Independence & Objectivity
Analytical & Critical Thinking
Attention to Details
Tax & regulatory knowledge
Tax Planning & Strategy
Accounting Principles & Standards
Client Management
Project Management

STAR Scenario #1: Display Rental Business Process, Operations & Compliance Audit 

SITUATION:

Need to conduct a Display Rental Audit Engagement for a multinational company. 

TASK:

Conduct an independent & objective assurance on the company’s display rental across the Philippines.

ACTION:

1) Based on risk assessments conducted, we need to immediately initiate surprise ocular inspections of display rentals in supermarkets, store chains and drugstores among others starting with small samples then going nationwide because of initial findings & risks identified, deploying teams of auditors & merchandisers;
2) Coordinated with company’s distribution division for implementation of audit plan/ strategies and enlisted cooperation of third party merchandising contractors to ensure integrity of findings;
3) Conducted business process review of the end-to-end processes, risk-control assessments, analytical & substantive tests accordingly adjusting scope and audit procedures focusing on areas with greater risk exposures.

RESULTS:

1) Uncovered annual exposure/losses of around P30M++ of non-existing display rentals paid leading to recommendations & implementations of appropriate & fit for purpose internal controls and control activities to stop & deter the annual exposure/losses;
2) Uncovered annual tax savings of about P30M+/- by recommending & implementing appropriate tax & accounting treatments & documentations needed from customer-display rental providers.  This resulted to a creation of a tax team for this purpose.
3) Provided reasonable business process assurance to the nationwide P500M++ annual display rentals of the company which was subsequently increased.

STAR Scenario #2:  Toll Mfg. Business Process, Operations & Compliance Audit

SITUATION:

Need to conduct a Toll Manufacturing Audit for a multinational company.

TASK:

Audit Toll Manufacturers of the multinational company.

ACTION:

1) Reviewed the manufacturing production process including batch production documents;
2) Reviewed Toll Manufacturing Contracts & determined compliance of each toll manufacturer;
3) Documented the overview of the whole toll manufacturing process and conducted risk-control assessments;
4) Conducted substantive control tests on high risk areas within the company and within toll manufacturers.
5) Successfully managed and coordinated audit activities within the company and with toll manufacturers peacefully and harmoniously.

RESULTS:

1) Uncovered a high risk exposure on the brand equity of a Billionaire Brand due to lapses of quality controls in a toll manufacturer which could damage the brands reputation & value.  The risks were immediately address by implementing the designed quality control checks strictly;
2) Uncovered product production quantity demands that were not significantly met by a toll manufacturer.  This led to discussions with top management regarding strategy of ALL-IN production in the company and current capacity constraints in current manufacturing network;  
3) Uncovered non-value adding activities such as double handling of inventories;
4) Uncovered that there were NO comprehensive periodic performance evaluation formally being conducted/ communicated with toll manufacturers.
5) Identified a toll manufacturer that are doing even better than the company in terms of production yield;
6) Identified delayed payments with toll manufacturer producing a number 1 brand in the market that could impact operations and productions.  This resulted in subsequent prompt payments;
7) Provided reasonable business assurance to stakeholders with other matters regarding toll manufacturers.

STAR Scenario #3:
Pieceworkers' Process & Operations Audits of a Distribution Company

SITUATION:

Management requested to conduct an audit of the Pieceworkers’ Process Flow & Operations.

TASK:

Audit the Pieaceworkers’ Process Flow & Operations.

ACTION:

1) Perform walk thru of piecework processes identifying and documenting risk-control assessment;
2) Identified weaknesses in internal controls and risk exposures recommending appropriate mitigating controls and action plans to take;
3) Perform analytical and substantive tests including test of controls determining adequacy and effectiveness.

RESULTS:

1) Uncovered the following during the process audit:

  • Piece rates per Pieceworker's Computation Sheet (PCS), submitted to Accounts Payable (AP) by Warehouse for processing, were not being validated by AP vis-a-vis Piecework Rate Master File (PRMF) from Production Planning (PP).

  • PRMF were not being maintained by PP.

  • PCS for processing with AP were not supported by Packaging Release Forms (PRF).  PCS supports include only Pieceworker Delivery Receipts (PDR) and Pieceworker Receiving Reports (PRR).

  • Two (2) out of twenty-five (25) piece rate sampled on PCS were not in the PRMF.  One of the two is with PRF for a piece rate of P2 but were P2.75 per PCS.  The other one is without PRF.  Per appropriate personnel these two's piece rate were verbally approved by PP.

  • Piecework rates agreed with pieceworkers were without documented conform signatures from pieceworkers.

  • PRR supporting payments does not indicate actual work done by pieceworkers which is the basis in paying them.

2) The uncovered issues and weaknesses in internal controls were discuss with appropriate personnel for execution of appropriate change implementation action plans that were recommended and agreed upon.

Key Features of a Operations Audit:

  1. Objective:
    The main objective of an operations audit is to evaluate the efficiency, effectiveness, and cost-effectiveness of an organization’s operational processes. The audit aims to identify bottlenecks, inefficiencies, and areas for improvement to enhance the overall performance and achieve strategic objectives.

  2. Scope:
    The scope of an operations audit typically covers all areas of the business operations, including:

    • Production processes: How goods or services are produced.

    • Supply chain management: Sourcing, logistics, and inventory control.

    • Sales and customer service: The processes involved in selling products/services and interacting with customers.

    • Human resources: Staffing, training, and workforce productivity.

    • Information technology: Systems and software used in day-to-day operations.

    • Internal controls: Processes that ensure efficiency and accountability in operations.

  3. Approach:
    Operations audits often take a holistic approach, analyzing not just the individual components of operations but also how they work together to achieve business goals. The audit often involves:

    • Reviewing procedures and policies.

    • Examining workflow and resource allocation.

    • Evaluating performance metrics and key performance indicators (KPIs).

    • Comparing actual performance against targets or industry benchmarks.

Steps Involved in an Operations Audit:
  1. Planning & Objective Setting:

    • The first step is to define the scope of the audit, including which areas of operations will be reviewed. This can include specific departments, functions, or entire operational processes.

    • Audit objectives are set based on the organization’s strategic goals, such as improving customer satisfaction, increasing productivity, or reducing operational costs.

  2. Data Collection & Analysis:

    • Gather data from various sources within the organization, such as reports, performance records, employee feedback, process documentation, and historical performance data.

    • Auditors will often conduct interviews with staff members, department heads, and key stakeholders to understand the challenges they face and identify pain points in current operations.

    • Observe processes in real-time to identify inefficiencies or bottlenecks in workflows.

  3. Process Evaluation & Assessment:

    • Evaluate the effectiveness of current processes in meeting business objectives. Are the processes streamlined, or are there redundancies and delays?

    • Assess the efficiency of resources (people, equipment, time, money) being utilized.

    • Identify gaps in performance or areas where costs could be reduced without sacrificing quality or customer satisfaction.

  4. Identifying Issues & Opportunities:

    • Pinpoint areas where improvements can be made. This could involve reengineering processes, introducing automation, upgrading technology, or improving employee training and communication.

    • Look for cost savings opportunities, such as reducing waste, improving inventory management, or optimizing supply chain operations.

  5. Providing Recommendations:

    • Based on the findings, the auditors will offer actionable recommendations to improve operational efficiency, productivity, and cost-effectiveness.

    • These recommendations could involve changes to workflows, implementing new technologies, reorganization of resources, or enhancing employee training programs.

  6. Report & Presentation:

    • The final audit report will provide a detailed summary of findings, including:

      • Strengths of the current operations.

      • Weaknesses and areas requiring improvement.

      • Specific recommendations for operational improvements.

    • The report will often include quantitative data (e.g., performance metrics, cost-benefit analysis) and qualitative insights (e.g., employee feedback, customer satisfaction) to support the findings.

  7. Follow-up & Monitoring:

    • After the audit, it is important for the organization to implement the recommendations and monitor the effectiveness of the changes. The auditors or an internal team may follow up to evaluate whether the improvements have been successfully applied and if performance metrics have improved.

Types of Operations Audits:
  1. Process Efficiency Audit:

    • Focuses on improving the efficiency of internal processes by eliminating bottlenecks, redundancies, and waste. It seeks to streamline operations, improve workflows, and optimize the use of resources.

  2. Cost Reduction Audit:

    • Aimed at identifying areas where the company can cut costs without negatively impacting product quality, customer satisfaction, or compliance. For example, evaluating supplier contracts, reducing inventory holding costs, or cutting waste in production.

  3. Performance Audit:

    • Examines how well the organization is achieving its performance goals, using key performance indicators (KPIs). This can be used to identify operational areas that are underperforming and need improvement.

  4. Compliance Audit:

    • An audit that assesses whether operations comply with industry regulations, company policies, or legal requirements. This can overlap with a compliance audit but is more focused on day-to-day operational practices.

  5. Technology Audit:

    • Focuses on evaluating the efficiency and effectiveness of an organization’s IT infrastructure and systems. It aims to identify how technology can be better utilized to support operational goals.

  6. Human Resources Audit:

    • Reviews human resources processes, including staffing, training, employee performance, and morale. It seeks to optimize the workforce to ensure it is aligned with the organization’s strategic goals.

When Should an Operations Audit Be Conducted?

  1. Regular Performance Reviews:
    Companies should perform operations audits periodically (e.g., quarterly, semi-annual, annually) or as often as needed as part of their ongoing efforts to improve performance and stay competitive.

  2. Before Expanding or Scaling:
    Before scaling operations, it’s important to ensure the current processes are effective and efficient. An operations audit helps identify whether current systems can handle future growth.

  3. After a Major Change:
    Major organizational changes (e.g., mergers, acquisitions, new technology implementation, new processes, policies & procedures) often necessitate an operations audit to ensure that new processes align with the company's goals.

  4. When Problems Arise:
    If an organization is experiencing operational difficulties, such as increased costs, inefficiencies, or poor performance, an audit can identify the root cause and recommend corrective actions.

Summary:

An operations audit is a systematic evaluation of an organization's processes to ensure they are efficient, effective, and aligned with strategic goals. It helps identify areas for improvement in operations, optimize resource utilization, reduce costs, and enhance overall performance. By offering actionable recommendations, an operations audit contributes to more streamlined, competitive, and financially successful business operations.

Audit
Why CFBS?

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CFBS’ Internal Audits provides an independent, objective assurance and consulting activity designed to continuously add value and improve an organization’s operations. We help organization’s accomplish its objectives by bringing a systematic, disciplined approach to continuously evaluate and improve the effectiveness of risk management, control, and governance processes. Our more than fifteen (15) years of experience, professional service practice & recognized excellence, education & training gained from various industries can give you much leverage & advantages.

Continuously improve & reach your objectives in the midst of the ceaseless & speedy changes in market conditions!
Contact us now for a FREE QUOTATION!

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Why CFBS
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