AN OPERATIONAL AUDIT OF WORKING CAPITAL MANAGEMENT

Abstract

An operational audit (or value‐for‐money audit) is an organized search for ways of improving efficiency and effectiveness. Although internal auditors have traditionally performed most operational audits, such audits are also conducted by external auditors and by company managers who wish to make self‐audits. Whoever performs an operational audit, the objective is to assist managers in performing their daily functions more effectively and economically. In effect, an operational audit is an early warning system for the detection of potentially destructive problems. Traditionally, operational audits have been conducted by means of a questionnaire interview of departmental employees. Virtually all large companies conduct operational audits in their major production and service departments. However, working capital management has often been ignored in these audits. Perhaps this oversight is caused by the view that the controllership and treasury functions are high level departments that are not susceptible to scrutiny by internal auditors. Alternatively, the oversight may be attributable to the feeling that there is little standardization of duties among controllers and treasurers in the management of working capital. Whatever the reason, this article is intended to end the oversight. An operational audit can lead to better management of working capital in the same way that it can lead to better management of a production area. The questionnaire in Exhibit 1 can be used by internal auditors, or by a treasurer who merely wants to perform a self‐audit of his or her own department's efficiency and effectiveness.

Citation

Flesher Ph., D.L.C. and CIA, C. (1989), "AN OPERATIONAL AUDIT OF WORKING CAPITAL MANAGEMENT", Managerial Finance, Vol. 15 No. 6, pp. 26-32. https://doi.org/10.1108/eb013631