Operational auditing function and its place in the bank structure;

              THE OPERATIONAL AUDITING FUNCTION AND
Patrick J. Waide, Jr. Partner, New York Office
ITS PLACE IN THE BANK STRUCTURE
Presented before the American Management Association Seminar on Internal Auditing for Banks, New York-April 1973
Many executives in financial management believe that operational auditing is a major new technique for improving the quality of both the independent and the internal audits. In the judgment of others, external and internal auditors do not have the imagination and training to undertake an operational audit effectively. Others are confused as to what operational auditing is all about.
In substance, operational auditing may be viewed as an approach to evalu­ating
the effectiveness of operational controls and procedures. While it bor­rows
much from financial auditing, it does require different attitudes, meth­ods
and skills.
Before we begin a discussion of operational auditing, it may be desirable to review the different objectives of the internal audit and the external audit by independent accountants. Traditionally, the internal audit is conducted to assure compliance with a bank's policies and procedures—conformity of the mechanics of recording and processing transactions with established proce­dures
and, therefore, compliance with the predesigned system of internal accounting control. The examination of financial statements by independent accountants, however, has as its objective the reporting on the fairness of presentation of financial statements. It is true that the external auditor makes tests of the operation of the system of internal accounting control as a basis for relying thereon, but his principal objective is reporting on financial pre­sentation.
In recent years, we have witnessed the services of internal audit staffs being expanded to include acquisition audits or businessman's reviews of banks or other finance-oriented companies to be acquired by holding com­panies.
In my judgment, this expansion of services by bank internal audit departments represents a significant development—for it moves the internal auditor into top management decision-making circles. The undertaking of management or operational audits by bank internal audit departments like­wise
represents a significant thrust by internal auditors into a top manage­ment
role. It requires talented staffs, of course, to implement these expanded services, and I will discuss the staffing of an operational audit team later.