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“Internal Audits and Management Reviews” versus “Management or Operational Audits”—What’s the Difference?

By Kellee Lostaunau
IAS Project Coordinator

Kellee Lostaunau

As part of the Building Department Accreditation Program, the International Accreditation Service (IAS) looks at “Internal Audits and Management Reviews” and “Management or Operational Audits.” These often-confused subjects may sound similar; however, their definitions and applications are very different.

In the Accreditation Criteria for Building Departments/Code Enforcement Agencies (AC251), IAS defines Management or Operational Audits as “Independent evaluations conducted by a qualified entity, at the request of the elected or appointed officials, to measure the operational consistency and overall efficiency of the department/code enforcement agency.”

Management (or “operational”) audits are different from third-party audits that are conducted on a regular basis (such as those conducted for insurance organizations, etc.) and are not a requirement for accreditation. If audits of the department have been conducted at the request of elected or appointed officials within the past six years, IAS may ask to examine the records as part of the evaluation process. Keeping in mind that each set of circumstances is different, a special request from elected or appointed officials for an outside party to examine the management or operations of a department may signal the need for IAS to study particular issues with more thoroughness during the evaluation process. Although the existence of these audits may draw additional attention to certain department functions during an IAS evaluation, if negative findings were addressed or corrected in the time since the management or operational audit was conducted, this could actually serve to help the department demonstrate competence to the IAS team.

While management or operational audits are initiated and conducted by individuals outside of the building department, internal audits and management reviews begin and end with department staff.

Internal Audits (referred to as “Internal Quality Audits” in AC251) are defined as “Internal studies to identify the extent to which documented procedures are followed and the effectiveness of current processes.” Management Reviews are “reviews performed by management of internal audit findings (including quality audits) to assess the organization’s level of procedural conformance, identify, and correct areas of nonconformance and inefficiency, and engage staff in improving processes and procedures.”

Most departments are familiar with internal audits, and many of these concentrate on the examination of the department’s revenue and expenditures in the form of internal financial audits. Financial audits are certainly important to demonstrate fiscal responsibility to the public the department serves; however, it is also important to recognize the importance of regular internal quality audits.

If a department has a quality assurance plan (documents which set forth the policies and practices aimed at ensuring the quality of the organization’s services), the plan should specify the department’s internal quality audit policy and minimum requirements. Internal quality audits should be conducted on a regular basis (ideally, at least once annually) and should examine compliance with established Standard Operating Procedures (SOPs) and quality policies. As part of the process of continual improvement, requests for corrective or preventive action can be issued for any noncompliance found during the audit.

For example:

Suppose one of the department’s SOPs for permitting indicates that, when a permit application comes in with a set of plans, the permit technician shall look up the contractor’s name in the computer to ensure that he/she has a valid contractor’s license. The SOP also dictates that, if the contractor has a valid license, the permit technician marks his or her initials, in ink, by the contractor’s name on the application. If the contractor’s license is not valid, the SOP dictates that the permit application is to be rejected. During an internal (quality) audit of permitting, several accepted permit applications may be randomly selected for review. Say, for example, that in the course of verifying that each SOP for permitting has been followed, the auditor notices that one of the applications does not have any permit tech’s initials next to the contractor’s name. The auditor then samples several more applications and, if these applications are found to be missing a permit tech’s initials, a corrective action request (CAR) is made by the auditor.

As part of the Management Review process, department leadership has an opportunity to review the internal quality audit findings, to study and discuss the root cause of noncompliance, and to propose measures to correct the situation. Consider the situation, described above, where an internal quality audit found applications to be missing necessary initials and, therefore, noncompliant with the department’s SOP:

After the internal audit, management reviews the audit results and prepares a plan to address the CAR. The first part of the plan of action is to determine the root cause of the problem. Management will first need to determine whether the applications in question were processed by the same permit technician, or if different permit technicians are making the same mistake. If it is determined that one individual made the same mistake several times, perhaps management review of training records could show that this particular employee was absent on the day when every other permit technician received training on the applicable SOP. The solution would simply be to train the single employee. On the other hand, if several different permit technicians have forgotten, on occasion, to initial applications to indicate contractor license verification, further investigation would need to be conducted to isolate the cause of the problem. Perhaps this step of initialing needs to be added to a checklist so that employees do not need to rely so heavily on memory, or perhaps the step could be automated with a simple modification to the current permit software in use.

So, in short, what does IAS evaluate to determine compliance with AC251?

  • Evidence of internal audits, conducted at least every 12 months, on the areas of operation to be considered for accreditation by IAS.
  • Evidence that compliance with established SOPs was examined as part of the internal audit.
  • The action plan resulting from management’s review of the internal audit findings.
  • Evidence of progress made toward resolution of negative findings.

If you would like to learn more about this or any of our Building Department Accreditation Program topics, please visit our website or call us at 1-866-427-4422, ext. 3305.