Performance Audit

Question 1

What is a performance audit?

Answer 1

A performance audit assesses the value for money of government spending, i.e. the optimal use of resources to achieve the intended outcomes:

• Economy: minimising the cost of resources used or required (inputs) – spending less;
• Efficiency: the relationship between the output from goods or services and the resources to produce them – spending well; and
• Effectiveness: the relationship between the intended and actual results of public spending (outcomes) – spending wisely.

Question 2

What are the two types of performance audit?

Answer 2

Performance audits may be distinguished between substantive performance audits and procedures performance audits:

• substantive performance audits concentrate on economy, efficiency and effectiveness issues—ultimately related to outputs and outcomes, and
• procedures performance audits focus on the systems and procedures used to formulate, implement and control programmes in an economic, efficient and effective way.

Question 3

Differences between performance audit and financial and compliance audit

Answer 3

Question 4

Auditing economy, efficiency and effectiveness

Question 5

Performance audit criteria

Answer 5

Audit-appropriate standards are necessary to assess performance (economy, efficiency and effectiveness of activities, and adequacy of systems and practices). They should as objective as possible, however, this is not an easy task, since sometimes the official policy goals are not, or cannot, be well defined. The general concepts of economy, efficiency and effectiveness need to be interpreted in relation to the policy, porgramme or project being audited.

They should come from from recognised and objective sources, such as legislation, regulations, professional standards, and academic literature. Alternatively audits may be undertaken agaisnt standards, measures and results commitments adopted by the auditee, If standards are not available from the above sources, the auditor can focus on the performance achieved in comparable organisations, best practices determined through benchmarking or consultation, or lastly, by standards developed by the auditor itself through an analysis of activities.

Question 6

Why undertake performance audits?

Answer 6

Performance audits are necessary because compliance with the law and administrative procedures does not measure the sucess or failure of a policy to meet its desired outcomes.

Compliance audits are limited to ascertaining whether the inputs to the have been provided in accordance with the law and administrative procedure.

Performance audits look at the objectives of a policy or programme and whether they have been delivered economically, efficiently and effectively.

Question 7

Performance audits and politics

Answer 7

Performance audits can be seen as more ‘political’ as the line between reporting on whether a policy or programme has achived its objectives and the merits of that policy or programme can be thin.

Different SAIs have different views. The NAO sees questioning policy as a no-go area; other such as Finland are less reticent.

Question 8

Performance audits and decentralization

Answer 8

Many policies or programmes are delivered through regional or local government even outsourced to the private sector, making it difficult to come to firm conclusions, particularly on effectiveness.

It has been suggested that for complex multi-level programmes auditors should concentrate less on formal objectives and indicators (policy intentions) and more on measuring actual changes in perceptions, attitudes and behaviours of stakeholders.

Question 9

The learning component of performance audit

Answer 9

Auditors have an important role to play in improving outcomes and behaviours. Auditors auditor may assist in improving accounting techniques (financial audit). Compliance audits may uncover irregularities or illegalities that it is in the publc interest to cover and identify why they were able to occur.

Performance audits offer the most scope to improve outcomes and behaviours, although performance improvement should not come at the expense of the SAI’s traditional role of supporting parliament in holding government to account or impinging on their impartiality.

…primarily as a mentor or coach, as one who stands outside the organisation and its staff and whose criticism may be severe, but who is committed to the success of the organisation and to how it can be achieved.

Question 10

What does a good performance audit look like?

Answer 10

Audit process

• carried out as economically and efficiently as possible—cost of audit itself and demand of auditors on auditee.

Stakeholder perceptions

• auditees’ perception of auditors and the value-add of the audit itself
• perceptions of the SAI and its work by parliament, the press and the public

Impact

• auditee willingness to accept and implement recommendations
• financial value of recommendations (cost savings or service improvements)