Performance Audit

Performance auditing is a technique used by internal auditors to evaluate the economy, efficiency, and effectiveness of the organizations’ operations so as to assure management that its strategic objectives are being carried out and whether or not they can be improved on. The scope of the audit is expanded beyond the verification of financial controls or compliance with policies as it looks for the existence of management measures such as leadership, employee empowerment, teamwork, risk assessment, management information, communication, resource allocation, productivity measurement, etc. Performance auditing, therefore, requires flexibility, imagination, and analytical skills to provide organizations with innovative solutions and new ideas.

The three E’s

The concepts of economy, efficiency, and effectiveness, commonly referred to as the three E’s, form the basis of any performance audit.

Economy refers to the terms and conditions under which an entity obtains the required resources. An economical operation acquires these resources in appropriate quality and quantity at the right time and place at the lowest possible cost.

Efficiency defines the relationship between goods or services produced and the resources used to produce them. An efficient operation produces the maximum output for any given set of resources input or it has minimum input for any given quantity and quality of service goods provided. The underlying management objective is, therefore, to increase productivity and lower unit costs.

Effectiveness is defined as how well a program or activity is achieving its stated objectives, its defined goals or intended effects/outcomes.

More E’s

In undertaking our performance audits, we also focus on the following additional E’s:

Environment: Sustainable development which means meeting the needs of the present generations without compromising the ability of future generations meeting theirs.

Equity: This refers to fairness and impartiality in the use of public funds i.e. is the selection procedure for beneficiaries of funds fair and void of influence.

 Ethics: This refers to the qualities of honesty and integrity in personal conduct and devotion to duty as manager of public funds. When all government projects are well executed in relation to the 6E’s above, there will be an improvement in people’s economic welfare bringing about happiness and satisfaction.

6E’s + Economic Welfare = 7E’s

The extent and value to be gained from a performance audit depend mainly on the scope of the audit as well as the progress the organization has made in successfully implementing the necessary building blocks to install a performance culture within the organization. The benefits associated with performance auditing, therefore, could include any of the following:

Economy

■ Reduction in costs through better-contracting

■ Reduction in costs through economies on the usage of personnel or other resources.

Efficiency

■ Improved productivity and asset utilization levels

■ Remedying duplication of effort or lack of coordination.

Effectiveness

■ Better identification /justification of need

■ Clarifying objectives and policies

■ Better achievements of objectives by changing the nature of outputs or improved targeting.

Improved quality of service

■ Shorter waiting time

■ Reduced response times

■ Better access to information Helping the public, clients, industry, etc.

Improved planning, control, and management

■ Introduction/improvements to corporate planning

■ Clearer definitions of priorities and better-defined targets

■ Better control and management resources

■ Tighter controls against fraud

■ Better financial and operational management information.

Improved accountability

■ Improved visibility of procedures and outputs

■ Better and/or more accurate performance indicators. Performance auditing is often a huge step for an organization but as with every new initiative, the potential benefits to be gained significantly outweigh the efforts to get there.

– KPMG