1 PERFORMANCE AUDIT Presentation to SADCOPAC

Content Who is AFROSAI-E? What is Performance Audit AFROSAI-E Toolkit on Meeting PAC’s expectations for PA Risks for Expectation Gaps between SAI & PAC Dealing with Expectation Gaps Selecting Appropriate audit topics & Problems Audit Objectives in relation to 3Es Characteristics of a good report 2

Who is AFROSAI-E? English-speaking subgroup of AFROSAI 24 members, including 2 Portuguese speaking Funded by members and donors Governance structure –Statutes and Regulations –Governing Board and committees –Executive secretariat –Annual reports 3

Historical Background to Performance Auditing PA goes back to the 1960’s Some of the pioneering countries were USA, Canada and Sweden Introduced in the AFROSAI-E/SADCOSAI regions in the 1990s PA is now used in many countries all over the world In the beginning PA was linked to programme budgeting B.2.3

Performance Auditing PA has a special purpose PA deals with many different problems PA differs around the world but the core concepts are the same PA has many names -VFM, 3Es, effectiveness audit, Management audit, Operational etc B.2.4

Definition of performance auditing "Performance auditing is an audit of the economy, efficiency and effectiveness with which the audited body uses its resources to achieve its goals." Or simpler: "Are they doing the right thing in the best way?“ B.2.5

7 The input-output model 2:4 1 (2) Effectiveness Goals Activities(what goes on in the org.) Activities(what goes on in the org.) InputOutputEffects Economy Efficiency Effectiveness B.3. 7

Purpose of performance auditing Encourage accountability and best practices in Government operations and quasi-government organisations; Provide Parliament with: –Objective assessment of the performance of public/Government activities; –Providing information for policy decisions Means of change and development within Government operations and quasi-government organisations

AFROSAI-E Toolkit for SAI’s on communication and reporting in line with the expectation of PACs

TOOLKIT Module 1. Introduction to the Toolkit Module 2. SAI/PAC Communication Strategy Module 3. Meeting PAC’s expectations for regularity audit reports Module 4. Meeting PAC’s expectations for performance audit reports Training material

AFROSAI-E TOOLKIT ON PA MODULE 4 Risks for Expectation Gaps Communication with PAC Management of Perfomance Audit Writing Performance audit reports

Risks for Expectation Gaps Expectation GapChallengesHow SAIs can improve Few PA reportsLack of resources-Seek support from PAC -Prioritise PA audits Reports not easy to grasp Lack of capacityImprove report writing Audit problems, findings & conclusions not relevant SAI capacity in audit selection not adequate Discuss topics with PAC Build capacity of auditors Recommendations not practical/relevant SAIs taking role of management Write smart recommendations Audits take too long and are too expensive Lack of capacity Delays in getting information Improve operational efficiency PA reports not submitted to PAC Mandate might be unclear Seek support to revise mandate PAC not deliberating on PA reports Lack of time or capacityDiscuss with PAC Select appropriate areas Write better reports

Selection of Topics SAIs should be strategic in the selection of PA topics. SAIs should consider : importance of area or topics to the Government and the PAC, and ultimately the citizens the importance of the preliminary identified performance problems in the area, the potential for improvements in the area as a result of the audit, and the capacity of the SAI to undertake such audits. This should result in a programme of audits that are both attainable and relevant. 13

Recommended Criteria for Selection The selection should take into account: The main government ministries / departments Areas of high spending Major risks to value for money Topical subjects Matters of strategic performance to auditees 14

General questions SAIs should ask themselves about possible audits topics What issues are of most concern to key stakeholders? How can we expect the audit to contribute to change and improvement in the area? Do we have the technical expertise to investigate this issue? Can we break this subject down into manageable portions to maximise the benefits from our limited resources? 15

General questions SAIs should ask themselves about possible audits topics(cont) Do we need external support to carry out the audit, and if so how do we obtain and/or finance it? What are the risks to the reputation of the SAI if it does not examine and report on this subject? 16

DEVELOPING AUDIT OBJECTIVES Before starting the main study, it is important to define the audit objectives, the scope. Audit objectives relate to the reasons for conducting the audit and; Should be established early in the execution process to assist in identifying the matters to be audited and reported on.

DEVELOPING AUDIT OBJECTIVES In determining objectives, the audit team must take into account the roles and responsibilities of the SAI Also the expected net impact of the audit as defined in the strategic audit plan. The audit objectives and scope are interrelated and should be considered together.

AUDIT OBJECTIVES AND SCOPE The audit objectives and scope are interrelated and should be considered together. The scope defines the boundary of the audit. It addresses such things as specific questions to be asked, the type of study to be conducted and the character of the investigation.

AUDIT OBJECTIVES AND SCOPE The scope of an audit is determined by answering the following: What? What specific questions or hypotheses are to be examined? What kind of study seems to be appropriate? Who? Who are the key players involved and the auditee(s)? Where? Are there limitations in the number of locations to be covered? When? Are there limitations on the time frame to be covered?

AUDIT OBJECTIVES IN RELATION TO THE 3Es

AUDIT OBJECTIVES - ECONOMY Objectives of economyRisks to sound financial management Issues to be addressed in audit Keeping the costs low to achieve given objectives Waste Overpayments Whether acquisitions were of appropriate type, quality and amount at minimum cost Whether audited entity manages its resources with a view to minimizing outlay. Whether audited entity design or implementation were done in a way which results in lower costs.

AUDIT OBJECTIVES - EFFICIENCY Objectives of efficiencyRisks to sound financial management Issues to be addressed in audit Managing the most of available resources to maximise productivity Resources used do not lead to desired outputs Non-optimal input/output ratios Slow implementation of intervention Whether outputs or results have been produced cost effectively. Whether they are any avoidable bottlenecks or unnecessary overlapping.

AUDIT OBJECTIVES - EFFECTIVENESS Objectives of effectiveness Risks to sound financial management Issues to be addressed in audit Achieving the stipulated aims or objectives Faulty policy design Management failures Management not prioritising the achievement of objectives Whether the interventions had clear and positive results

PERFORMANCE AUDIT REPORT

CHARACTERISTICS OF A GOOD REPORT –Address an important topic within the mandate, related to 3Es –Present an appropriate audit design to efficiently collect sufficient evidence –Give the reader an appropriate understanding of the organisations, systems and processes subject to audit and how they are expected to function

CHARACTERISTICS OF A GOOD REPORT (cont.) Present complete, reasonable, sufficient, relevant, valid, reliable, accurate, objective and logical audit evidence to satisfy the audit objective, Present reasonable conclusions Add value, improve the knowledge, highlights improvements needed

CHARACTERISTICS OF A GOOD REPORT (cont.) –Be balanced and fair in tone and content, convincing, constructive, reader-friendly –Be well structured, with focus on main findings –Include graphics

WAY FORWARD WITH THE PERFORMANCE AUDIT TOOLKIT

WAY FORWARD Training of Regional Champions –October 2012 Workshops at Country Level for AG & PAC – (CCAF involvement)

THANK YOU