Performance Audit-An Over View Welcome to the Officers on Session on “ An Overview of the Performance Auditing” T C DHIMAN I A & A S ( Retd. )

Session Objectives 1. Introduction 2. Strategic Planning 3. Implementation of the Plan 4. Evidence and Documentation 5.Reporting Process 6.Supervision, review and quality control 7. Follow up procedures

Introduction Supreme Audit Institution (SAI) India has been carrying out performance audits over the past forty years on a variety of subjects across all over sectors of Public Sector Programmes in the Central and the State Governments. The term ‘Audit” includes financial audit, regularity audit and performance audit. The SAI is empowered to decide the nature,scope, extent and quantum of audit to be conducted by it or on its behalf.

Cont.. Performance Audit is concerned with the audit of economy, efficiency and effectiveness. It embraces :- (a)Audit of the economy of administrative activities in accordance with the sound administrative principles and practices and management policies.

Cont. (b ) Audit of the efficiency of the utilisation of human, financial and other resources including examination of information system and procedure s followed by the audited entities. (c) Audit of the effectiveness of the performance in relation the achievement of the objectives of the audit entity and audit of the actual impact of the activities compared with the intended impact. Performance auditing is an independent assessment or examination of the extent to which an entity, programme operate efficiently and effectively with due regard to the economy.

Cont. Economy :- Economy is minimising the cost of resources used for an activity, having regard to the appropriate quality. Economic issues focus on the cost of the inputs and processes i.e spending less. Judging economy in itself implies forming an opinion on the resources deployed. Efficiency :- Efficiency is the relationship between the output, in terms of goods, services or other results and the resources used to produce them.

Cont. Efficiency exists where the use of resources is such that output is maximised for any given set of resource inputs i.e spending well. Auditing efficiency embraces aspects such as weather- (a) human, financial and other resources are efficiently used; (b) services are delivered in a timely manner; (c) the objectives of the public sector programmes are met cost-effectively.

Cont. Effectiveness:- Effectiveness addresses the issue of weather the programme / activity has achieved its objectives i.e spending wisely. It is important to distinguish between the immediate inputs and the ultimate outcomes. Effectiveness is a goal- attainment concept. Performance auditors may find answer to the two basic questions:-

Cont. Are things being done in the right way? Are the right things being done? The first question means, broadly speaking whether the policy decisions are being carried out properly. Whether the executive has observed the rules or the requirements consistent with the programme.

Cont. The scope of analysis becomes considerably greater by posing the second question I e. Whether the right things are being done. Equity and Ethics :- The performance auditors will also be expected to address concern relating to equity and ethics while assessing the effectiveness of a programme.

Cont. Equity:- Equity relates to fairness and impartiality in use of public funds. Ethics:- It enjoins the qualities of honesty and integrity in personal conduct and devotion to duty as manager of a public funds. The ethical issues should be viewed distinctly from the efficiency concept which is concerned with use of human, financial and other resources to maximise the output.

Objectives Of Performance audit Performance audit has the objective of improving public sector administration and accountability by adding value through an effective programme of performance audits. The performance auditor may examine and report on- The quality of information and advice available to government; Whether and to what extent stated programme objectives have been achieved; Compliance to applicable laws and regulations. Performance audit should not confine the objectives to ‘what has been done’ but should also examine ‘ what has not been done’ to meet the policy objectives.

Important issues in the performance audit of public sector programmes Mandate- Has management obtained the approval of the competent authority i.e Legislature ? Objectives- Has management developed clear objectives? Need- Has the management identified the nature and extent of the need? Implementation- Is the implementation timely? Direction- Does the agency have understandable objectives, plans, targets? Three E’s- Economy, efficiency and effectiveness. Finance- Are the resources commensurate with the targets? Human resource- Is there any policy and practice for the development of human resources?

Cont. Monitoring and reporting- Are actual results monitored and reported against objectives and targets? Accountability- Does the programme frame work provide for clear accountability relationships? Equity- Has management acted with fairness and impartially? Ethics- Are the highest standards of integrity and devotion to duty ensured? Transparency- Are the systems and procedures used in the management of public programmes transparent?

Professional behaviour The performance auditor should comply with the ethical principals and code of conduct which include: integrity objectivity and fairness confidentiality and technical standards

Strategic planning Strategic planning is the process of determining the long-term goals of the institution and the best practice for attaining them. The objective is to:- Provide a firm basis for the SAI management to give direction for future audit coverage; Understand entity risk and take them into account in audit selection

Cont. Produce a work programme that can be achieved with available resources Procedure for strategic planning:- After setting the strategic goals and objectives, the data on entity contained in budget papers, programme papers, plan documents, annual reports, parliamentary debates and reports, media concern, research, websites etc. should be analysed on the parameter of risk.

Cont. Factors guiding the selection of subjects:- Risk Risk is the exposure to the chances of failure or loss. In analysing risk, the following questions should be addressed:- What can go wrong? What is the probability of it going wrong? What are the consequences?

Implementation of the performance audit plan Entry conference:- It affords an opportunity for introduction of the audit team members with the chief of the entity and heads of various divisions. The audit officer may explain the audit plan as applicable to the entity considering the audit objectives, approach, and time frame etc. The entry conference should be followed by a brief minutes of the proceedings.

Developing recommendations All performance audits ought to conclude with well thought-out recommendations. Addressing the following questions will assist the performance auditors to develop good recommendations:- What should be? (Audit criteria) Why does it need to be done? How does it need to be done? Who is to do it? What is the expected impact, if it is done? (audit findings) Is it practicable to implement the recommendations?.

Cont. Exit Conference:- In audit of all the units, the audit team should conclude the audit with an exit conference/ meeting with the chief officer of that unit. The exit conference is an opportunity for the entity to discuss the audit findings with the SAI representatives The minutes of the exit conference should be recorded and endorsed to the entity.

Evidence and documentation Audit evidence is the information collected and used to support audit findings. The conclusions and recommendations in the audit report stand on the basis of evidence. Competent,relevant and reasonable evidence should be obtained to support the auditor’s judgement and conclusions regarding the organisation, programme, activity or functions under audit.

Cont. Competence:- An evidence is competent when it is valid and reliable and actually represent what it purports to represent. Documentary evidence is more reliable than the oral evidence. Evidence which is accepted by the entity is always reliable.

Cont. Oral evidence, which is corroborated in writing is more reliable than oral evidence alone. Relevance:- An evidence is relevant if it bears a clear and logical relationship to audit objectives and to the criteria.

Cont. Sufficiency or reasonableness:- Sufficiency is a measure of quantity of audit evidence, while appropriatness is a measure of quality of audit evidence. Types of evidence:- Physical, oral documentary or analytical. Evidence gathered in the context of audit objectives should be analysed and tested against the audit criteria.

Cont. Sound evidence analysis consists of the following important characteristics: It should be logical and self sustaining; The conclusions and interpretations should be convincing; It should support the audit observations.

Reporting Process On completion of each audit assignment, the Auditor’s should prepare a written report setting out the audit observations and conclusions in an appropriate form, its contents should be easy to understand, free from ambiguity and supported by sufficient, competent and relevant audit evidence.

Characteristics of good report The audit report should be complete and accurate. The audit report is convincing The audit report should be clear, concise and balanced. The report is constructive. The report adds value to the entity. Forwarding of draft report to the entity and journey up to final report.

Structure of the report The performance audit report should be presented as per the following structure:- Title Highlights Introduction Organisational Structure Scope of audit Audit objectives Audit criteria

Cont. Audit methodology Audit findings Conclusions Recommendations Graph, charts, diagrams, photographs etc. Glossary of terms

Supervision, review and quality control A sound system of supervision and review of audits, particularly of the performance audits contributes to the good quality of audit. Supervision ensures that: The members of audit team have a clear and consistent understanding of the audit plan; The audit is carried out with the auditing standards and practices of the SAI.

Cont. The audit report includes the audit conclusions and recommendations, as appropriate. Review:- All audit work should be reviewed by a senior member of the audit staff before the audit reports are finalised. The review is carried out at each stage of the performance audit cycle by the audit officer, group officer, Accountant General, and by the SAI top management.

Cont. Quality control:- It is important that an appropriate quality control system is in place and operates efficiently within the SAI. The objectives are: Professional competence; Professional independence; Guidance and assistance; feed back and monitoring system

Follow –up procedure Follow-up procedure in relation to performance audit essentially concentrate on the implementation of the recommendations. It aims at:- Increasing the effectiveness of audit reports; Assisting the Legislature and Evaluating the SAI performance.

Thanks