A N INTRODUCTION TO PERFORMANCE AUDITING Dr. Surendra Kumar IA&AS.

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Presentation transcript:

A N INTRODUCTION TO PERFORMANCE AUDITING Dr. Surendra Kumar IA&AS

S ESSIONS O BJECTIVES 1. Introduction 2. Planning for Performance Audit 3. Implementation of the Plan 4. Evidence and Documentation 5. Reporting Process 6. Supervision, review and quality control 7. Follow up procedures

I NTRODUCTION Supreme Audit Institution (SAI) India has been carrying out performance audits over the past 40 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. Performance Audit is different from other two as focus is on Systemic Improvement.

CONT. Performance audit is an independent assessment or examination of the extent to which an entity, programme operate efficiently and effectively with due regard to the economy. Performance Audit is concerned with the audit of economy, efficiency and effectiveness of the public expenditure.

C ONT. 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 (value for money). Efficiency :- Efficiency is the relationship between the output, in terms of goods, services or other results and human, financial and other resources including information system and procedures followed by the audited entities to produce them as well as time consumed.

C ONT. Efficiency exists where the use of resources is such that output is maximised for any given set of resource inputs i.e. spending well. (Cost and Time efficiency). Effectiveness:- Effectiveness addresses the issue of whether the programme/activity has achieved its intended objectives i.e. spending wisely. It is important to distinguish between the immediate outputs and the ultimate outcomes.

C ONT. Effectiveness is a goal- attainment concept. Performance auditors may find answer to the two basic questions:- 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.

C ONT. Equity, Ethics :- The performance auditors will also be expected to address concerns relating to equity and ethics while assessing the effectiveness of a programme. 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. Environment :- Due care of environment is being taken while carrying out activities of entity/Scheme.

O BJECTIVES O F P ERFORMANCE AUDIT Performance audit has the objective of improving public sector administration and accountability through systemic improvement. 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.

I MPORTANT ISSUES / A REAS IN THE PA OF PUBLIC SECTOR PROGRAMMES Planning- Need analysis( Baseline Data, Survey, study) to identify nature and extent of need; identification of approach to meet the need; resource availability ; development of clear objectives - monitor able targets; legislative mandate. Implementation - Efficiency and effectiveness of implementation to achieve intended targets Financial management- Adequacy of Resources, timely transfers, economic and efficient utilisation

C ONT. Human resource - Effectiveness of Policy and practice for recruitment and development of human resources to achieve objectives of programme? 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?

C ONT. 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?

P LANNING FOR PA 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 to the SAI management to give direction for future audit coverage and produce a work programme that can be achieved with available resources Annual plans flowing from strategic plan Audit plans are based on understanding entity risk and take them into account in audit selection

C ONT. 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 concerns, research, websites etc. should be analysed on the parameter of risk.

C ONT. Selection of topic is based on 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?

I MPLEMENTATION OF THE PERFORMANCE AUDIT PLAN Pilot Study Formulation of Audit objectives Defining Audit Criteria Scope of Audit- Sampling etc. Audit methodology Preparation of PA guidelines and Study Design Matrix Entry conference Field Audit

C ONT. Formulation of specific and implementable 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) Draft report to entity Exit Conference

E VIDENCE 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 sufficient evidence should be obtained to support the auditor’s judgment and conclusions regarding the organisation, programme, activity or functions under audit.

C ONT. 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. 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.

C ONT. Sufficiency :- Sufficiency is a measure of quantity 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. 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.

R EPORTING P ROCESS 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.

C HARACTERISTICS 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.

S TRUCTURE 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

C ONT. Audit methodology Audit findings Conclusions Recommendations Appendices Glossary of terms

S UPERVISION, 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. The audit report includes the audit conclusions and recommendations, as appropriate.

C ONT. 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.

C ONT. 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

F OLLOW – UP PROCEDURE Follow-up procedure in relation to performance audit essentially concentrate on the implementation of the recommendations( Follow Up Audit ). It aims at:- Increasing the effectiveness of audit reports; Assisting the Legislature and Evaluating the SAI performance.

Thanks