AN INTRODUCTION TO
PERFORMANCE
AUDITING
Dr. Surendra Kumar
IA&AS
SESSIONS OBJECTIVES
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
INTRODUCTION
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.
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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.
CONT.
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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.
CONT.
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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.
CONT.
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.
CONT.
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.
OBJECTIVES OF
PERFORMANCE 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.
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IMPORTANT ISSUES/ AREAS IN THE PA
OF PUBLIC SECTOR PROGRAMMES
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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
CONT.
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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?
CONT.
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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?
PLANNING FOR PA
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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
CONT.
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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.
CONT.
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?
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IMPLEMENTATION 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
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CONT.
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
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EVIDENCE AND
DOCUMENTATION
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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.
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. 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 : 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.
REPORTING PROCESS
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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.
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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
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CONT.
Audit methodology
 Audit findings
 Conclusions
 Recommendations
 Appendices
 Glossary of terms
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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.
 The audit report includes the audit conclusions
and recommendations, as appropriate.
CONT.
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( Follow Up Audit). It aims at: Increasing the effectiveness of audit reports;
 Assisting the Legislature and
 Evaluating the SAI performance.
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Thanks